<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
------------------------------------------------
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
------------------------- -----------------
Commission file number 0-20047
CORPORATE OFFICE PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 23-2947217
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
401 CITY AVENUE, SUITE 615, BALA CYNWYD, PA 19004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 538-1800
----------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
/x/ Yes / / No
On November 8, 1999, 17,174,171 shares of the Company's Common Shares of
Beneficial Interest, $0.01 par value, were outstanding.
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1
<PAGE>
TABLE OF CONTENTS
FORM 10-Q
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Operations for
the three and nine months ended September 30, 4
1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 5
1998 (unaudited)
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3: Quantitative and Qualitative Disclosures About Market Risk 29
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 30
Item 2: Changes in Securities 30
Item 3: Defaults Upon Senior Securities 30
Item 4: Submission of Matters to a Vote of Security Holders 31
Item 5: Other Information 31
Item 6: Exhibits and Reports on Form 8-K 31
SIGNATURES 38
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Commercial real estate properties:
Operating properties, net $ 550,995 $ 536,228
Projects under construction 26,353 10,659
- ------------------------------------------------------------------------------------------------------------------
Total commercial real estate properties, net 577,348 546,887
Investment in and advance to unconsolidated real estate joint venture 37,199 --
- ------------------------------------------------------------------------------------------------------------------
Investment in real estate 614,547 546,887
Cash and cash equivalents 957 2,349
Restricted cash 1,064 293
Accounts receivable, net 1,887 2,986
Investment in and advances to Service Companies 1,697 2,351
Deferred rent receivable 4,000 2,263
Deferred charges, net 5,592 3,542
Prepaid and other assets 3,377 3,006
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 633,121 $ 563,677
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and other loans payable $ 336,643 $ 306,824
Accounts payable and accrued expenses 5,303 3,395
Rents received in advance and security deposits 2,996 2,789
Dividends/distributions payable 5,732 4,692
Other liabilities 1,393 --
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 352,067 317,700
- ------------------------------------------------------------------------------------------------------------------
Minority interests:
Preferred Units in the Operating Partnership 52,500 52,500
Common Units in the Operating Partnership 26,643 24,696
Other consolidated partnerships 90 --
- ------------------------------------------------------------------------------------------------------------------
Total minority interests 79,233 77,196
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 15)
Shareholders' equity:
Preferred Shares ($0.01 par value; 5,000,000 authorized);
1,025,000 designated as Series A Cumulative Convertible Preferred
Shares of beneficial interest (984,308 shares issued and
outstanding) 10 10
1,725,000 designated as Series B Cumulative Redeemable Preferred
Shares of beneficial interest (1,250,000 issued and outstanding
at September 30, 1999) 12 --
Common Shares of beneficial interest ($0.01 par value; 45,000,000 authorized,
shares issued and outstanding of 17,174,171 at
September 30, 1999 and 16,801,876 at December 31, 1998) 172 168
Additional paid-in capital 208,725 175,802
Accumulated deficit (7,098) (7,199)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 201,821 168,781
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 633,121 $ 563,677
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
------------------------------- ----------------------------
1999 1998 1999 1998
-------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 17,471 $ 8,562 $ 50,879 $ 20,539
Tenant recoveries and other income 2,989 1,250 7,646 2,640
- -------------------------------------------------------------------------------------------------------------------------
Total revenues 20,460 9,812 58,525 23,179
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 6,051 2,457 16,439 5,001
General and administrative 631 397 2,316 1,055
Interest 4,990 2,849 15,409 7,424
Amortization of deferred financing costs 168 119 715 266
Depreciation and other amortization 3,087 1,514 8,766 3,772
Reformation costs -- -- -- 637
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 14,927 7,336 43,645 18,155
- -------------------------------------------------------------------------------------------------------------------------
Income before equity in (loss) income of unconsolidated
entities, gain on sales of rental properties, minority
interests and extraordinary item 5,533 2,476 14,880 5,024
Equity in (loss) income of unconsolidated entities (43) 17 283 17
- -------------------------------------------------------------------------------------------------------------------------
Income before gain on sales of rental properties, minority
interests and extraordinary item 5,490 2,493 15,163 5,041
Gain on sales of rental properties -- -- 1,140 --
- -------------------------------------------------------------------------------------------------------------------------
Income before minority interests and extraordinary item 5,490 2,493 16,303 5,041
Minority interests
Preferred Units (853) (853) (2,559) (2,559)
Common Units (591) (301) (1,757) (713)
- -------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 4,046 1,339 11,987 1,769
Extraordinary item - loss on early retirement of debt -- -- (838) --
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME 4,046 1,339 11,149 1,769
Preferred Share dividends (1,060) (10) (1,736) (10)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 2,986 $ 1,329 $ 9,413 $ 1,759
- -------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary item $ 0.18 $ 0.13 $ 0.61 $ 0.26
Extraordinary item -- -- (0.05) --
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 0.18 $ 0.13 $ 0.56 $ 0.26
- -------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary item $ 0.16 $ 0.12 $ 0.53 $ 0.26
Extraordinary item -- -- (0.04) --
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 0.16 $ 0.12 $ 0.49 $ 0.26
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,149 $ 1,769
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 4,316 3,272
Depreciation and other amortization 8,766 3,772
Amortization of deferred financing costs 715 266
Equity in income of unconsolidated entities (283) (17)
Gain on sales of rental properties (1,140) --
Increase in deferred rent receivable (2,135) (1,083)
Increase in accounts receivable, restricted cash and prepaid
and other assets (1,331) (2,678)
Increase in accounts payable, accrued expenses, rents
received in advance and security deposits 1,204 2,173
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,261 7,474
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and additions to commercial real estate properties (70,618) (96,897)
Proceeds from sales of rental properties 29,970 --
Investment in and advance to unconsolidated real estate joint
venture (37,199) --
Investment in and advances to Service Companies 937 204
Leasing commissions paid (1,859) (151)
Increase in prepaid and other assets (201) (1,465)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (78,970) (98,309)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage and other loans payable 170,991 26,700
Repayments of mortgage and other loans payable (130,145) (1,762)
Increase in other liabilities 1,393 --
Deferred financing costs paid (1,145) (565)
Net proceeds from issuance of Preferred Shares 29,450 --
Net proceeds from issuance of Common Shares -- 72,237
Dividends paid (10,078) (2,089)
Distributions paid (4,149) (3,475)
Increase in prepaid and other assets -- (1,700)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 56,317 89,346
- ---------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,392) (1,489)
CASH AND CASH EQUIVALENTS
Beginning of period 2,349 3,395
- ---------------------------------------------------------------------------------------------------------------
End of period $ 957 $ 1,906
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1 ORGANIZATION
Corporate Office Properties Trust ("COPT") and subsidiaries is a fully
integrated and self-managed real estate investment trust ("REIT"). We focus on
the ownership, management, leasing, acquisition and development of suburban
office properties in select Mid-Atlantic submarkets. COPT is qualified as a REIT
as defined in the Internal Revenue Code and is the successor to a corporation
organized in 1988. As of September 30, 1999, our portfolio included 74
commercial real estate properties leased principally for office purposes,
including nine properties owned through an unconsolidated joint venture (see
Note 5).
We conduct our operations principally through our operating partnership,
Corporate Office Properties, L.P. (the "Operating Partnership"), for which we
are the managing general partner. The Operating Partnership owns real estate
both directly and through subsidiary partnerships and limited liability
companies ("LLCs"). The Operating Partnership also owns the principal economic
interest and, collectively with our Chief Executive Officer and Chief Operating
Officer, 49.5% of the voting stock of Corporate Office Management, Inc. ("COMI")
(together with its subsidiaries defined as the "Service Companies"). A summary
of our Operating Partnership's forms of ownership and the percentage of those
ownership forms owned by COPT as of September 30, 1999 follows:
<TABLE>
<CAPTION>
% Owned by COPT
---------------
<S> <C>
Common Units (see Notes 3 and 17) 84%
Series A Preferred Units 100%
Series B Preferred Units 100%
Initial Preferred Units (see Notes 3 and 17) 0%
</TABLE>
The Series A Preferred Units and Initial Preferred Units are convertible
into Common Units in the Operating Partnership.
NOTE 2 BASIS OF PRESENTATION
These notes to our interim financial statements highlight significant
changes to the notes to the financial statements included in our 1998 Form 10-K.
As a result, these notes to our interim financial statements should be read
together with the financial statements and notes thereto included in our 1998
Form 10-K. The interim financial statements on the previous pages reflect all
adjustments which we believe are necessary for the fair presentation of our
financial position and results of operations for the interim periods presented.
These adjustments are of a normal recurring nature. The results of operations
for such interim periods are not necessarily indicative of the results for a
full year.
We use two different accounting methods to report our investments in
entities: the consolidation method and the equity method.
CONSOLIDATION METHOD
We use the consolidation method when we own most of the outstanding
voting interests in an entity and can control its operations. This means the
accounts of the entity are combined with our accounts. We eliminate balances and
transactions between companies when we consolidate these accounts. Our
consolidated financial statements include the accounts of:
- - COPT,
6
<PAGE>
- - the Operating Partnership and its subsidiary partnerships and LLCs, and
- - Corporate Office Properties Holdings, Inc. (we own 100%).
EQUITY METHOD
We use the equity method of accounting to report our investments in an
unconsolidated real estate joint venture (see Note 5) and the Service Companies.
Under the equity method, we report:
- - our ownership interest in the capital of these entities as an investment on
our Consolidated Balance Sheets and
- - our percentage share of the earnings or losses from these entities in our
Consolidated Statements of Operations.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
We make estimates and assumptions when preparing financial statements under
generally accepted accounting principles. These estimates and assumptions affect
various matters, including:
- - our reported amounts of assets and liabilities in our Consolidated Balance
Sheets at the dates of the financial statements,
- - our disclosure of contingent assets and liabilities at the dates of the
financial statements, and
- - our reported amounts of revenues and expenses in our Consolidated
Statements of Operations during the reporting periods.
These estimates involve judgements with respect to, among other things,
future economic factors that are difficult to predict and are often beyond
management's control. As a result, actual amounts could differ from these
estimates.
MINORITY INTERESTS
As discussed previously, we consolidate the accounts of our Operating
Partnership into our financial statements. However, we do not own 100% of the
Operating Partnership. We also consolidate the accounts of a real estate joint
venture of which we own 89%. The amounts reported for minority interests on our
Consolidated Balance Sheets represent the portion of these entities' equity that
we do not own. The amounts reported for minority interests on our Consolidated
Statements of Operations represent the portion of these entities' net income not
allocated to us.
Common Units of the Operating Partnership are substantially similar
economically to our Common Shares of beneficial interest ("Common Shares"). The
Common Units are also exchangeable into our Common Shares, subject to certain
conditions. We have accrued distributions related to Common Units owned by
minority interests of $557 at September 30, 1999 and $488 at December 31, 1998.
The owners of our Operating Partnership's Initial Preferred Units are
entitled to a 6.5% priority annual return. Income of our Operating Partnership
is also allocated to holders of Initial Preferred Units using the 6.5% priority
annual return. These units are convertible by unitholders at their option on or
after October 1, 1999, into Common Units on the basis of 3.5714 Common Units for
each Initial Preferred Unit, plus any accrued return (see Note 17). We have
accrued distributions related to Initial Preferred Units owned by minority
interests of $853 at September 30, 1999 and December 31, 1998.
INTEREST RATE SWAP ARRANGEMENTS
We recognize the interest rate differential to be paid or received on
interest rate swap agreements as an adjustment to interest expense (see
Note 17).
7
<PAGE>
EARNINGS PER SHARE ("EPS")
We present both basic and diluted EPS. We compute basic EPS by dividing
income available to common shareholders by the weighted-average number of Common
Shares outstanding during the period. Our computation of diluted EPS is similar
except that:
- - the denominator is increased to include the weighted average number of
potential additional Common Shares that would have been outstanding if
securities that are convertible now or in the future into our Common Shares
were converted and
- - the numerator is adjusted to add back any convertible preferred dividends
and any other changes in income or loss that would result from the assumed
conversion into Common Shares.
Our computation of diluted EPS does not assume conversion of securities into our
Common Shares if conversion of those securities would increase our diluted EPS
in a given period. A summary of the numerator and denominator for purposes of
our basic and diluted EPS calculations for income before extraordinary item is
as follows (dollars and shares in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Numerator:
Net income available to Common Shareholders $ 2,986 $ 1,329 $ 9,413 $ 1,759
Extraordinary loss -- -- 838 --
------------ ---------- ---------- ----------
Numerator for basic earnings per share before
extraordinary item 2,986 1,329 10,251 1,759
Minority interests - Initial Preferred Units 853 853 2,559 --
Dividends on Series A Preferred Shares -- -- -- --
Minority interests - Common Units -- 301 -- --
------------ ---------- ---------- ----------
Numerator for diluted earnings per share before
extraordinary item $ 3,839 $ 2,483 $12,810 $ 1,759
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
Denominator:
Weighted average Common Shares - basic 17,037 9,973 16,881 6,652
Assumed conversion of share options 18 10 9 86
Conversion of Initial Preferred Units 7,500 7,500 7,500 --
Conversion of weighted average
Series A Preferred Shares -- -- -- --
Conversion of weighted average
Common Units -- 2,582 -- --
------------ ---------- ---------- ----------
Weighted average Common Shares - diluted 24,555 20,065 24,390 6,738
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
</TABLE>
Our diluted EPS computation for the three months ended September 30, 1999
only assumes conversion of Initial Preferred Units because conversions of
Preferred Shares and Common Units would increase diluted EPS in that period. Our
diluted EPS computation for the three months ended September 30, 1998 only
assumes conversion of Initial Preferred Units and Common Units because
conversions of Preferred Shares would increase diluted EPS in that period.
Our diluted EPS computation for the nine months ended September 30, 1999
only assumes conversion of Initial Preferred Units because conversions of
Preferred Shares and Common Units would increase diluted EPS in that period. Our
diluted EPS computation for the nine months ended September 30, 1998 does not
assume conversion of Initial Preferred Units, Preferred Shares or Common Units
since these conversions would increase diluted EPS in that period.
8
<PAGE>
NOTE 4 COMMERCIAL REAL ESTATE PROPERTIES
Operating properties consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Land $ 112,810 $ 108,433
Buildings and improvements 452,810 436,932
Furniture, fixtures and equipment 335 332
---------- ----------
565,955 545,697
Less: accumulated depreciation (14,960) (9,469)
---------- ----------
$ 550,995 $ 536,228
---------- ----------
---------- ----------
</TABLE>
Projects we had under development consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Land $ 10,150 $ 8,941
Construction in progress 16,203 1,718
--------- ---------
$ 26,353 $ 10,659
--------- ---------
--------- ---------
</TABLE>
1999 ACQUISITIONS
We acquired the following office properties during the nine months ended
September 30, 1999:
<TABLE>
<CAPTION>
Number
Date of of Total Rentable Initial
Project Name Location Acquisition Buildings Square Feet Cost
- ------------------------------- ----------------------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Airport Square XXI Linthicum, MD 2/23/99 1 67,913 $ 6,751
Parkway Crossing Properties Hanover, MD 4/16/99 2 99,026 9,524
Commons Corporate Portfolio (1) Hanover, MD 4/28/99 8 250,413 25,442
Princeton Executive Center Monmouth Junction, NJ 6/24/99 1 61,300 6,020
Gateway Central (2) Harrisburg, PA 8/12/99 3 55,726 5,960
</TABLE>
- -----------------------
(1) Does not include $400 allocated to projects under development and $50
relating to land under a ground lease.
(2) Acquired 89% ownership interest.
We also acquired the following:
- - a parcel of land located in Annapolis Junction, Maryland that is contiguous
to certain of our existing operating properties acquired for $2,908 on
May 28, 1999,
- - a 57,000 square foot warehouse facility for redevelopment into office space
located on 8.5 acres of land contiguous to properties we own in
South Brunswick, New Jersey acquired for $2,172 on July 9, 1999, and
- - a parcel of land located in Linthicum, Maryland that is contiguous to
certain of our existing operating properties acquired for $1,970 on
August 1, 1999.
9
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1999 DISPOSITIONS
We sold the following properties during the nine months ended September 30,
1999:
<TABLE>
<CAPTION>
Property Date Total Rentable Sales
Project Name Location Type (1) of Sale Square Feet Price
- ------------------- ----------------- --------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Cranberry Square Westminster, MD R 1/22/99 139,988 $ 18,900
Delafield Retail Delafield, WI R 2/26/99 52,800 3,303
Indianapolis Retail Indianapolis, IN R 3/09/99 67,541 5,735
Plymouth Retail Plymouth, MN R 3/09/99 67,510 5,465
Glendale Retail Glendale, WI R 5/04/99 36,248 1,900
Peru Retail Peru, IL R 6/16/99 60,232 3,750
Browns Wharf Baltimore, MD O 6/24/99 103,670 10,575
Oconomowoc Retail Oconomowoc, WI R 6/25/99 39,272 2,575
</TABLE>
- -----------------------
(1) "R" indicates retail property; "O" indicates office property.
1999 CONSTRUCTION IN PROGRESS
We completed the construction of a 93,482 square foot office building
located in Annapolis Junction, Maryland in August 1999. Costs incurred on this
property through September 30, 1999 totaled $9,163. We also completed an
expansion project that increased the rentable square footage of one of our
properties by 6,350 square feet. At September 30, 1999, we had development
underway on three new buildings and redevelopment underway on an existing
building.
NOTE 5 INVESTMENT IN AND ADVANCE TO REAL ESTATE JOINT VENTURE
On September 15, 1999, we acquired a 49% interest in Corporate Gateway
General Partnership, a newly organized joint venture, for $2,952. On the same
day, the joint venture acquired nine office buildings located in Greater
Harrisburg, Pennsylvania for $39,925 using cash and proceeds from a $34,247 loan
payable to our Operating Partnership. This loan payable is evidenced by notes
that carry an interest rate of 10% through their maturity date of September 14,
2000.
We account for our investment in Corporate Gateway General Partnership
using the equity method of accounting. Our investment in and advance to this
joint venture at September 30, 1999 included the following:
<TABLE>
<S> <C>
Notes receivable $ 34,247
Investment in joint venture 2,952
---------
Total $ 37,199
---------
---------
</TABLE>
NOTE 6 ACCOUNTS RECEIVABLE
Our accounts receivable are reported net of an allowance for bad debts of
$0 at September 30, 1999 and $50 at December 31, 1998.
NOTE 7 INVESTMENT IN AND ADVANCES TO SERVICE COMPANIES
On August 31, 1999, COMI acquired an 80% interest in Martin G. Knott and
Associates, LLC ("MGK"), a limited liability company that provides heating and
air conditioning maintenance and repair services. COMI acquired its interest in
MGK for $160,000.
10
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We account for our investment in COMI and its subsidiaries, Corporate
Realty Management, LLC ("CRM"), Corporate Development Services, LLC ("CDS") and
MGK using the equity method of accounting. Our investment in and advances to
these Service Companies included the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- --------------
<S> <C> <C>
Notes receivable $ 2,005 $ 3,205
Equity investment in Service Companies 892 609
Advances payable (1,200) (1,463)
-------- -----------
Total $ 1,697 $ 2,351
-------- -----------
-------- -----------
</TABLE>
NOTE 8 DEFERRED CHARGES
Deferred charges consisted of the following:
<TABLE>
<CAPTION>
September 30 December 31,
1999 1998
------------- ------------
<S> <C> <C>
Deferred financing costs $ 3,693 $ 2,611
Deferred leasing costs 3,242 1,468
Deferred other 24 24
-------- ---------
6,959 4,103
Accumulated amortization (1,367) (561)
-------- ---------
Deferred charges, net $ 5,592 $ 3,542
-------- ---------
-------- ---------
</TABLE>
NOTE 9 MORTGAGE AND OTHER LOANS PAYABLE
This section highlights new borrowing arrangements entered into during the
nine months ended September 30, 1999.
On January 5, 1999, we entered into an interest rate swap agreement with
Deutsche Banc Alex. Brown. This swap agreement fixes our one-month LIBOR base at
5.085% per annum on a notional amount of $30,000 through May 2001 (see Note 17).
On January 13, 1999, we entered into a $9,825 construction loan with
Allfirst Bank to finance the construction of a building at our 134 National
Business Parkway property. This loan has an interest rate of LIBOR plus 1.6%.
This loan matures on February 1, 2001 and may be extended for a one-year period,
subject to certain conditions. Borrowings under this loan totaled $6,179 at
September 30, 1999.
On February 8, 1999, we entered into a $10,875 construction loan with
Provident Bank of Maryland to finance the construction of a building at our
Woodlands II property. This loan has an interest rate of LIBOR plus 1.75%. This
loan matures on February 8, 2001 and may be extended for a one-year period,
subject to certain conditions. Borrowings under this loan totaled $7,233 at
September 30, 1999.
On April 8, 1999, we obtained a $12,500 mortgage loan payable from Allfirst
Bank, $9,000 of which is nonrecourse. The loan provides for monthly payments of
interest, at a rate of LIBOR plus 1.75%, and principal of $23 in the loan's
first year, $25 in the second year and $27 in the third year. The loan matures
on May 1, 2002. We pledged three of our operating properties and one parcel of
land as collateral to the lender. We use the term collateralize to describe all
such arrangements.
On April 16, 1999, we assumed three nonrecourse loans in connection with
the acquisition of the Parkway Crossing Properties. We assumed a $3,200 mortgage
loan payable from IDS Life Insurance Company. The loan provides for monthly
payments of principal and interest at a fixed rate of 8.375%. The loan matures
on June 1, 2007. We also assumed two loans with the seller totaling $1,897 that
carry identical terms. These
11
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loans provide for monthly payments of interest at a rate equal to the lesser of
prime plus 0.5% or 9.38% plus fixed principal payments of $4. These loans mature
on May 25, 2007.
On May 5, 1999, we obtained a $10,000 loan from Deutsche Banc Alex. Brown.
The loan bears interest at a rate of LIBOR plus 1.75% and provides for monthly
payments of interest only. The loan matures on November 5, 1999 and is
collateralized by the Commons Corporate Portfolio.
On August 12, 1999, we assumed a $4,549 construction loan with Mellon Bank
in connection with the Gateway Central acquisition. The loan bears interest at a
rate equal to the yield on 5-year Treasury Securities plus 2.0%. The loan
provides for monthly payments of interest only through August 2000 and equal
monthly payments of principal and interest based on a 30-year amortization
period commencing September 2000. The loan matures on August 1, 2005. Borrowings
under this loan totaled $4,304 as of September 30, 1999.
On September 9, 1999, we entered into a $7,400 construction loan with Bank
of Maryland to finance the construction of a building at our Airport Square XV
property. This loan has an interest rate of LIBOR plus 1.75%. This loan matures
on October 1, 2001 and may be extended for a one-year period, subject to certain
conditions. Borrowings under this loan totaled $27 at September 30, 1999.
On September 30, 1999, we obtained a $60,000 mortgage loan payable from
Teachers Insurance and Annuity Association of America. This loan carries a fixed
interest rate of 7.72% and provides for monthly payments of principal and
interest of $452. The loan matures on October 1, 2006 and may not be prepaid
prior to April 1, 2003. The loan is collaterized by 13 of our properties.
NOTE 10 SHAREHOLDERS' EQUITY
In July 1999, we completed the sale of 1,250,000 Series B Cumulative
Redeemable Preferred Shares of beneficial interest ("Series B Preferred Shares")
to the public at a price of $25.00 per share. These shares are nonvoting and are
redeemable for cash at $25.00 per share at our option on or after July 15, 2004.
Holders of these shares are entitled to cumulative dividends, payable quarterly
(as and if declared by the Board of Trustees). Dividends accrue from the date of
issue at the annual rate of $2.50 per share, which is equal to 10% of the $25.00
per share redemption price. We contributed the net proceeds to our Operating
Partnership in exchange for 1,250,000 Series B Preferred Units. The Series B
Preferred Units carry terms that are substantially the same as the Series B
Preferred Shares.
On August 4, 1999, 372,295 of our Common Units were converted to Common
Shares.
12
<PAGE>
NOTE 11 DIVIDENDS AND DISTRIBUTIONS
The following summarizes our dividends/distributions for the nine months
ended September 30, 1999:
<TABLE>
<CAPTION>
Dividend/ Total
Distribution Dividend/
Record Date Payable Date Per Share Distribution
----------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Series A Preferred Shares:
Fourth Quarter 1998 December 31, 1998 January 15, 1999 $0.34375 $327
First Quarter 1999 March 31, 1999 April 15, 1999 $0.34375 $338
Second Quarter 1999 June 30, 1999 July 15, 1999 $0.34375 $338
Third Quarter 1999 September 30, 1999 October 15, 1999 $0.34375 $338
Series B Preferred Shares:
Third Quarter 1999 (1) September 30, 1999 October 15, 1999 $0.68 $850
Common Shares:
Fourth Quarter 1998 December 31, 1998 January 15, 1999 $0.18 $3,025
First Quarter 1999 March 31 ,1999 April 15, 1999 $0.18 $3,025
Second Quarter 1999 June 30, 1999 July 15, 1999 $0.18 $3,025
Third Quarter 1999 September 30, 1999 October 15, 1999 $0.19 $3,263
Initial Preferred Units:
Fourth Quarter 1998 December 31, 1998 January 15, 1999 $0.40625 $853
First Quarter 1999 March 31, 1999 April 15, 1999 $0.40625 $853
Second Quarter 1999 June 30, 1999 July 15, 1999 $0.40625 $853
Third Quarter 1999 September 30, 1999 October 15, 1999 $0.40625 $853
Common Units:
Fourth Quarter 1998 December 31, 1998 January 15, 1999 $0.18 $487
First Quarter 1999 March 31, 1999 April 15, 1999 $0.18 $527
Second Quarter 1999 June 30, 1999 July 15, 1999 $0.18 $576
Third Quarter 1999 September 30, 1999 October 15, 1999 $0.19 $557
</TABLE>
- -----------------------
(1) Represents dividend for period commencing on date of issuance through
October 15, 1999.
NOTE 12 RELATED PARTY TRANSACTIONS
MANAGEMENT
We have a contract with COMI under which COMI provides asset management,
managerial, financial and legal support. Under the terms of this contract, we
reimburse COMI for personnel and other overhead-related expenses. During the
nine months ended September 30, 1999, we incurred management fees and related
costs of $2,248 under this contract.
We have a management agreement with CRM under which CRM provides property
management services to most of our properties. Under the terms of this
arrangement, CRM is entitled to a fee equal to 3% of revenue from tenant
billings. CRM is also entitled to reimbursement for direct labor and
out-of-pocket costs. We incurred property management fees and related costs of
$2,745 under this agreement during the nine months ended September 30, 1999.
We had a management agreement with Glacier Realty LLC ("Glacier"), a
company that was partially owned by one of our former Trustees. Under the
management agreement, Glacier was responsible for the management of our retail
properties for a base annual fee of $250 plus a percentage of Average Invested
Assets (as defined in the management agreement). Glacier was also entitled to
fees upon our acquisition or sale of any net-leased retail real estate property,
a fee that increased in the event that all or substantially all of the
net-leased retail real estate properties were sold. The management agreement,
entered into on October 14, 1997, had a term of five years. A fee was also due
in the event that the management agreement was terminated, including for
non-renewal. We incurred fees under this agreement of $63 for the nine months
ended September 30, 1999 and $188 for the nine months ended September 30, 1998.
On March 19, 1999, our Operating Partnership issued 200,000
13
<PAGE>
Common Units in exchange for all of the ownership interests in Glacier. For
accounting purposes, we recorded the value of this transaction against the gain
on the sale of our retail properties in the Midwest region of the United States.
We also had a management agreement with a company for which one of our
Trustees serves on the Board of Directors. We incurred management fees and
related costs under this contract of $62 for the nine months ended September 30,
1999 and $60 for the nine months ended September 30, 1998.
CONSTRUCTION COSTS
We have entered into a contract with CDS under which CDS provides
construction and development services. Under the terms of this contract, we
reimburse CDS for these services based on actual time incurred at market rates.
During the nine months ended September 30, 1999, we incurred $922 under this
contract, a substantial portion of which was capitalized into the cost of the
related activities.
RENTAL INCOME
During the nine months ended September 30, 1999, we recognized revenue of
$313 on office space leased to COMI and CRM. During the nine months ended
September 30, 1999, we recognized revenue of $700 on office space leased to
Constellation Real Estate, Inc. ("Constellation"), which owns 41% of our Common
Shares and 100% of our Series A Preferred Shares, and its affiliate, Baltimore
Gas and Electric Company ("BGE").
INTEREST INCOME
During the nine months ended September 30, 1999, we earned interest income
of $202 on notes receivable from the Service Companies. During the nine months
ended September 30, 1999, we also earned interest income of $152 on notes
receivable from Corporate Gateway General Partnership.
CONSTRUCTION FEES
During the nine months ended September 30, 1999, the Service Companies
earned construction management fees of $60 from an entity owned by an officer
and Trustee of ours.
LEASING COMMISSION
During the nine months ended September 30, 1999, the Service Companies
earned a leasing commission of $117 from an entity owned by an officer and
Trustee of ours.
FEES EARNED FROM CONSTELLATION AND BGE
During the nine months ended September 30, 1999, the Service Companies
earned $950 from a project consulting and management agreement with
Constellation. The Service Companies also earned $340 in fees and expense
reimbursements during the nine months ended September 30, 1999 under a property
management agreement with BGE.
FEES EARNED FROM REAL ESTATE JOINT VENTURE
During the nine months ended September 30, 1999, we earned an acquisition
services fee of $213 from Corporate Gateway General Partnership.
UTILITIES EXPENSE
During the nine months ended September 30, 1999, BGE provided utility
services to most of our properties in the Baltimore/Washington Corridor.
14
<PAGE>
ACQUISITIONS
On May 28, 1999, we acquired a parcel of land located in Annapolis
Junction, Maryland from Constellation for $2,908.
On August 1, 1999, we acquired a parcel of land located in Linthicum,
Maryland from CDS for $1,970.
On August 12, 1999, we acquired an 89% interest in an entity owning three
office buildings located in Harrisburg, Pennsylvania from an officer and Trustee
of ours for $5,960.
On September 15, 1999, we acquired a 49% interest in Corporate Gateway
General Partnership for $2,952. On the same day, the joint venture acquired nine
office buildings for $39,925 from First Industrial Realty Trust, Inc., a
publicly held real estate investment company where Jay Shidler, the Chairman of
our Board of Trustees, serves as Chairman of the Board of Directors.
15
<PAGE>
NOTE 13 SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
Supplemental schedule of non-cash investing and
financing activities:
Debt repaid in connection with sales of rental properties $ 20,928 $ --
-------- ---------
-------- ---------
Debt assumed in connection with acquisitions $ 9,901 $ 66,025
-------- ---------
-------- ---------
Increase in minority interests resulting from issuance of
Common Units in connection with property acquisitions $ 3,942 $ 11,351
-------- ---------
-------- ---------
Increase in minority interests resulting from issuance of
Common Units in connection with Glacier acquisition $ 1,487 $ --
-------- ---------
-------- ---------
Increase in shareholders' equity resulting from issuance
of Common Shares and Preferred Shares in connection
with acquisitions $ -- $ 75,207
-------- ---------
-------- ---------
Note receivable balance applied to cost of property
acquisition $ 1,575 $ --
-------- ---------
-------- ---------
Increase in accrued capital improvements $ 911 $ 3,042
-------- ---------
-------- ---------
Adjustments to minority interests resulting from changes
in ownership of Operating Partnership by COPT $ (348) $ 11,351
-------- ---------
-------- ---------
Dividends/distributions payable $ 5,732 $ 4,692
-------- ---------
-------- ---------
Decrease in minority interests and increase in
shareholders' equity in connection with conversion of
Common Units into Common Shares $ 3,141 $ --
-------- ---------
-------- ---------
</TABLE>
16
<PAGE>
NOTE 14 INFORMATION BY BUSINESS SEGMENT
We have five segments: Baltimore/Washington office, Greater Philadelphia
office, Northern/Central New Jersey office, Greater Harrisburg office and
retail. Our office properties represent our core-business. We manage our retail
properties as a single segment since they are considered outside of our
core-business.
The table below reports segment financial information. Our Greater
Harrisburg and retail segments are not separately reported since they do not
meet the reporting thresholds. We measure the performance of our segments based
on total revenues less property operating expenses. Accordingly, we do not
report other expenses by segment in the table below.
<TABLE>
<CAPTION>
Baltimore/ Greater Northern/
Washington Philadelphia Central New
Office Office Jersey Office Other Total
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Three Months Ended September 30, 1999:
Revenues $ 11,573 $ 2,506 $ 4,735 $ 1,646 $ 20,460
Property operating expenses 3,814 20 1,916 301 6,051
-------- -------- ------- -------- --------
Income from operations $ 7,759 $ 2,486 $ 2,819 $ 1,345 $ 14,409
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Commercial real estate property $ 5,469 $ 17 $ 2,425 $ 12,373 $ 20,284
expenditures -------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Three Months Ended September 30, 1998:
Revenues $ 2,970 $ 2,506 $ 2,710 $ 1,626 $ 9,812
Property operating expenses 1,092 3 1,030 332 2,457
-------- -------- ------- -------- --------
Income from operations $ 1,878 $ 2,503 $ 1,680 $ 1,294 $ 7,355
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Commercial real estate property
expenditures $122,952 $ -- $ 915 $ 23,799 $147,666
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Nine Months Ended September 30, 1999:
Revenues $ 33,307 $ 7,519 $12,898 $ 4,801 $ 58,525
Property operating expenses 10,341 62 4,966 1,070 16,439
-------- -------- ------- -------- --------
Income from operations $22,966 $ 7,457 $ 7,932 $ 3,731 $ 42,086
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Commercial real estate property
expenditures $49,373 $ 17 $10,336 $ 27,221 $ 86,947
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Segment assets at September 30, 1999 $312,906 $107,887 $107,844 $104,484 $633,121
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Nine Months Ended September 30, 1998:
Revenues $ 4,883 $ 7,519 $ 6,318 $ 4,459 $ 23,179
Property operating expenses 1,723 9 2,310 959 5,001
-------- -------- ------- -------- --------
Income from operations $ 3,160 $ 7,510 $ 4,008 $ 3,500 $ 18,178
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Commercial real estate property
expenditures $195,662 $ -- $30,382 $ 23,923 $249,967
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Segment assets at September 30, 1998 $220,324 $109,221 $62,145 $ 56,294 $447,984
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
</TABLE>
17
<PAGE>
The following table reconciles our income from operations for reportable
segments to income before extraordinary item as reported in our Consolidated
Statements of Operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------
1999 1998 1999 1998
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Income from operations for reportable segments $ 14,409 $ 7,355 $ 42,086 $ 18,178
Add:
Equity in (loss) income of unconsolidated
entities (43) 17 283 17
Gain on sales of rental properties -- -- 1,140 --
Less:
General and administrative (631) (397) (2,316) (1,055)
Interest (4,990) (2,849) (15,409) (7,424)
Amortization of deferred financing costs (168) (119) (715) (266)
Depreciation and amortization (3,087) (1,514) (8,766) (3,772)
Reformation costs -- -- -- (637)
Minority interests (1,444) (1,154) (4,316) (3,272)
------- ------- ------- -------
Income before extraordinary item $ 4,046 $ 1,339 $11,987 $ 1,769
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
We did not allocate gain on sales of rental properties, interest expense,
amortization of deferred financing costs and depreciation and other amortization
to segments since they are not included in the measure of segment profit
reviewed by management. We also did not allocate equity in (loss) income of
unconsolidated entities, general and administrative and reformation costs and
minority interests since these items represent general corporate items not
attributable to segments.
NOTE 15 COMMITMENTS AND CONTINGENCIES
In the normal course of business, we are involved in legal actions arising
from our ownership and administration of properties. In management's opinion,
any liabilities that may result are not expected to have a materially adverse
effect on our financial position, operations or liquidity. We are subject to
various federal, state and local environmental regulations related to our
property ownership and operation. We have performed environment assessments of
our properties the results of which have not revealed any environmental
liability that we believe would have a materially adverse effect on our
financial position, operations or liquidity.
In June 1999, we sold an office building and assigned our rights to
purchase two office buildings to an unrelated third party. Simultaneously with
these transactions, we entered into a contract with the third party under which
the third party has the right to transfer these three office buildings to us on
or before March 31, 2000 for total consideration of approximately $40.5 million.
Under the terms of the contract, we would pay up to $25.0 million (but in no
event less than $23.9 million) of the acquisition price in convertible Preferred
Units (the "Convertible Preferred Units") in the Operating Partnership and the
balance in cash or debt assumption. We would also issue ten-year detachable
warrants exercisable for an additional number of Common Units in the Operating
Partnership to be determined based upon the share price of the Common Shares
over the first five years following the acquisition. However, if the price of
our Common Shares used to determine the additional number of Common Units equals
or exceeds $14.21, no warrants will be issuable.
The Convertible Preferred Units issuable under the terms of the contract will be
entitled to a 9% priority annual return for the first ten years following
issuance, 10.5% for the five following years and 12% thereafter. The Convertible
Preferred Units are convertible, subject to certain restrictions, commencing one
year after their issuance into Common Units in the Operating Partnership on the
basis of 2.381 Common Units for each Convertible Preferred Unit, plus any
accrued return. The Common Units are exchangeable for Common Shares, subject to
certain conditions. The Convertible Preferred Units also carry a liquidation
preference of $25.00 per unit, plus any accrued return, and may be redeemed for
cash by the Operating Partnership at any time after the tenth anniversary of
their issuance.
18
<PAGE>
We are under contract to purchase two office buildings totaling 198,391 square
feet and a parcel of undeveloped land located in Linthicum, Maryland for
$25,825.
NOTE 16 PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
We accounted for most of our 1999 and 1998 acquisitions using the
purchase method of accounting. We included the results of operations for the
acquisitions in our Consolidated Statements of Operations from their
respective purchase dates through September 30, 1999.
We prepared the pro forma condensed consolidated financial information
presented below as if all of our 1999 and 1998 acquisitions accounted for
using the purchase method and dispositions had occurred on January 1, 1998.
Accordingly, we were required to make pro forma adjustments where deemed
necessary. The pro forma financial information is unaudited and is not
necessarily indicative of the results which actually would have occurred if
these acquisitions and dispositions had occurred on January 1, 1998, nor does
it intend to represent our results of operations for future periods.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Pro forma total revenues $ 59,791 $ 49,741
-------- --------
-------- --------
Pro forma net income available to Common Shareholders $ 9,682 $ 5,027
-------- --------
-------- --------
Pro forma earnings per Common Share
Basic $ 0.56 $ 0.29
-------- --------
-------- --------
Diluted $ 0.50 $ 0.29
-------- --------
-------- --------
</TABLE>
NOTE 17 SUBSEQUENT EVENTS
On October 1, 1999, the holders of all of the Initial Preferred Units in
our Operating Partnership converted their units into Common Units. Upon
completion of these conversions, COPT owned 60% of the Operating Partnership's
Common Units.
On October 20, 1999, we received $492 from Deutsche Banc Alex. Brown in
exchange for the termination of our interest rate swap agreement.
On October 22, 1999, we acquired a parcel of land located in Annapolis
Junction, Maryland. We acquired this land for $2,945.
On October 26, 1999, we entered into a $12,375 construction loan with
Allfirst Bank to finance the construction of a building at our 132 National
Business Parkway property. This loan has an interest rate of LIBOR plus 1.75%.
This loan matures on October 1, 2001 and may be extended for a one-year period,
subject to certain conditions.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Over the last six quarters, we completed a significant number of
acquisitions. Our portfolio consisted of seven retail properties and ten office
properties at March 31, 1998. During the last three quarters of 1998, we
acquired 38 office and two retail properties. During the first three quarters of
1999, we acquired 15 office properties, completed construction of a new office
property and sold seven retail properties and one office property. During 1999,
we also acquired nine office properties through an unconsolidated joint venture.
We financed the acquisitions and construction using debt and issuing Common
Shares, Preferred Shares and ownership interests in our Operating Partnership.
To accommodate our growth and changing needs as an organization, we added
significant management capabilities. As of September 30, 1999, our portfolio
included 74 commercial real estate properties leased principally for office
purposes, including the nine properties owned through the unconsolidated joint
venture. Due to these significant changes, our results of operations changed
dramatically.
In this section, we discuss our financial condition and results of
operations for the three and nine months ended September 30, 1999. This section
includes discussions on:
- - why various components of our Consolidated Statements of Operations changed
for the three and nine months ended September 30, 1999 compared to the same
periods in 1998,
- - what our primary sources and uses of cash were for the nine months ended
September 30, 1999,
- - how we raised cash for investing and financing activities during the nine
months ended September 30, 1999,
- - how we intend to generate cash for future capital expenditures, and
- - the computation of our funds from operations.
It may be helpful as you read this section to refer to our consolidated
financial statements and accompanying notes and operating data variance analysis
set forth below.
This section contains "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995 that are based on our current
expectations, estimates and projections about future events and financial trends
affecting the financial condition of our business. Statements that are not
historical facts, including statements about our beliefs and expectations, are
forward-looking statements. These statements are not guarantees of future
performance, events or results and involve potential risks and uncertainties.
Accordingly, actual results may differ materially. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
Important facts that may affect these expectations, estimates or
projections include, but are not limited to: our ability to borrow on favorable
terms; general economic and business conditions, which will, among other things,
affect office property demand and rents, tenant creditworthiness and financing
availability; adverse changes in the real estate markets including, among other
things, competition with other companies; risks of real estate acquisition and
development; governmental actions and initiatives and environmental
requirements.
20
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
OPERATING DATA VARIANCE ANALYSIS
(DOLLARS FOR THIS TABLE ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------
1999 1998 Variance % Change
------- ------ -------- --------
<S> <C> <C> <C> <C>
Revenues
Rental income $17,471 $8,562 $ 8,909 104%
Tenant recoveries and other income 2,989 1,250 1,739 139%
------- ------ -------
Total revenues 20,460 9,812 10,648 109%
------- ------ -------
Expenses
Property operating 6,051 2,457 3,594 146%
General and administrative 631 397 234 59%
Interest and amortization of financing costs 5,158 2,968 2,190 74%
Depreciation and other amortization 3,087 1,514 1,573 104%
Reformation costs -- -- -- --
------- ------ -------
Total expenses 14,927 7,336 7,591 103%
------- ------ -------
Income before equity in (loss) income of
unconsolidated entities, gain on sales of
rental properties, minority
interests and extraordinary item 5,533 2,476 3,057 123%
Equity in (loss) income of unconsolidated entities (43) 17 (60) (353%)
Gain on sales of rental properties -- -- -- --
------- ------ -------
Income before minority interests and extraordinary item 5,490 2,493 2,997 120%
Minority interests (1,444) (1,154) (290) 25%
Extraordinary item -- -- -- --
------- ------ -------
Net income 4,046 1,339 2,707 202%
Preferred Share dividends (1,060) (10) (1,050) 10,500%
------- ------ -------
Net income available to Common Shareholders $ 2,986 $ 1,329 $1,657 125%
------- ------ -------
------- ------ -------
Earnings per Common Share on net income
Basic $ 0.18 $ 0.13 $ 0.05 38%
Diluted $ 0.16 $ 0.12 $ 0.04 33%
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------
1999 1998 Variance % Change
------ ------ -------- --------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 50,879 $20,539 $ 30,340 148%
Tenant recoveries and other income 7,646 2,640 5,006 190%
-------- ------- -------
Total revenues 58,525 23,179 35,346 152%
-------- ------- -------
Expenses
Property operating 16,439 5,001 11,438 229%
General and administrative 2,316 1,055 1,261 120%
Interest and amortization of financing costs 16,124 7,690 8,434 110%
Depreciation and other amortization 8,766 3,772 4,994 132%
Reformation costs -- 637 (637) (100%)
-------- ------- -------
Total expenses 43,645 18,155 25,490 140%
-------- ------- -------
Income before equity in (loss) income of
unconsolidated entities, gain on sales of
rental properties, minority
interests and extraordinary item 14,880 5,024 9,856 196%
Equity in (loss) income of unconsolidated entities 283 17 266 1,565%
Gain on sales of rental properties 1,140 -- 1,140 N/A
-------- ------- -------
Income before minority interests and extraordinary item 16,303 5,041 11,262 223%
Minority interests (4,316) (3,272) (1,044) 32%
Extraordinary item (838) -- (838) N/A
-------- ------- -------
Net income 11,149 1,769 9,380 530%
Preferred Share dividends (1,736) (10) (1,726) 17,260%
-------- ------- -------
Net income available to Common Shareholders $ 9,413 $ 1,759 $ 7,654 435%
-------- ------- -------
-------- ------- -------
Earnings per Common Share on net income
Basic $ 0.56 $ 0.26 $ 0.30 115%
Diluted $ 0.49 $ 0.26 $ 0.23 88%
</TABLE>
21
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Our total revenues increased $35.3 million or 152%, of which $30.3 million
was generated by rental income and $5.0 million by tenant recoveries and other
income. Tenant recovery income includes payments from tenants as reimbursement
for property taxes, insurance and other property operating expenses. Our growth
in revenues was due primarily to our property acquisitions in 1998 and 1999,
although revenues increased $607,000 or 4% on the operations of office
properties owned since the beginning of 1998 and $727,000 due to interest and
real estate service income, offset by a $1.0 million decrease due to our Midwest
region retail property sales.
Our total expenses increased $25.5 million or 140% due mostly to the
effects of the increases in property operating, interest expense and
amortization of deferred financing costs, depreciation and other amortization
and general and administrative expenses described below. However, our expenses
for the nine months ended September 30, 1998 also included $637,000 in
nonrecurring costs associated with our reformation into a Maryland REIT in March
1998.
Our property operating expenses increased $11.4 million or 229% due mostly
to our property acquisitions, although property operating expenses increased
$339,000 or 13% at office properties owned since the beginning of 1998. Our
property operating expenses increased as a percentage of total revenue from 22%
to 28% due to more of our leases being written on a gross basis (meaning we
incur operating expenses) versus a net basis (meaning the tenant incurs
operating expenses directly). Our interest expense and amortization of deferred
financing costs increased $8.4 million or 110% due mostly to our borrowings and
assumptions of debt needed to finance property acquisitions, although a decrease
of $474,000 is attributable to our Midwest region retail property sales. Our
depreciation and other amortization expense increased $5.0 million or 132% due
mostly to our property acquisitions, although a decrease of $241,000 is
attributable to our Midwest region retail property sales.
Our general and administrative expenses increased $1.3 million or 120%.
Much of this increase is due to the addition of management and other staffing
functions necessitated by our growing portfolio of properties and the desire to
enhance our organizational infrastructure to more efficiently meet tenant needs
and further the growth of the Company. Approximately $200,000 of this increase
is due to additional professional fees for audit, legal and tax preparation
required to support the increased complexity of our organization resulting from
our growth and the creation of our Operating Partnership and the Service
Companies. In addition, approximately $70,000 of this increase resulted from
external costs we incurred for public relations and marketing. Our general and
administrative expenses decreased as a percentage of total revenue from 4.6% to
4.0%.
Our income before minority interests and extraordinary item for the nine
months ended September 30, 1999 also includes the gain we realized on the sale
of six of our retail properties, a line item that was not present for the nine
months ended September 30, 1998.
As a result of the above factors, income before minority interests and
extraordinary item increased by $11.3 million or 223%. Our income allocation to
minority interests increased $1.0 million or 32%. The amounts reported for
minority interests on our Consolidated Statements of Operations represent the
portion of the Operating Partnership's net income not allocated to us. Ownership
of the Operating Partnership by minority interests averaged 17% during the nine
months ended September 30, 1999 versus 48% during the nine months ended
September 30, 1998. Accordingly, the increase in income allocated to minority
interests is due to the increase in the Operating Partnership's net income,
offset by the decreased percentage of income allocated to minority interests.
Our net income available to Common Shareholders increased $7.7 million due
to the factors discussed above partially offset by an $838,000 loss on the
retirement of debt and a $1.7 million increase in Preferred Share dividends. Our
diluted earnings per Common Share increased $0.23 per share due to the effect of
the increase in net income being proportionately greater than the dilutive
effects of our share offering in April 1998 and the issuance of our Common and
Series A Preferred Shares and Common Units in our Operating Partnership in
connection with acquisitions occurring during the later portion of 1998 and
during 1999.
22
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Our total revenues increased $10.6 million or 109%, of which $8.9 million
was generated by rental income and $1.7 million by tenant recoveries and other
income. Our growth in revenues was due primarily to our property acquisitions
occurring during the later portion of 1998 and in 1999, although revenues
increased $763,000 or 9% on the operations of office properties owned since the
beginning of July 1998 and $430,000 due to interest and real estate service
income, offset by a $548,000 decrease due to our Midwest region retail property
sales.
Our total expenses increased $7.6 million or 103% due mostly to the effects
of the increases in property operating, interest expense and amortization of
deferred financing costs, depreciation and other amortization and general and
administrative expenses described below.
Our property operating expenses increased $3.6 million or 146% due mostly
to our property acquisitions, although property operating expenses increased
$393,000 or 17% at office properties owned since the beginning of July 1998. Our
property operating expenses increased as a percentage of total revenue from 25%
to 30% due to more of our leases being written on a gross basis versus a net
basis. Our interest expense and amortization of deferred financing costs
increased $2.2 million or 74% due mostly to our borrowings and assumptions of
debt needed to finance property acquisitions, although a decrease of $244,000 is
attributable to our Midwest region retail property sales. Our depreciation and
other amortization expense increased $1.6 million or 104% due mostly to our
property acquisitions, although a decrease of $122,000 is attributable to our
Midwest region retail property sales.
Our general and administrative expenses increased $234,000 or 59%. Most of
this increase is due to the addition of management and other staffing functions
necessitated by our growing portfolio of properties and the desire to enhance
our organizational infrastructure to more efficiently meet tenant needs and
further the growth of the Company. Our general and administrative expenses
decreased as a percentage of total revenue from 4.0% to 3.1%.
As a result of the above factors, income before minority interests and
extraordinary item increased by $3.0 million, or 120%. Our income allocation to
minority interests increased $290,000 or 25%. Ownership of the Operating
Partnership by minority interests averaged 17% during the three months ended
September 30, 1999 versus 24% during the three months ended September 30, 1998.
Accordingly, the increase in income allocated to minority interests is due to
the increase in the Operating Partnership's net income, offset by the decreased
percentage of income allocated to minority interests.
Our net income available to Common Shareholders increased $1.7 million due
to the factors discussed above partially offset by a $1.1 million increase in
Preferred Share dividends. Our diluted earnings per Common Share increased $0.04
per share due to the effect of the increase in net income being proportionately
greater than the dilutive effects of the issuance of our Common and Series A
Preferred Shares and Common Units in our Operating Partnership in connection
with acquisitions occurring during the later portion of 1998 and during 1999.
LIQUIDITY AND CAPITAL RESOURCES
CAPITALIZATION AND LIQUIDITY
Cash provided from operations represents our primary source of liquidity to
fund shareholder and unitholder distributions, pay debt service and fund working
capital requirements. We expect to continue to use our property cash flow to
meet our short-term cash requirements, including all property expenses, general
and administrative expenses, debt service, distribution requirements and
recurring capital improvements and leasing commissions. We do not anticipate
borrowing to meet these requirements.
23
<PAGE>
We have financed our property acquisitions using a combination of
borrowings secured by our properties and the equity issuances of Common and
Preferred Units in our Operating Partnership and Common and Preferred Shares. We
use our secured revolving credit facility with Deutsche Banc Alex. Brown (the
"Revolving Credit Facility") to finance much of our investing and financing
activities. We pay down our Revolving Credit Facility using proceeds from
long-term borrowings collateralized by our properties as attractive financing
conditions arise and equity issuances as attractive equity market conditions
arise. As of November 5, 1999, the maximum amount available under our Revolving
Credit Facility was $78.1 million, of which $23.4 million was unused.
Our debt strategy favors long-term, fixed-rate, secured debt over
variable-rate debt to minimize the risk of short-term increases in interest
rates. As of September 30, 1999, 85% of our mortgage loans payable balance
carried fixed interest rates.
Mortgage and other loans payable at September 30, 1999 consisted of the
following (dollars in thousands):
<TABLE>
<S> <C>
Term Credit Facility, 7.50%, maturing October 2000 (1) $ 100,000
TIAA Mortgage, 6.89%, maturing November 2008 83,813
TIAA Mortgage, 7.72%, maturing October 2006 60,000
Revolving Credit Facility, LIBOR + 1.75%, maturing May 2000 (2) 36,200
Allfirst Bank, LIBOR + 1.75%, maturing May 2002 12,360
Deutsche Banc Alex. Brown, LIBOR + 1.75%, maturing November 1999 (3) 10,000
Provident Bank of Maryland, LIBOR + 1.75%, maturing February 2001 (4) 7,233
Aegon USA Realty Advisors, Inc., 8.29%, maturing May 2007 6,255
Allfirst Bank, LIBOR + 1.6%, maturing February 2001 (5) 6,179
Mellon Bank, yield on 5-year Treasury Securities
plus 2%, maturing August 2005 (6) 4,304
IDS Life Insurance Company, 8.375%, maturing June 2007 (3) 3,055
Provident Bank of Maryland, LIBOR + 1.75%, maturing September 2000 2,845
Northern Life Insurance Company, 8%, maturing February 2014 2,497
Seller mortgage, lesser of Prime + 0.5% or 9.38%, maturing May 2007 1,875
Bank of Maryland, LIBOR + 1.75%, maturing October 2001 (7) 27
----------
$ 336,643
----------
----------
</TABLE>
- -----------------------
(1) May be extended for two one-year periods, subject to certain conditions.
(2) May be extended for a one-year period, subject to certain conditions.
(3) Balance repaid on November 4, 1999 using proceeds from the Revolving Credit
Facility.
(4) Construction loan with a total commitment of $10,875. Loan may be extended
for a one-year period, subject to certain conditions.
(5) Construction loan with a total commitment of $9,825. Loan may be extended
for a one-year period, subject to certain conditions.
(6) Construction loan with a total commitment of $4,549.
(7) Construction loan with a total commitment of $7,400. Loan may be extended
for a one-year period, subject to certain conditions.
In June 1999, we sold an office building and assigned our rights to
purchase two office buildings to an unrelated third party. Simultaneously with
these transactions, we entered into a contract with the third party under which
the third party has the right to transfer these three office buildings to us on
or before March 31, 2000 for total consideration of approximately $40.5 million.
Under the terms of the contract, we would pay up to $25.0 million (but in no
event less than $23.9 million) of the acquisition price in Convertible Preferred
Units in the Operating Partnership and the balance in cash or debt assumption.
We would also issue ten-year detachable warrants exercisable for an additional
number of Common Units in the Operating Partnership to be determined based upon
the share price of the Common Shares over the first five years following the
acquisition. However, if the price of our Common Shares used to determine the
additional number of Common Units equals or exceeds $14.21, no warrants will be
issuable.
24
<PAGE>
The Convertible Preferred Units issuable under the terms of the contract
will be entitled to a 9% priority annual return for the first ten years
following issuance, 10.5% for the five following years and 12% thereafter. The
Convertible Preferred Units are convertible, subject to certain restrictions,
commencing one year after their issuance into Common Units in the Operating
Partnership on the basis of 2.381 Common Units for each Convertible Preferred
Unit, plus any accrued return. The Common Units are exchangeable for Common
Shares, subject to certain conditions. The Convertible Preferred Units also
carry a liquidation preference of $25.00 per unit, plus any accrued return, and
may be redeemed for cash by the Operating Partnership at any time after the
tenth anniversary of their issuance.
We are also under contract to purchase two office buildings totaling
198,391 square feet and a parcel of land located in Linthicum, Maryland for
$25.8 million.
We have no other contractual obligations for property acquisitions or
material capital costs other than the October property acquisitions discussed
below, the completion of the four development projects discussed below and
tenant improvements and leasing costs in the ordinary course of business. We
expect to meet our long-term capital needs through a combination of cash from
operations, additional borrowings and additional equity issuances of Common
Shares, Preferred Shares, Common Units and/or Preferred Units. We have an
effective Form S-3 shelf registration statement on file with the Securities and
Exchange Commission under which we may sell up to $218.8 million in debt or
equity securities depending upon our needs and market conditions.
INVESTING AND FINANCING ACTIVITIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
During the nine months ended September 30, 1999, we acquired 15 operating
properties, four parcels of land and a warehouse facility to undergo
redevelopment for an aggregate acquisition cost of $61.2 million. Of the 15
operating properties acquired, 11 are located in the Baltimore/Washington
Corridor, one in New Jersey and three in Pennsylvania. The four land parcels
acquired are located in the Baltimore/Washington Corridor and the warehouse
facility is located in New Jersey. The operating property acquisitions increased
our rentable square footage by 534,000. These acquisitions were financed by:
- using $41.3 million in borrowings under our Revolving Credit Facility,
- assuming $9.9 million in mortgage and other loans,
- issuing 377,251 Common Units in our Operating Partnership,
- applying $1.6 million outstanding receivable balance towards a
purchase, and
- using cash reserves for the balance.
During the nine months ended September 30, 1999, we completed construction
of a 93,482 square foot office building located in Annapolis Junction, Maryland.
Costs incurred on this property through September 30, 1999 totaled $9.2 million.
We entered into a $9.8 million construction loan for this project $6.2 million
of which was borrowed through September 30, 1999. We also completed an expansion
project that increased the rentable square footage of one of our properties by
6,350 square feet.
As of September 30, 1999, we also had construction underway on an aggregate
of 347,745 square feet of new office space that was 87% pre-leased at our
Woodlands II, 132 National Business Parkway, Airport Square 15 and 68 Culver
Road properties. We entered into $18.3 million in construction loans during this
period to finance the construction of two of these projects. Borrowings under
these loans totaled $7.3 million at September 30, 1999.
During the nine months ended September 30, 1999, we sold eight properties
for $52.2 million, of which $20.9 million was used to pay off the mortgage loans
payable on the properties. We realized a gain of $1.1 million on the sales of
these properties, including the value of the transaction involving Glacier (see
Note 12 to the Consolidated Financial Statements). Net proceeds from these sales
totaled $30.0 million, $24.3 million of which was used to repay a portion of our
Revolving Credit Facility and the remainder was applied to working capital.
25
<PAGE>
On March 19, 1999, our Operating Partnership issued 200,000 Common Units in
exchange for all of the ownership interests in Glacier. For accounting purposes,
we recorded the value of this transaction against the gain on the sale of our
retail properties in the Midwest region of the United States (see Note 12 to the
Consolidated Financial Statements).
On April 8, 1999, we obtained a $12.5 million mortgage loan payable from
Allfirst Bank, $9.0 million of which is nonrecourse. The loan provides for
monthly payments of interest, at a rate of LIBOR plus 1.75%, and principal of
$23,000 in the loan's first year, $25,000 in the second year and $27,000 in the
third year. The loan matures on May 1, 2002. This loan is collateralized by
three of our operating properties and one parcel of land. The proceeds from this
loan were used to pay down our Revolving Credit Facility.
On April 16, we assumed three nonrecourse mortgage loans payable in
connection with the acquisition of the Parkway Crossing Properties. One of these
loans is with IDS Life Insurance Company. This loan has a balance of $3.2
million, bears interest at a fixed rate of 8.375% and provides for monthly
principal and interest payments of $44,000. This loan was repaid on November 4,
1999 using proceeds from the Revolving Credit Facility. We also assumed two
loans with the seller totaling $1.9 million that carry identical terms. These
loans provide for monthly payments of interest at a rate equal to the lesser of
prime plus 0.5% (currently 8.75%) or 9.38% plus fixed principal payments of
$4,000. These loans mature on May 25, 2007.
On May 5, 1999, we obtained a $10.0 million loan from Deutsche Banc Alex.
Brown. The loan bears interest at a rate of LIBOR plus 1.75% and provides for
monthly payments of interest only. The proceeds from this loan were used to pay
down our Revolving Credit Facility. This loan was repaid on November 4, 1999
using proceeds from our Revolving Credit Facility.
In July 1999, we completed the sale of 1,250,000 Series B Preferred Shares
to the public at a price of $25.00 per share. These shares are nonvoting (except
in limited circumstances) and are redeemable for cash at $25.00 per share plus
accrued and unpaid dividends at our option on or after July 15, 2004. Holders of
these shares are entitled to cumulative dividends, payable quarterly (as and if
declared by the Board of Trustees). Dividends accrue from the date of issue at
the annual rate of $2.50 per share, which is equal to 10% of the $25.00 per
share redemption price. We contributed the net proceeds to our Operating
Partnership in exchange for 1,250,000 Series B Preferred Units. Our Operating
Partnership used most of the proceeds to pay down our Revolving Credit Facility.
The Series B Preferred Units carry terms that are substantially the same as the
Series B Preferred Shares.
On August 4, 1999, 372,295 of our Common Units were converted to Common
Shares.
On August 12, 1999, we assumed a $4.5 million construction loan with Mellon
Bank in connection with the Gateway Central acquisition. The loan bears interest
at a rate equal to the yield on 5-year Treasury Securities plus 2.0% (currently
7.97%). The loan provides for monthly payments of interest only through August
2000 and equal monthly payments of principal and interest based on a 30-year
amortization period commencing September 2000. The loan matures on August 1,
2005. Borrowings under this loan totaled $4.3 million as of September 30, 1999.
On September 9, 1999, we entered into a $7.4 million construction loan with
Bank of Maryland to finance the construction of a building at our Airport Square
XV property. This loan has an interest rate of LIBOR plus 1.75%. This loan
matures on October 1, 2001 and may be extended for a one-year period, subject to
certain conditions. Borrowings under this loan totaled $27,000 at September 30,
1999.
On September 15, 1999, we acquired a 49% interest in Corporate Gateway
General Partnership, a newly organized joint venture, for $3.0 million. On the
same day, the joint venture acquired nine office buildings located in Greater
Harrisburg, Pennsylvania for $39.9 million using cash and proceeds from a $34.2
million loan payable to our Operating Partnership. This loan payable is
evidenced by notes that carry an interest rate of 10% through their maturity
date of September 14, 2000. We financed the investment and the loan using $36.2
million in borrowings under our Revolving Credit Facility and cash reserves for
the balance.
26
<PAGE>
On September 30, 1999, we obtained a $60.0 million mortgage loan payable
from Teachers Insurance and Annuity Association of America. This loan carries a
fixed interest rate of 7.72% and provides for monthly payments of principal and
interest of $452,000. The loan matures on October 1, 2006 and may not be prepaid
prior to April 1, 2003. The loan is collaterized by 13 of our properties.
INVESTING AND FINANCING ACTIVITIES SUBSEQUENT TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999:
On October 20, 1999, we received $492,000 from Deutsche Banc Alex. Brown in
exchange for the termination of our interest rate swap agreement.
On October 22, 1999, we acquired a parcel of land located in Annapolis
Junction, Maryland. We acquired this land for $2.9 million using borrowings
under our Revolving Credit Facility.
On October 26, 1999, we entered into a $12.4 million construction loan with
Allfirst Bank to finance the construction of a building at our 132 National
Business Parkway property. This loan has an interest rate of LIBOR plus 1.75%.
This loan matures on October 1, 2001 and may be extended for a one-year period,
subject to certain conditions.
STATEMENT OF CASH FLOWS
We generated net cash flow from operating activities of $21.3 million for
the nine months ended September 30, 1999, an increase of $13.8 million from the
nine months ended September 30, 1998. Our increase in cash flows from operating
activities is due mostly to income generated from our newly acquired properties.
Our net cash flow used in investing activities for the nine months ended
September 30, 1999 decreased $19.3 million from the nine months ended September
30, 1998 due mostly to the $26.3 million decrease in cash outlays associated
with purchases of and improvements to real estate properties during the period
and $30.0 million in proceeds generated from sales of our rental properties,
offset by $37.2 million invested in an unconsolidated real estate joint venture.
Our net cash flow provided by financing activities for the nine months ended
September 30, 1999 decreased $33.0 million from the nine months ended September
30, 1998 due primarily to $72.2 million from the issuance of Common Shares in
the prior period, $128.4 million in additional repayments of mortgage and other
loans payable and $8.7 million in additional dividend and distribution payments,
offset by $144.3 million in additional proceeds from mortgage and other loans
payable and $29.5 million from the issuance of our Series B Preferred Shares.
FUNDS FROM OPERATIONS
We consider Funds from Operations ("FFO") to be meaningful to investors as
a measure of the financial performance of an equity REIT when considered with
the financial data presented under generally accepted accounting principles
("GAAP"). Under the National Association of Real Estate Investment Trusts'
("NAREIT") definition, FFO means net income (loss) computed using generally
accepted accounting principles, excluding gains (or losses) from debt
restructuring and sales of property, plus real estate-related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Further, if the conversion of securities into common shares is
dilutive, we exclude any GAAP income allocated to these securities in computing
FFO. The FFO we present may not be comparable to the FFO of other REITs since
they may interpret the current NAREIT definition of FFO differently or they may
not use the current NAREIT definition of FFO. FFO is not the same as cash
generated from operating activities or net income determined in accordance with
GAAP. FFO is not necessarily an indication of our cash flow available to fund
cash needs. Additionally, it should not be used as an alternative to net income
when evaluating our financial performance or to cash flow from operating,
investing and financing when evaluating our liquidity or ability to make cash
distributions or pay debt service. Our FFO for the nine months ended September
30, 1999 and 1998 are summarized in the following table:
27
<PAGE>
<TABLE>
<CAPTION>
(Dollars and shares for this table are in thousands)
------------------------------------------------------
For the three months For the nine months ended
ended September 30, September 30,
--------------------- -------------------------
1999 1998 1999 1998
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Income before minority interests and extraordinary
item.............................................. $5,490 $ 2,493 $ 16,303 $ 5,041
Add: Real estate related depreciation and
amortization...................................... 3,073 1,502 8,719 3,743
Add: Nonrecurring charges - Reformation costs....... -- -- -- 637
Less: Preferred Unit distributions.................. (853) (853) (2,559) (2,559)
Less: Preferred Share dividends..................... (1,060) (10) (1,736) (10)
Less: Gain on sales of rental properties............ -- -- (1,140) --
------ ------- -------- -------
Funds from operations............................... 6,650 3,132 19,587 6,852
Add: Preferred Unit distributions................... 853 853 2,559 2,559
Add: Preferred Share dividends..................... 339 10 1,015 10
------ ------- -------- -------
Funds from operations assuming conversion of
Preferred Units and Preferred Shares.............. 7,842 3,995 23,161 9,421
Less: Straight line rent adjustments............... (634) (341) (2,134) (1,083)
Less: Recurring capital improvements............... (643) (34) (1,790) (34)
------ ------- -------- -------
Adjusted funds from operations assuming conversion of
Preferred Units and Preferred Shares.............. $6,565 $ 3,620 $ 19,237 $ 8,304
------ ------- -------- -------
------ ------- -------- -------
Weighted average Common Shares...................... 17,037 9,973 16,881 6,651
Conversion of weighted average Common Units......... 3,068 2,582 3,012 2,582
------ ------- -------- -------
Weighted average Common Shares/Units................ 20,105 12,555 19,893 9,233
Assumed conversion of share options................. 18 11 9 86
Conversion of weighted average Preferred Shares..... 1,845 52 1,845 18
Conversion of weighted average Preferred Units...... 7,500 7,500 7,500 7,500
------ ------- -------- -------
Weighted average Common Shares/Units assuming
conversion of Preferred Units and Preferred Shares 29,468 20,118 29,247 16,837
------ ------- -------- -------
------ ------- -------- -------
</TABLE>
INFLATION
We have not been significantly impacted by inflation during the periods
presented in this report. This is mostly because of the relatively low inflation
rates in our markets. Most of our tenants are contractually obligated to pay
their share of operating expenses, thereby reducing exposure to increases in
such costs resulting from inflation.
IMPACT OF THE YEAR 2000 ISSUE
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, this could result in a system failure or
miscalculations causing disruption of operations, including a temporary
inability to process transactions, prepare financial statements, send invoices
or engage in similar normal business activity.
Our accounting software system was certified as Year 2000 compliant by its
manufacturer. Our information technology and accounting groups also completed an
internal test of our accounting software to ensure compliance. No problems were
noted during this testing process. Accordingly, we do not anticipate problems in
processing the billing and collection of revenue, paying of expenditures,
recording of financial transactions, preparing financial statements and
maintaining and generating system driven managerial information. Our
28
<PAGE>
accounting department has developed a plan that will enable a certain amount of
manual processing to take place in the unlikely event that problems arise with
our accounting software.
Our property management team has been continually evaluating the impact of
the Year 2000 Issue on the various facets of property operating systems since
the beginning of 1998, including the telecommunication, security, energy
management, sprinkler and elevator systems. This evaluation process was
completed in the second quarter of 1999. Based on the results of this evaluation
process, we do not anticipate any material adverse consequences on property
operations. Our property management team has alternative plans in place to
address unexpected problems that may arise with the property operating systems.
Additional property management staff will also be on-call to respond to any such
problems beginning January 1, 2000.
We rely on third party suppliers for a number of key services. Interruption
of supplier operations due to the Year 2000 Issue could affect our operations.
After contacting our significant suppliers regarding their Year 2000 readiness,
our property management team does not anticipate any material adverse
consequences relating to these suppliers' abilities to support our properties.
Our property management team plans to continue its efforts to obtain additional
written assurance from material suppliers to support representations provided
regarding their Year 2000 readiness. The team also completed the documentation
of our contingency plans in the unlikely event that certain suppliers are
adversely impacted by the Year 2000 Issue.
We are dependent upon our tenants for revenue and cash flow. Interruptions
in tenant operations due to the Year 2000 Issue could result in reduced revenue,
increased receivable levels and cash flow reductions. To address this concern,
our property management team solicited responses from certain of our significant
tenants regarding their Year 2000 readiness. We also reviewed Year 2000
disclosures provided by certain of our significant tenants required to report to
the Securities and Exchange Commission. All tenants responding to our
solicitation were in the advanced stages of addressing the Year 2000 Issue; this
was also the case with all of the tenants included in our review of Year 2000
disclosures reported in filings by such tenants to the Securities and Exchange
Commission. The tenants included in our analysis represent 58% of our monthly
contractual base rents as of September 30, 1999 multiplied by 12 plus estimated
annualized expense reimbursements.
Despite our efforts described above, given the nature of the Year 2000
Issue, there can be no assurance that we will be able to identify and correct
all possible aspects. However, based on all information available to us, we
believe that we have addressed all areas where the Year 2000 Issue could
materially impact our Company's business. Based on information currently
available from our internal assessment, we do not expect significant incremental
costs associated with our Year 2000 activities during 1999. We will also
continue to evaluate Year 2000 issues for all future property acquisitions and
development.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks associated with our financial
instruments, the most predominant of which is changes in interest rates.
Increases in interest rates can result in increased interest expense under our
Revolving Credit Facility and our other loans payable carrying variable interest
rate terms. Increases in interest rates can also result in increased interest
expense when our loans payable carrying fixed interest rate terms mature and
need to be refinanced.
29
<PAGE>
The following table sets forth our long-term debt obligations, principal
cash flows by scheduled maturity, weighted average interest rates and estimated
fair market value ("FMV") at September 30, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------
1999 2000 (2) 2001 2002 (3) 2003 Thereafter Total FMV
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long term debt:
Fixed rate (1) $ 526 132,834 $ 3,048 $ 3,279 $ 3,526 $ 142,407 $ 285,620 $278,655
Average interest rate 7.46% 6.95% 7.42% 7.42% 7.42% 7.30% 7.15%
Variable rate $10,075 $ 9,364 $ 389 $25,249 $ 88 $ 5,858 $ 51,023 $ 51,023
Average interest rate 7.13% 7.19% 7.39% 7.09% 8.36% 8.20% 7.25%
</TABLE>
- -----------------------
(1) Includes $30.0 million balance governed by a swap agreement that fixes the
LIBOR rate on the underlying loan to 5.085%.
(2) Includes $100.0 million maturity in October that may be extended for
two one-year terms, subject to certain conditions. Also includes
$32.6 million maturity in May that may be extended for a one-year
period, subject to certain conditions.
(3) Includes $13.4 million for 3 construction loans maturing that may be
extended for a one-year period, subject to certain conditions.
Based on our variable rate debt balances during the nine months ended
September 30, 1999, our interest expense would have increased $492,000 if
interest rates were 1% higher.
PART II
ITEM 1. LEGAL PROCEEDINGS
We are not currently involved in any material litigation nor, to the best
of our knowledge, is any material litigation currently threatened against us
(other than routine litigation arising in the ordinary course of business,
substantially all of which is expected to be covered by liability insurance).
ITEM 2. CHANGES IN SECURITIES
a. None
b. None
c. On July 9, 1999, we issued 50,476 Common Units in our Operating
Partnership in connection with the acquisition of a warehouse facility
located in South Brunswick, New Jersey. The issuance of these Common Units is
exempt from registration under Section 4 (2) of the Securities Act of 1933,
as amended. These Common Units are exchangeable into our Common Shares,
subject to certain conditions.
On August 4, 1999, 372,295 of our Common Units were converted to Common
Shares. The issuance of these Common Shares is exempt from registration
under Section 4 (2) of the Securities Act of 1933, as amended.
d. None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
30
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated January 31, 1998,
among the Registrant, the Maryland Company and the Company
(filed with the Trust's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).
2.2 Assignment of Partnership Interests, dated April 30, 1998,
between Airport Square Limited Partnership, Airport Square
Corporation, Camp Meade Corporation and COPT Airport
Square One LLC and COPT Airport Square Two LLC. (filed
with the Company's Current Report on Form 8-K on May 14,
1998 and incorporated herein by reference).
2.3 Assignment of Purchase and Sale Agreement, dated April 30,
1998, between Aetna Life Insurance Company and the
Operating Partnership. (filed with the Company's Current
Report on Form 8-K on May 14, 1998 and incorporated herein
by reference).
2.4 Assignment of Loan Purchase and Sale Agreement, dated
April 30, 1998, between Constellation Real Estate, Inc. and
the Operating Partnership. (filed with the Company's Current
Report on Form 8-K on May 14, 1998 and incorporated herein
by reference).
2.5 Purchase and Sale Agreement, dated April 1, 1998, between
Aetna Life Insurance Company and Airport Square Limited
Partnership (filed with the Company's Current Report on
Form 8-K on May 14, 1998 and incorporated herein by
reference).
2.6.1 Loan Purchase and Sale Agreement, dated March 13, 1998,
between Aetna Life Insurance Company and Constellation
Real Estate, Inc. (filed with the Company's Current Report
on Form 8-K on May 14, 1998 and incorporated herein by
reference).
2.6.2 Amendment to Loan Purchase and Sale Agreement, dated April
16, 1998, between Aetna Life Insurance Company and
Constellation Real Estate, Inc. (filed with the Company's
Current Report on Form 8-K on May 14, 1998 and
incorporated herein by reference).
2.7.1 Purchase and Sale Agreement, dated March 4, 1998, between
695 Rt. 46 Realty, LLC, 710 Rt. 46 Realty, LLC and COPT
Acquisitions, Inc. (filed with the Company's Current
Report on Form 8-K on June 10, 1998 and incorporated
herein by reference).
2.7.2 Letter Amendment to Purchase and Sale Agreement, dated
March 26, 1998, between 695 Rt. 46 Realty, LLC, 710 Rt. 46
Realty, LLC and COPT Acquisitions, Inc. (filed with the
Company's Current Report on Form 8-K on June 10, 1998 and
incorporated herein by reference).
2.8.1 Contribution Agreement between the Company and the
Operating Partnership and certain Constellation affiliates
(filed as Exhibit A of the Company's Schedule 14A
Information on June 26, 1998 and incorporated herein by
reference).
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
<S> <C>
2.8.2 First Amendment to Contribution Agreement, dated July 16,
1998, between Constellation Properties, Inc. and certain
entities controlled by Constellation Properties, Inc.
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
2.8.3 Second Amendment to Contribution Agreement, dated
September 28, 1998, between Constellation Properties, Inc.
and certain entities controlled by Constellation
Properties, Inc. (filed with the Company's Current Report
on Form 8-K on October 13, 1998 and incorporated herein by
reference).
2.9 Service Company Asset Contribution Agreement between the
Company and the Operating Partnership and certain
Constellation affiliates (filed as Exhibit B of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.10.1 Option Agreement, dated May 14, 1998, between the
Operating Partnership and NBP-III, LLC (a Constellation
affiliate) (filed as Exhibit C of the Company's Schedule
14A Information on June 26, 1998 and incorporated herein
by reference).
2.10.2 First Amendment to Option Agreement, dated June 22, 1998,
between the Operating Partnership and NBP-III, LLC (a
Constellation affiliate) (filed as Exhibit E of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.11.1 Option Agreement, dated May 14, 1998, between the
Operating Partnership and Constellation Gatespring II, LLC
(a Constellation affiliate) (filed as Exhibit D of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.11.2 First Amendment to Option Agreement, dated June 22, 1998,
between the Operating Partnership and Constellation
Gatespring II, LLC (a Constellation affiliate) (filed as
Exhibit F of the Company's Schedule 14A Information on
June 26, 1998 and incorporated herein by reference).
2.12 Option Agreement, dated September 28, 1998, between Jolly
Acres Limited Partnership, Arbitrage Land Limited
Partnership and the Operating Partnership (filed with the
Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
2.13 Right of First Refusal Agreement, dated September 28,
1998, between Constellation Properties, Inc. and the
Operating Partnership (filed with the Company's Current
Report on Form 8-K on October 13, 1998 and incorporated
herein by reference).
2.14 Right of First Refusal Agreement, dated September 28,
1998, between 257 Oxon, LLC and the Operating Partnership
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
2.15 Development Property Acquisition Agreement, dated May 14,
1998, between the Operating Partnership and CPI Piney
Orchard Village Center, Inc. (a Constellation affiliate)
(filed as Exhibit H of the Company's Schedule 14A
Information on June 26, 1998 and incorporated herein by
reference).
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
<S> <C>
2.16 Contribution Agreement, dated September 30, 1998, between
COPT Acquisitions, Inc. and M.O.R. XXIX Associates Limited
Partnership (filed with the Company's Current Report on Form
8-K on October 28, 1998 and incorporated herein by
reference).
2.17 Purchase and Sale Agreement, dated September 30, 1998,
between New England Life Pension Properties II: A Real
Estate Limited Partnership and COPT Acquisitions, Inc.
(filed with the Company's Current Report on Form 8-K on
October 28, 1998 and incorporated herein by reference).
2.18.1 Sale-Purchase Agreement, dated August 20, 1998 between
South Middlesex Industrial Park Associates, L.P. and SM
Monroe Associates and COPT Acquisitions, Inc. (filed with
the Company's Current Report on Form 8-K on October 28,
1998 and incorporated herein by reference).
2.18.2 First Amendment to Sale-Purchase Agreement, dated October
30, 1998, between South Middlesex Industrial Park
Associates, L.P. and SM Monroe Associates, L.P. and COPT
Acquisitions, Inc. (filed with the Company's Current
Report on Form 8-K on November 16, 1998 and incorporated
herein by reference).
2.19 Contribution Agreement, dated December 31, 1998, between
the Operating Partnership and M.O.R. 44 Gateway Associates
L.P., RA & DM, Inc. and M.R.U. L.P. (filed with the
Company's Current Report on Form 8-K on January 14, 1999 and
incorporated herein by reference).
2.20.1 Purchase and Sale Agreement, dated December 31, 1998,
between Metropolitan Life Insurance Company and Corporate
Office Acquisitions, Inc. (filed with the Company's
Current Report on Form 8-K on January 14, 1999 and
incorporated herein by reference).
2.20.2 Amendment to Purchase and Sale Agreement, dated December
31, 1998, between Metropolitan Life Insurance Company,
DPA/Gateway L.P., Corporate Office Acquisitions, Inc.,
COPT Gateway, LLC and the Operating Partnership (filed
with the Company's Current Report on Form 8-K on January
14, 1999 and incorporated herein by reference).
2.21 Contribution Agreement, dated February 24, 1999, between
the Operating Partnership and John Parsinen, John D.
Parsinen, Jr., Enterprise Nautical, Inc. and Vernon Beck
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
2.22 Agreement to Sell Partnership Interests, dated August 12,
1999, between Gateway Shannon Development Corporation,
Clay W. Hamlin, III and COPT Acquisitions, Inc.
2.23 Agreement of Purchase and Sale, dated July 21, 1999,
between First Industrial Financing Partnership, L.P. and
COPT Acquisitions, Inc.
3.1 Amended and Restated Declaration of Trust of Registrant
(filed with the Registrant's Registration Statement on Form
S-4 (Commission File No. 333-45649) and incorporated herein
by reference).
3.2 Bylaws of Registrant (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No.
333-45649) and incorporated herein by reference).
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
<S> <C>
4.1 Form of certificate for the Registrant's Common Shares of
Beneficial Interest, $0.01 par value per share (filed with
the Registrant's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).
4.2 Amended and Restated Registration Rights Agreement, dated
March 16, 1998, for the benefit of certain shareholders of
the Company (filed with the Company's Quarterly Report on
Form 10-Q on August 12, 1998 and incorporated herein by
reference).
4.3 Articles Supplementary of Corporate Office Properties
Trust Series A Convertible Preferred Shares, dated September
28, 1998 (filed with the Company's Current Report on Form
8-K on October 13, 1998 and incorporated herein by
reference).
4.4.1 Amended and Restated Limited Partnership Agreement of the
Operating Partnership, dated March 16, 1998 (filed with
the Company's Quarterly Report on Form 10-Q on August 12,
1998 and incorporated herein by reference).
4.4.2 First Amendment to Amended and Restated Limited
Partnership Agreement of the Operating Partnership, dated
September 28, 1998 (filed with the Company's Current
Report on Form 8-K on October 13, 1998 and incorporated
herein by reference).
4.4.3 Second Amendment to Amended and Restated Limited
Partnership Agreement of the Operating Partnership, dated
October 13, 1998 (filed with the Company's Current Report
on Form 8-K on October 28, 1998 and incorporated herein by
reference).
4.4.4 Third Amendment to Amended and Restated Limited
Partnership Agreement of the Operating Partnership, dated
December 31, 1998 (filed with the Company's Current Report
on Form 8-K on January 14, 1999 and incorporated herein by
reference).
4.5 Registration Rights Agreement, dated September 28, 1998,
for the benefit of certain shareholders of the Company
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
4.6 Articles Supplementary of Corporate Office Properties
Trust Series B Convertible Preferred Shares, dated July 2,
1999 (filed with the Company's Current Report on Form 8-K on
July 7, 1999 and incorporated herein by reference).
10.1 Clay W. Hamlin III Employment Agreement, dated October 14,
1997, with the Operating Partnership (filed with the
Company's Current Report on Form 8-K on October 29, 1997,
and incorporated herein by reference).
10.2 Employment Agreement, dated October 20, 1997, between the
Operating Partnership and Thomas D. Cassel (filed with the
Company's Annual Report on Form 10-K on March 25, 1998 and
incorporated herein by reference).
10.3 Employment Agreement, dated September 28, 1998, between
Corporate Office Management, Inc. and Randall M. Griffin
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
10.4 Employment Agreement, dated September 28, 1998, between
Corporate Office Management, Inc. and Roger A. Waesche, Jr.
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
<S> <C>
10.5 Management Agreement between Registrant and Glacier
Realty, LLC (filed with the Company's Current Report on Form
8-K on October 29, 1997, and incorporated herein by
reference).
10.6 Senior Secured Credit Agreement, dated October 13, 1997,
(filed with the Company's Current Report on Form 8-K on
October 29, 1997, and incorporated herein by reference).
10.7.1 Corporate Office Properties Trust 1998 Long Term Incentive
Plan (filed with the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
10.7.2 Amendment No. 1 to Corporate Office Properties Trust 1998
Long Term Incentive Plan (filed with the Company's
Quarterly Report on Form 10-Q on August 13, 1999 and
incorporated herein by reference).
10.8 Stock Option Plan for Directors (filed with Royale
Investments, Inc.'s Form 10-KSB for the year ended
December 31, 1993 (Commission File No. 0-20047) and
incorporated herein by reference).
10.9 Lease Agreement between Blue Bell Investment Company, L.P.
and Unisys Corporation dated March 12, 1997 with respect
to lot A (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
10.10 Lease Agreement between Blue Bell Investment Company, L.P.
and Unisys Corporation, dated March 12, 1997, with respect
to lot B (filed with the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-45649) and incorporated
herein by reference).
10.11 Lease Agreement between Blue Bell Investment Company, L.P.
and Unisys Corporation, dated March 12, 1997, with respect
to lot C (filed with the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-45649) and incorporated
herein by reference).
10.12 Senior Secured Revolving Credit Agreement, dated May 28,
1998, between the Company, the Operating Partnership, Any
Mortgaged Property Subsidiary and Bankers Trust Company
(filed with the Company's Current Report on Form 8-K on
June 10, 1998 and incorporated herein by reference).
10.13 Secured Promissory Note, dated April 29, 1997, between 710
Rt. 46 Realty, LLC and Life Investors Insurance Company of
America (filed with the Company's Current Report on Form
8-K on June 10, 1998 and incorporated herein by
reference).
10.14 Mortgage and Security Agreement, dated April 29, 1997,
between 710 Rt. 46 Realty, LLC and Life Investors Insurance
Company of America (filed with the Company's Current Report
on Form 8-K on June 10, 1998 and incorporated herein by
reference).
10.15 Amended and Restated Deed of Trust Note, dated October 6,
1995, between Cranberry-140 Limited Partnership and
Security Life of Denver Insurance Company (filed with the
Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
<S> <C>
10.16.1 Promissory Note, dated September 15, 1995, between Tred
Lightly Limited Liability Company and Provident Bank of
Maryland (filed with the Company's Current Report on Form
8-K on October 13, 1998 and incorporated herein by
reference).
10.16.2 Allonge to Promissory Note, dated September 28, 1998,
between Tred Lightly Limited Liability Company and
Provident Bank of Maryland (filed with the Company's
Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
10.17.1 Third Loan Modification and Extension Agreement, dated
November 12, 1997, between St. Barnabus Limited Partnership,
Constellation Properties, Inc. and NationsBank, N.A. (filed
with the Company's Current Report on Form 8-K on October 13,
1998 and incorporated herein by reference).
10.17.2 Fourth Loan Modification Agreement, dated September 28, 1998,
between St. Barnabus Limited Partnership, Constellation
Properties, Inc. and NationsBank, N.A. (filed with the
Company's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
10.18.1 Deed of Trust Note, dated September 20, 1988, between
Brown's Wharf Limited Partnership and Mercantile-Safe
Deposit and Trust Company (filed with the Company's
Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
10.18.2 Extension Agreement and Allonge to Deed of Trust Note,
dated July 1, 1994, between Brown's Wharf Limited
Partnership and Mercantile-Safe Deposit and Trust Company
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
10.19 Consulting Services Agreement, dated April 28, 1998,
between the Company and Net Lease Finance Corp., doing
business as Corporate Office Services (filed with the
Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
10.20 Project Consulting and Management Agreement, dated September 28, 1998,
between Constellation Properties, Inc. and COMI (filed with
the Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
10.21 Promissory Note, dated October 22, 1998, between Teachers Insurance
and Annuity Association of America and the Operating
Partnership (filed with the Company's Quarterly Report on
Form 10-Q on November 13, 1998 and incorporated herein by
reference).
10.22 Indemnity Deed of Trust, Assignment of Leases and Rents
and Security Agreement, dated October 22, 1998, by
affiliates of the Operating Partnership for the benefit of
Teachers Insurance and Annuity Association of America
(filed with the Company's Quarterly Report on Form 10-Q on
November 13, 1998 and incorporated herein by reference).
10.23 Agreement for Services, dated September 28, 1998, between the
Company and Corporate Office Management, Inc. (filed with
the Company's Quarterly Report on Form 10-Q on May 14, 1999
and incorporated herein by reference).
10.24.1 Lease Agreement, dated September 28,1998, between St.
Barnabus Limited Partnership and Constellation Properties,
Inc. (filed with the Company's Quarterly Report on Form
10-Q on May 14, 1999 and incorporated herein by
reference).
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
<S> <C>
10.24.2 First Amendment to Lease, dated December 31, 1998, between
St. Barnabus, LLC and Constellation Properties, Inc.
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
10.25.1 Lease Agreement, dated August 3, 1998, between Constellation
Real Estate, Inc. and Constellation Properties, Inc. (filed
with the Company's Quarterly Report on Form 10-Q on May 14,
1999 and incorporated herein by reference).
10.25.2 First Amendment to Lease, dated December 30, 1998, between
Three Centre Park, LLC and Constellation Properties, Inc.
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
10.26.1 Lease Agreement, dated April 27, 1993, between
Constellation Properties, Inc. and Baltimore Gas and
Electric Company (filed with the Company's Quarterly
Report on Form 10-Q on May 14, 1999 and incorporated
herein by reference).
10.26.2 First Amendment to Lease, dated December 9, 1998, between
COPT Brandon, LLC and Baltimore Gas and Electric Company
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
10.27 Underwriting Agreement, dated June 29, 1999, between Corporate
Office Properties Trust and the underwriters of the Series B
Preferred Shares (filed with the Company's Current Report on
Form 8-K on July 7, 1999 and incorporated herein by
reference).
10.28 Contribution Rights Agreement, dated June 23, 1999,
between the Operating Partnership and United Properties
Group, Incorporated (filed with the Company's Quarterly
Report on Form 10-Q on August 13, 1999 and incorporated
herein by reference).
10.29 Promissory Note, dated September 30, 1999, between
Teachers Insurance and Annuity Association of America and
the Operating Partnership.
10.30 Indemnity Deed of Trust, Assignment of Leases and Rents
and Security Agreement, dated September 30, 1999, by
affiliates of the Operating Partnership for the benefit of
Teachers Insurance and Annuity Association of America.
27 Financial Data Schedule.
</TABLE>
37
<PAGE>
c. Reports on Form 8-K
We filed the following Current Reports on Form 8-K in the three months ended
September 30, 1999:
Item 5 dated July 6, 1999 in connection with our Series B Preferred Share
offering.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CORPORATE OFFICE PROPERTIES TRUST
Date: November 8, 1999 By: /s/ Randall M. Griffin
-------------------------
Randall M. Griffin
President and Chief Operating
Officer
Date: November 8, 1999 By: /s/ Roger A. Waesche, Jr.
----------------------------
Roger A. Waesche, Jr.
Senior Vice President and Chief
Financial Officer
38
<PAGE>
Exhibit 2.22
AGREEMENT TO SELL PARTNERSHIP INTERESTS
THIS AGREEMENT TO SELL PARTNERSHIP INTERESTS is made and entered into
as of the 12th day of August, 1999, by and between (i) GATEWAY SHANNON
DEVELOPMENT CORPORATION, a Pennsylvania corporation (the "General Partner"), and
CLAY W. HAMLIN, III ("Hamlin"), who are all of the general and limited partners
(collectively, the "Partners") of Gateway Central Limited Partnership, a
Pennsylvania limited partnership (the "Partnership") (the Partners sometimes
hereinafter referred to collectively as the "Sellers"), and (ii) COPT
ACQUISITIONS, INC., a Delaware corporation (the "Buyer").
W I T N E S S E T H:
A. The Sellers own all of the partnership interests (the "Partnership
Interests") of the Partnership, the General Partner owning a 1% Partnership
Interest and Hamlin owning a 99% Partnership Interest.
B. The Partnership is the record and beneficial owner of those certain
parcels of real property as more particularly described on EXHIBIT "A" hereto
(collectively, the "Land"), together with the buildings and improvements
situated thereon (collectively, the "Building"), and all Personal Property (as
hereinafter defined) located therein, and all appurtenances, leases, rights,
easements, rights-of-way, tenements and hereditaments incident thereto (the
"Additional Property") located in Lower Paxton Township, Dauphin County,
Pennsylvania (the Land, Building, Personal Property and Additional Property are
hereinafter collectively referred to as the "Property"); and
C. Sellers and Buyer desire to enter into this Agreement relating to
the sale by Sellers to Buyer of Partnership Interests representing 89% of the
capital interests and profits interests in the Partnership (the "Transferred
Interests") to Buyer, and for the continued ownership and later sale by Sellers
of the remaining Partnership Interests representing 11% of the capital interests
and profits interests in the Partnership (the "Retained Interests").
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Sellers and Buyer agree as follows:
1. TRANSFER OF TRANSFERRED INTERESTS. Subject to the terms and
conditions set forth in this Agreement, at the First Closing (as defined below)
Sellers shall assign and transfer the Transferred Interests to Buyer in
consideration for Buyer's payment of 89% of the Net Purchase Price (hereinafter
defined). Following the First Closing, those Sellers designated in EXHIBIT "1"
attached hereto shall continue to hold all right, title and interest in and to
the Retained Interests, subject to the terms of this Agreement.
<PAGE>
2. CONSIDERATION FOR TRANSFERRED INTERESTS.
(a) In consideration of the assignment and transfer
of the Transferred Interests at the First Closing, Buyer shall pay the Sellers
89% of the Net Purchase Price less $191,440 (the "Lot 12 Price"). The portion of
the Net Purchase Price paid to the Sellers at the First Closing will be paid to
the respective Sellers in the same proportion as the respective Sellers assign
and transfer the Transferred Interests. The "Net Purchase Price" for the
Property shall equal the Purchase Price of $6,109,977.24 LESS the outstanding
and unpaid principal balance of the Mellon Loan (as defined below) at the First
Closing [excluding the reduction in such balance resulting from any paydown
required to be made the under the Stipulation Amendment (hereinafter defined) as
a condition of the Lender's consent to the transactions contemplated by this
Agreement]. The Net Purchase Price shall be further adjusted by the amounts of
positive or negative adjustments and prorations described in Section 13 below
(which shall all be determined as of the date of the First Closing).
(b) At the First Closing, the Transferred Interests
shall be transferred to Buyer with a portion (Lots 13 and 16) of the Property
then being subject to the indebtedness, lien and operation of the Mellon Loan,
including, without limitation, the Mortgage (as defined below).
(c) A portion (Lots 13 and 16) of the Property is
presently encumbered by an Open-End Mortgage and Security Agreement ("Mortgage")
from the Partnership, as debtor, for the benefit of Mellon Bank, N.A., as
secured party (the "Lender"), which Mortgage secures an original principal
indebtedness of $5,077,423.00 with interest thereon payable over the term
thereof (which ends on August 1, 2005), as evidenced by a Note from the
Partnership to Lender ("Note").
(i) The Stipulation dated August 11, 1995,
as amended by Amendment dated February 3, 1997 (collectively, the
"Stipulation"), Mortgage, Note, Construction Loan Agreement, and all other
documents and instruments executed in connection therewith are collectively
referred to as the "Mellon Loan." The outstanding principal balance under the
Mellon Loan as of the date hereof is $4,803,506.52. Sellers have delivered to
Buyer true, correct, and complete copies of all of the documents comprising the
Mellon Loan.
(ii) Buyer's obligations under this
Agreement are expressly contingent on the condition that, on or prior to the
First Closing, Buyer receives the written consent (the "Consent") from Lender at
no cost to Buyer (other than Lender's attorney's fees which will be paid by
Buyer), (i) consenting to the sale of the Partnership Interests to Buyer as set
forth herein (the "Transfer"), (ii) confirming that the Mellon Loan shall remain
on the same terms and conditions as presently exist, subject to amendment of the
Stipulation, on or before the First Closing, substantially in accordance with
the terms set forth in Exhibit "2(c)(ii)" (the "Stipulation Amendment") , and
(iii) certifying that, to the best knowledge of the Lender, there is no default
or event which with notice or lapse of time, or both, would constitute a default
under the Mellon Loan. Buyer shall, at or before the First Closing, pay to
Lender the amount of any paydown of the outstanding balance of the Mellon Loan
required to be paid to Lender
2
<PAGE>
under the Stipulation Amendment as a condition of the Lender's Consent to the
transactions contemplated by this Agreement. At Closing, the General Partner
shall execute a certificate in favor of Buyer certifying that, to the best
knowledge of the General Partner, there is no default, or event of default which
with notice or lapse of time, or both, would constitute a default under the
Mellon Loan. The General Partner shall use commercially reasonable efforts to
obtain the Consent from Lender before the end of the Due Diligence Period (as
defined below). If Buyer does not receive the Consent by the First Closing,
Buyer shall have the right to terminate this Agreement, and neither Seller nor
Buyer shall have any further liability under this Agreement. If Lender does not
consent or if Lender's Consent is other than as set forth above and is not
acceptable to Buyer, Buyer shall have the right, at its sole election, to
terminate this Agreement by giving written notice thereof to Sellers within ten
(10) days thereafter.
(iii) Sellers' obligations under this
Agreement are expressly contingent on the condition that the Lender, at or
before the First Closing, shall have released the General Partner and Clay W.
Hamlin, III from all obligations and liabilities under the Mellon Loan pursuant
to release documents reasonably acceptable to the General Partner. If Lender
does not deliver such release at or before the First Closing, the General
Partner shall have the right to terminate this Agreement, and, upon such
termination, neither Seller nor Buyer shall have any further liability under
this Agreement.
(d) Buyer shall pay Sellers the Lot 12 Price, on the
earlier to occur of (1) one (1) year after the First Closing Date or (2) the
date that Buyer obtains a building permit ("Lot 12 Permit") for the construction
on Lot 12 of the Property of an office building and other improvements in
accordance with Buyer's plans. Buyer shall be responsible for all costs of
obtaining the Lot 12 Permit. Sellers, at no third party cost to Sellers, shall
cooperate with Buyer's efforts to obtain the Lot 12 Permit.
3. CLOSINGS. Except as otherwise provided in this Agreement,
(a) the Transfer of the Transferred Interests contemplated herein shall be
consummated at the "First Closing," which shall take place on the date (the
"First Closing Date") specified by Buyer on not less than five (5) days notice
to Sellers, provided that the First Closing Date shall not be later than fifteen
(15) days after the end of the Due Diligence Period, and (b) the Transfer of the
Retained Interests contemplated herein shall be consummated at the "Second
Closing," which shall take place three (3) years and one (1) month after the
First Closing. The Closings shall take place at the offices of Buyer, 8815
Centre Park Drive, Suite 400, Columbia, Maryland 21045, or at such other place
as may mutually agreed upon by General Partner and Buyer. All references in this
Agreement to the "Closing" shall be deemed to refer to the First Closing only,
all references to the "Closing Date" shall be deemed to refer to the First
Closing Date only, and all references to the "Closings" shall be deemed to refer
to both the First Closing and the Second Closing.
3
<PAGE>
4. INSPECTION OF PROPERTY.
(a) BUYER'S RIGHT OF INSPECTION. On or before three
(3) days after the date of this Agreement, the General Partner shall deliver to
Buyer the items listed on EXHIBIT "4(a)". Subject to the rights of tenants under
the Leases, Buyer shall have the right, at its own risk, cost and expense, at
any time or times prior to Closing, to enter, or cause its agents or
representatives to enter, upon the Property for the purpose of making surveys,
or any tests, investigations and/or studies relating to the Property or Buyer's
intended acquisition of Partnership Interests which Buyer deems appropriate, in
its sole discretion, during reasonable hours and upon reasonable notice to the
General Partner. Buyer agrees to use reasonable efforts to minimize disruption
to business operations within the Property during the course of any entries
thereon. Buyer shall further have complete access to all documentation,
agreements and other information in the possession of Sellers related to the
ownership, use and operation of the Property, to the extent it is readily
available to Sellers, and shall have the right to make copies of same. Buyer
agrees to repair any damage to the Property that may be caused by its
inspections and to indemnify and defend Sellers and the Partnership and hold
Sellers and the Partnership harmless against any injury, liability, loss, damage
or expense (including, without limitation, reasonable attorneys' fees) suffered
by the Sellers or the Partnership as a result of any inspection of the Property
by Buyer or its designees.
(b) DUE DILIGENCE PERIOD. Any other provisions of
this Agreement to the contrary notwithstanding, Buyer may cause at Buyer's sole
cost and expense, such boring, engineering, economic, water, sanitary and storm
sewer, utilities, topographic, structural, environmental and other tests,
investigations, market studies and other studies to be undertaken of the
Property as Buyer shall elect, subject to the rights of tenants under the
Leases. Buyer agrees to use all reasonable efforts to minimize disruption to
business operations within the Property during the course of any entries
thereon. Buyer shall have the right, at its sole election on or before the date
which is fifteen (15) days after the date of the date of this Agreement (the
"Due Diligence Period"), to terminate this Agreement by giving written notice
thereof to the General Partner in which event this Agreement shall terminate,
and no party shall have any further liabilities or obligations to any other
party.
(c) AUDIT. The General Partner hereby agree to allow
books and records related to the Property to be audited (at Buyer's sole
expense) by an independent, certified public accounting firm selected by Buyer,
and the General Partner will cooperate and cause its employees and other agents
to cooperate in such auditing process. Buyer shall provide the General Partner
with prior notice of such audit.
5. TITLE.
(a) At the First Closing, title to the Property held
by the Partnership shall be fee simple title free and clear of all liens,
covenants, restrictions, easements, encumbrances, and other title exceptions or
objections excepting, however, Permitted Exceptions (hereinafter defined).
Otherwise, the title to the Property shall be good and marketable and such as
will be insured as such by Commonwealth Land Title Insurance
4
<PAGE>
Company ("Commonwealth") at regular rates for regular risks under the current
form of ALTA title insurance policy in the amount of $5,991,440.00 and with such
endorsements as Buyer may reasonably require, including, without limitation,
non-imputation and Fairways endorsements.
(b) Within three (3) days after the date of this
Agreement, the General Partner shall deliver to Buyer copies of the
Partnership's title insurance policy (including copies of all exceptions) and
surveys covering the Property. Prior to expiration of the Due Diligence Period,
Buyer shall furnish the General Partner with a preliminary title report issued
by Commonwealth covering the Property (the "Title Report") and a written notice
specifying those title exceptions which are not acceptable to Buyer (which may
include any matters shown on any survey of the Property obtained by Buyer) (the
"Disapproved Exceptions," which shall also include any matters added to the
Title Report or survey after its original issuance). Buyer's failure to
designate as one of the Disapproved Exceptions a title exception shown on the
Title Report shall constitute Buyer's approval of such title exception (all
title exceptions not designated by Buyer as Disapproved Exceptions and the
Mellon Loan are in this Agreement called "Permitted Exceptions"). All liens of
an ascertainable amount up to the amount of the Net Purchase Price, except the
Mellon Loan (as to Lots 13 and16), shall be paid and discharged by Seller at or
before Closing. Within ten (10) days after General Partner's receipt of Buyer's
notice of Disapproved Exceptions, the General Partner shall notify Buyer of all
Disapproved Exceptions that General Partner is unwilling or unable to remove.
General Partner's failure to give Buyer notice of General Partner's
unwillingness or inability to remove any Disapproved Exceptions shall constitute
General Partner's covenant that Seller shall remove such Disapproved Exceptions
at or prior to Closing. Buyer shall have the rights set forth in Section 4(c) if
the General Partner does not remove all Disapproved Exceptions at or prior to
Closing.
(c) If title to the Property at Closing does not
satisfy the requirements of Section 5(c), Buyer shall have the sole option of
either (i) accepting such title as exists for the Property at the First Closing
without any abatement of price, except that liens, except the Mellon Loan (as to
Lots 13 and 16) of an ascertainable amount, up to the amount of the Net Purchase
Price, shall be paid and discharged by the General Partner or (ii) being
immediately paid all documented, third party out-of-pocket expenses incurred by
Buyer (including, without limitation, the fees of attorneys, engineers,
environmental consultants and surveyors) in connection with the purchase of the
Property up to the maximum aggregate amount of $10,000 ("Buyer's Reasonable
Costs") and, in the latter event, the Sellers and the Buyer shall be released
from all liability or obligation to the other and this Agreement shall then and
thereafter be null and void.
(d) From and after the date of this Agreement, the
General Partner shall not take any action, or fail to take any action, that
would cause title to the Property to be subject to any title exceptions or
objections, other than the Permitted Exceptions.
6. REPRESENTATIONS AND WARRANTIES OF SELLERS. In order to
induce Buyer to enter into this Agreement and to pay the Net Purchase Price in
consideration for the
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Partnership Interests, each Seller for such Seller only and for no other Seller
makes the following representations and warranties, each of which is material
and shall survive Closing without limitation, notwithstanding any investigation
at any time made by or on behalf of Buyer:
(a) AUTHORITY. Such Seller has the rights, power and
authority to enter into this Agreement and to sell and transfer its Partnership
Interests in accordance with the terms and conditions of this Agreement. Except
for the consents required under the Mellon Loan, no consents of any persons
other than those executing this Agreement as a Seller are required for such
execution or to cause such Seller to consummate the transactions contemplated by
this Agreement. This Agreement is the valid and binding obligation of such
Seller, enforceable against such Seller in accordance with its terms.
(b) 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 Mellon Loan, 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 Seller is a party or by which
such Seller is bound, (ii) subject to any approval required under the Mellon
Loan, violate any restriction, requirement, covenant or condition to which such
Seller is subject or by which such Seller is bound or (iii) constitute in
violation of any code, resolution, law, statute regulation, ordinance, rule,
judgment, decree or order to which such Seller is subject or by which such
Seller is bound.
(c) OWNERSHIP OF INTERESTS. Such Seller owns the
Partnership Interest owned by such Seller, as set forth in EXHIBIT "1" hereto,
free and clear of all liens, charges, encumbrances, restrictive agreements and
assessments. Upon the transfer of such Seller's Partnership Interest (or a
portion thereof) to Buyer or its designee(s), Buyer will receive good and
absolute title thereto, free from all liens, charges, security interests,
claims, rights, encumbrances, restrictive agreements and assessments whatsoever.
Such Seller hereby waives, with respect to the transfer contemplated by this
Agreement, any "right of refusal" or other restriction on transfer, if any, set
forth in the limited partnership agreement of the Partnership. There are no
outstanding options, contracts, calls, commitments or demands of any nature
relating to the Partnership Interest of such Seller.
7. REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER. In
order to induce Buyer to enter into this Agreement and to pay the Net Purchase
Price in consideration for the Partnership Interests, the General Partner hereby
makes the following representations and warranties, each of which is material
and shall survive Closing for a period of six (6) months (unless expressly
provided that it will survive Closing without such limitation), notwithstanding
any investigation at any time made by or on behalf of Buyer:
(a) AUTHORITY. The Partnership is a limited
partnership duly organized and in good standing under the laws of the
Commonwealth of Pennsylvania. The copy of the Partnership's Partnership
Agreement and all Amendments thereto (collectively, the "Partnership
Agreement"), including all Certificates of Limited Partnership and all
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Amendments thereto, and the list of all the Partners along with their individual
Partnership Interests, attached hereto an EXHIBIT "7(A)", is a true, correct and
complete copy thereof. The representations and warranties set forth in this
Section 7(a) shall survive Closing without being subject to the six (6) month
limitation.
(b) TITLE. The Partnership is the sole owner of fee
simple title to the Property.
(c) COMPLIANCE WITH EXISTING LAWS. The General
Partner's knowledge and except as set forth on EXHIBIT "7(c)" attached hereto,
(i) the 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, development, and operation of the Property or any part
thereof, and (ii) the Partnership possesses all material, licenses,
certificates, permits and authorizations necessary for the use, development, and
operation of the Property in the manner in which it is currently being operated
by the Partnership. The Property is zoned _________. To the General Partner's
knowledge, the Building and all related facilities are now in conformance with
all applicable zoning laws. At or prior to the First Closing, General Partner
shall deliver to Sellers a certificate from Lower Paxton Township confirming the
statements in this Section 7(c). General Partner has notified Buyer that local
governmental authorities may be claiming that a local sewer moratorium affects
Lot 12 of the Property.
(d) LEASES. True, correct and complete copies of all
of the leases of the Property and any amendments thereto (collectively, the
"Leases"), have been delivered to Buyer. Attached hereto as EXHIBIT "7(D)" is a
description of all of the Leases and a current rent schedule ("Rent Schedule")
covering the Leases, which is true and correct in all material respects. There
are no leases, tenancies or occupancies of any space in the Property other than
those set forth in EXHIBIT "7(d)" or, to the General Partner' knowledge, any
subleases or subtenancies unless otherwise noted therein. Except as otherwise
set forth in EXHIBIT "7(d)":
(i) The 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, or
any right of first refusal to first offer covering the Property or any portion
thereof;
(iii) no renewal or expansion options have
been granted to the tenants, except as noted on the Rent Schedule;
(iv) to the General Partner's knowledge, the
Partnership is not in default under any of the Leases;
(v) the rents set forth on the Rent Schedule
are being collected on a current basis and there are no arrearages in excess of
one month, except as indicated in
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the Rent Schedule 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) all work for tenant alterations and
other work or materials contracted for by the Partnership and any tenant has
been completed by the Partnership, and all work and materials have been fully
paid;
(vii) the Partnership has not sent written
notice to any tenant claiming that such tenant is in default, which default
remains uncured, and to the General Partner' knowledge, no tenant is in default
under its Lease, except as indicated in the Rent Schedule hereto;
(viii) no action or proceeding instituted
against the Partnership by any tenant is presently pending in any court; and
(ix) there are no security deposits other
than those set forth in the Rent Schedule.
(e) SERVICE CONTRACTS. Attached hereto as EXHIBIT
"7(e)" is a true, complete, correct and complete list of all contracts or
agreements relating to the management, leasing, operation, maintenance or repair
of the Property (the "Service Contracts"). True and correct copies of all of the
Service Contracts have been delivered to Buyer. Except in the case of a default
by the vendor under a specific Service Contract, no Service Contract will be
terminated, amended, modified or supplemented prior to the Closing Date without
Buyer's prior written approval, which approval shall not be unreasonably
withheld, conditioned or delayed. To General Partner's knowledge, there are no
defaults by the Partnership or any vendor under any Service Contracts, and all
Service Contracts are terminable by the Partnership on at least sixty (6) days
prior notice, without payment by the Partnership.
(f) TAX BILLS. The General Partner has delivered true
and correct copies of tax bills issued by any applicable federal, state or local
governmental authority to the Partnership with respect to the 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 "7(g)" is a
list of all hazard, liability and other insurance policies presently affording
coverage with respect to the Property. The General Partner shall maintain in
full force and effect all such policies until the First Closing Date.
(h) POSSESSION OF PROPERTY. Possession of the
Property shall remain with the Partnership at Closing in its "as is, where is"
condition as of the date of Buyer's execution of this Agreement, subject to
normal wear and tear and damage by fire or other casualty and the effect of
condemnation (subject to Section 14 herein), and subject to the Permitted
Exceptions.
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(i) CONDEMNATION PROCEEDINGS. No condemnation or
eminent domain proceedings are pending or, to the best of the General Partner's
knowledge, threatened against the Property or any part thereof, and neither the
Partnership nor the 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 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.
(j) LITIGATION. Except as set forth on EXHIBIT "7(j)"
hereto, no litigation is pending or, to the best of the General Partner'
knowledge, threatened, including administrative actions or orders relating to
governmental regulations, affecting the use, operation or ownership of the
Property or any part thereof.
(k) 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 Mellon Loan, 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 Partnership is a party or by
which the Partnership or the Property is bound, (ii) subject to the approval
required under the Mellon Loan, violate any restriction, requirement, covenant
or condition to which the Partnership is subject or by which the Partnership or
the Property is bound, (iii) constitute a violation of any applicable code,
resolution, law, statute, regulation, ordinance, rule, judgment, decree or order
applicable to the Partnership, or (iv) result in the cancellation of any
contract or lease pertaining to the Property. The representations and warranties
set forth in this Section 6(k) shall survive Closing without being subject to
the six (6) month limitation.
(l) HAZARDOUS WASTE. The General Partner has no
knowledge of any discharge, spillage, uncontrolled loss, seepage or filtration
(a "Spill") 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. To the best of the General
Partner'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 the General Partner's knowledge, the Building is totally free of
friable asbestos requiring remediation.
(m) LICENSES AND PERMITS. Sellers have received no
notice, nor has any knowledge, that it is lacking any required permit or license
issued by applicable governmental authorities for operation, maintenance, or
ownership, or development of the Property ("Licenses"). The Partnership shall
not amend any licenses for the Property and shall maintain them in full force
and effect to the extent that the Partnership is responsible for them.
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(n) OPERATING STATEMENTS. Attached hereto as EXHIBIT
"7(n)" are true and correct operating statements of the Property for 1997 and
1998. Also attached as EXHIBIT "7(N)" is a copy of the 1999 operating budget for
the Property.
(o) PERSONAL PROPERTY. Attached hereto as EXHIBIT
"7(o)" is a true, correct and complete inventory of all personal property
("Personal Property"), if any, used in the management, maintenance and operation
of the Property (other than trade fixtures or personal property of tenants).
(p) LEASING COMMISSIONS. There are, and at the First
Closing shall be, no outstanding or contingent leasing commissions or fees
payable with respect to the Property.
(q) PARTNERSHIP LIABILITIES. Except for (i) the
Mellon Loan, and (ii) any accrued liabilities and obligations of the Partnership
which are being adjusted at Closing pursuant to Section 13 of this Agreement,
the 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 Partnership has not received
notice of any, and to the knowledge of the 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 is not
the express responsibility of the Sellers under the terms of this Agreement (or
taken into account as an adjustment to Net Purchase Price to be paid to the
Sellers hereunder). Specifically, but without limitation, the General Partner
represents and warrants to Buyer that the Partnership does not have any
obligations of any nature under the following agreements, all of such
obligations having been discharged and satisfied prior to the date of this
Agreement: Option Agreement dated March 18, 1996 between the Partnership, as
optionor., and John Boland, as optionee, and Option Agreement dated March 18,
1996 between the Partnership, as optionor, and Matthew S. Boland and Mark S.
Boland, as optionee. The representations set forth in this Section 7(q) shall
survive Closing without being subject to the six (6) month limitation.
(r) PARTNERSHIP FOR TAX PURPOSES. The 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. The representation set forth in this Section 7(r)
shall survive Closing without being subject to the six (6) month limitation.
(s) TAXES. The 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. Sellers and Buyer understand that, as a result of the
transactions contemplated by this Agreement, the Partnership will terminate for
Federal
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income tax purposes. Sellers shall timely file the final tax returns required in
connection with such termination and shall timely make a Section 754 election
under the Internal Revenue Code, as amended. At least seven (7) days before
filing such returns and making such election, Sellers shall provide copies of
the returns and election to Buyer for Buyer's review, and shall take into
account any comments that Buyer may have regarding such return and election. The
returns and other information filed (or to be filed) are complete and accurate
in all material respects. All Taxes of the 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 Partnership has no liability for Taxes in
excess of the amounts so paid. All Taxes that the 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 Partnership's federal, state or
local returns for Taxes by the relevant taxing authorities have occurred, and no
material deficiencies for Taxes of the Partnership have been claimed, proposed
or assessed by any taxing or other governmental authority against the
Partnership. There are no pending or, to the best of knowledge of the General
Partner, 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 the General Partner or its counsel, is
likely to result in an additional liability for Taxes. To the knowledge of the
General Partner, there are no liens for taxes on any of the Partnership
Interests, and there are no liens for taxes (other than for current taxes not
yet due and payable) on any of the assets of the Partnership. No Seller is a
person other than a United States person within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"). The representations and covenants
set forth in this Section 7(s) shall survive Closing without being subject to
the six (6) month limitation.
(t) SPECIAL LIMITATIONS. Notwithstanding anything in
this Agreement to the contrary (other than the second sentence of Section
15(b)(ii)):
(i) If Buyer does not terminate this
Agreement within the Due Diligence Period, then the representations and
warranties made by the Sellers or the General Partner in this Agreement (as well
as the specific facts and/or conditions which were the subject of such
representations and/or warranties) shall be deemed modified to account
appropriately for every fact or other matter which came to the attention of
Buyer, or Buyer's employees, agents or representatives during the course of the
Due Diligence Period (other than such fact or matter which was due to the
willful misconduct or bad faith of the Sellers or the General Partner), which
fact or matter was inconsistent with the Sellers' or General Partner'
representation(s) or warranty(ies) set forth herein, it being the intent and
agreement of the parties that Buyer shall not have the right or ability to claim
that the inaccuracy of any representation set forth herein (provided that such
inaccuracy was not due to the willful misconduct or bad faith of Sellers or the
General Partner) which was actually known to Buyer (or its employees, agents
and/or representatives) as of the end of the Due Diligence Period constitutes
either a default by the Sellers or the General Partner or a failure of a
condition to Closing hereunder;
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(ii) If Buyer elects to consummate the
Closing under this Agreement despite the failure of any of the conditions set
forth in Section 10 below, which failure is actually known to Buyer prior to
Closing, including without limitation the failure of any representation or
warranty of the Sellers or General Partner contained herein to be true and
correct as of the time of Closing (provided such failure was not the result of
the willful misconduct or bad faith of Sellers or the General Partner), then
unless Sellers or the General Partner expressly agree in writing to the contrary
at the time of Closing, Buyer shall be deemed to have waived any claims against
the Sellers or General Partner arising out of such failure, and, in such event,
the Sellers and General Partner shall have no post-Closing liability to Buyer
with respect thereto.
(iii) Buyer shall not be entitled to assert
any claim against the Sellers or General Partner with respect to the inaccuracy
of any representation or warranty made by the Sellers or General Partner
(provided that such inaccuracy was not due to the willful misconduct or bad
faith of Sellers or the General Partner), to the extent such inaccuracy was
actually known to Buyer, or Buyer's employees, agents and/or representatives, as
of or prior to the time of Closing and Buyer elects to consummate the Closing
under this Agreement, it being the intent and agreement of the parties that
Buyer shall not have the right or ability to consummate the Closing and
thereafter assert a claim for breach of a warranty or representation by Sellers
which was actually known to Buyer or its representatives as of or prior to
Closing.
(iv) If a matter represented by the Sellers
or General Partner hereunder was true as of the date of execution of this
Agreement, but subsequently is rendered inaccurate due to the occurrence of
events or due to a cause other than the Sellers' or General Partner's
intentional misconduct or bad faith, or intentional breach of this Agreement,
then such inaccuracy shall not constitute a default by the Sellers or General
Partner under this Agreement, even though the same might constitute a failure of
a condition precedent to buyer's obligation to close under this Agreement.
As used in this Agreement, the term "knowledge of General Partner"
shall mean the actual knowledge (and not implied, imputed or constructive
knowledge) of Clay W. Hamlin, III, without investigation or inquiry.
8. OBLIGATIONS OF SELLERS PENDING CLOSING. From and after the
date of this Agreement through the Closing Date, Sellers covenant and agree as
follows:
(a) MAINTENANCE AND OPERATION OF PROPERTY. The
General Partner will cause the Property to be maintained in its present order
and condition, normal wear and tear, and damage by fire or other casualty
(subject to Section 14) 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 Property will, except for normal wear and
tear and damage by fire or other casualty (subject to Section 14), be in
substantially the same condition on the Closing Date as on the date hereof.
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(b) LICENSES. The General Partner shall use its
commercially reasonable efforts to preserve in force all Licenses and to cause
those expiring to be renewed.
(c) CHANGES IN REPRESENTATIONS. The General Partner
shall notify Buyer promptly, and Buyer shall notify Sellers 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 LEASES AND SERVICE CONTRACTS.
The General Partner shall not, without Buyer's prior written consent amend,
modify, renew or extend any Lease or Service Contract in any respect unless
required by law or the terms of a specific Lease or Service Contract, or enter
into new leases or service contracts or approve any assignment of leases or
service contracts or subletting of leased space, or terminate any Lease. Prior
to Closing, Sellers shall not apply all or any part of the security deposit of
any tenant unless such tenant has vacated the Property.
(e) OBLIGATIONS AS TO MELLON LOAN. The General
Partner shall not, without Buyer's prior written consent, (i) prepay, or permit
the Partnership to prepay, the Mellon Loan, or (ii) modify or amend, or permit
the Partnership to modify or amend, any of the documents evidencing or securing
the Mellon Loan or otherwise entered into in connection with the Mellon Loan.
The General Partner shall make, or cause the Partnership to make, all payments
required to be made under the Mellon Loan when due, shall perform, or cause the
Partnership to perform, all obligations under the Mellon Loan and shall keep,
and cause the Partnership to keep, the Mellon Loan free from default. The
General Partner shall cause the Partnership not to incur any debt except
ordinary trade and service payables which are currently payable in the ordinary
course of the Partnership's business and shall cause the Partnership to comply
specifically, but without limitation, with Sections 7(q), 7(r), and 7(s) of this
Agreement.
9. REPRESENTATIONS AND WARRANTIES OF BUYER. In order to induce
Sellers to enter into this Agreement and to transfer the Partnership Interests
to Buyer, Buyer hereby makes the following representations and warranties, each
of which is material and shall survive Closing, notwithstanding any
investigation at any time made by or on behalf of Sellers:
(a) AUTHORITY OF BUYER. Buyer is a corporation duly
organized and existing and in good standing under the laws of the State of
Delaware. Buyer has all necessary power and authority to execute, deliver and
perform this Agreement and consummate all of the transactions contemplated by
this Agreement. This Agreement is the valid and binding obligation of Buyer,
enforceable against Buyer 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 Buyer is a
party, (ii) violate any restriction, requirement, covenant or
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condition to which the Buyer is subject, or (iii) constitute a violation of any
applicable code, resolution, law, statute, regulation, ordinance, rule,
judgment, decree or order.
10. CONDITIONS PRECEDENT TO FIRST CLOSING.
(a) Buyer's obligation to complete the First Closing
is contingent upon the satisfaction of all of the following conditions on the
First Closing Date.
(i) REPRESENTATIONS AND WARRANTIES. Sellers'
representations and warranties shall be true, correct and complete in all
material respects in the same manner and with the same effect as though such
representations and warranties had been made on and as of the First Closing.
(ii) ZONING AND LICENSES. No proceedings
shall have occurred or be pending to change, redesignate or redefine the zoning
classification of the Property to a more restrictive classification than
presently exists on the date of Buyer's execution of this Agreement, and the
Licenses shall be and remain in full force and effect.
(iii) CONSENT FROM LENDER. Buyer shall have
received the Consent from Lender.
(iv) PERFORMANCE BY SELLER. Sellers shall
have complied with and not be in breach of any of their covenants or obligations
under this Agreement.
(b) FAILURE OF CONDITION. In the event of the failure
by the Closing Date of any condition precedent set forth above, then Buyer, at
its sole election, may (a) terminate this Agreement, in which event neither
party shall have any further obligations or liabilities to the other; or (b)
waive such condition and proceed to Closing without abatement of consideration.
11. SELLERS' FIRST CLOSING DELIVERIES. At the First Closing
the following documents, each dated as of the First Closing Date, shall be
delivered to Buyer:
(a) Assignment and Assumption Agreement
("Assignment") and an Amendment to the Partnership Agreement ("Amendment") and
an Amendment to the Limited Partnership Certificate ("Certificate Amendment"),
in recordable form, reasonably satisfactory to Buyer and the Sellers, setting
forth the assignment by each of the Sellers of their Transferred Interest and
his or its withdrawal from the Partnership (or reduction in interest, in the
case of Sellers holding Retained Interests) and the admission of Buyer and/or
its designee(s) as partners of the Partnership, which Amendment and Certificate
Amendment shall be executed and acknowledged by all the Sellers and Buyer. Buyer
and Sellers holding Retained Interests shall enter into the Amended Partnership
Agreement (hereinafter defined).
(b) A release from each Seller releasing the
Partnership and Buyer (and its designee(s)) as partners of the Partnership from
any obligations and liabilities with
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respect to the original formation of the Partnership, and any other matter
arising from business done, transactions entered into or events occurring prior
to the Closing Date (other than those matters for which Buyer is indemnifying
the Sellers pursuant to Section 15(c)).
(c) A schedule from the General Partner updating
through the end of the month preceding the First Closing Date the Rent Schedule
for the Property and setting forth all arrearages in rents and all prepayments
of rents;
(d) Originally executed Leases and Service Contracts
and copies of books, records, operating reports, plans, architectural and
engineering reports, copies of warranties, files and other documents, writings,
computer disks and other materials related to the ownership, use, operation and
development of the Property, to the extent that any exist and are in the
possession of the General Partner, which obligation shall survive Closing;
(e) An original letter executed by the General
Partner advising the tenants of the Property of the change in control and
management of the Property and directing that rents and other payments
thereafter be sent to Buyer or as Buyer may direct;
(f) Possession of the Property from the General
Partner in the condition required by this Agreement, and the keys therefor;
(g) Such other items and instruments from the General
Partner as shall be required by the Title Company in connection with the
issuance of its title insurance policy to Buyer pursuant to Section 5 (including
customary General Partner' or owner's affidavit), except that Sellers shall not
be obligated to undertake any financial obligation, indemnities, escrows or
guarantee in favor of the Title Company; and
(h) Any other documents required by this Agreement to
be delivered by Sellers.
12. BUYER'S PERFORMANCE. At the First Closing, simultaneously
with the deliveries of the Seller pursuant to the provisions of Section 11
above, Buyer shall pay to the Sellers 89% of the Net Purchase Price less
$191,440 in accordance with Section 2, and shall execute and deliver those
documents (including without limitation those documents described in Section 10
above to which Buyer is a party or a required signatory) and take such other
actions required to be taken by Buyer at Closing as required under this
Agreement.
13. SETTLEMENT CHARGES: PRORATIONS AND ADJUSTMENTS.
(a) Buyer shall pay for the title examination, the
title insurance premium, notary fees and other such charges incident to the
Closings. Although Sellers and Buyer believe that no real estate transfer or
recording fees or taxes will be due in connection with the transactions
contemplated hereby, if it is finally determined that such taxes are due and
payable in connection herewith, then Sellers (collectively) and Buyer shall each
pay
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<PAGE>
one-half (1/2) of such real estate transfer taxes. Buyer and Sellers shall each
pay its own legal fees related to the preparation of this Agreement and all
documents required to settle the transaction contemplated hereby.
(b) At the First Closing, the following adjustments
and prorations shall be computed as of the First Closing Date, and shall
increase or decrease the Net Purchase Price determined under Section 2(a) above,
as if the transaction contemplated by this Agreement was a sale of the Property
by the Partnership to Buyer:
(i) TAXES. Real estate and personal property
taxes shall be apportioned (based on the fiscal periods for which such taxes are
assessed) as of the Closing Date.
(ii) ASSESSMENTS. All special assessments
and other similar charges which have become a lien upon the Property or any part
thereof at the Closing Date, and are due and payable through the Closing Date,
shall be paid in full by the Partnership or the Sellers on or prior to the
Closing. All other special assessments or similar charges shall be adjusted as
of the Closing Date.
(iii) RENT. Rent for the month of, and any
month after, Closing collected by the Partnership prior to Closing shall be
apportioned as of the Closing Date. If any tenant is in arrears in the payment
of rent on the Closing Date, rents received from such tenant after the Closing
shall be applied in the following order of priority: (a) first, to the payment
of current rent then due; (b) second, to delinquent rent for any period after
the Closing Date; and (c) third, to delinquent rent for any period prior to the
Closing Date. Buyer shall either cause the Partnership to use reasonable efforts
to collect (at no cost to Buyer or the Partnership), or shall assign to Sellers
the right to collect, arrearages in rents due from tenants as of the First
Closing Date. If rents or any portion thereof received by Sellers or the
Partnership after the Closing Date are payable to the other party by reason of
this allocation, the appropriate sum, less a proportionate share of any
reasonable attorneys' fees, costs and expenses of collection thereof, shall be
promptly paid to the other party, which obligation shall survive the Closing.
If any tenants are required to pay percentage rents, escalation charges
for real estate taxes, operating expenses, cost-of-living adjustments or other
charges of a similar nature ("Additional Rents") and any Additional Rents are
collected by the Partnership after the Closing which are attributable in whole
or in part to any period prior to the Closing, then the Partnership shall
promptly pay to Sellers the amount of such Additional Rents attributable to the
period prior to the Closing, less a proportionate share of any reasonable
attorneys' fees, costs and, expenses of collection thereof, and deliver to
Sellers a statement therefor, if and when the tenant paying the same has made
all payments of rents and Additional Rent then due to the Partnership pursuant
to such tenant's Lease, which obligation shall survive the Closing. Upon written
request of Sellers (but only until the time of the first reconciliation), Buyer
shall cause the Partnership to provide Sellers with the then current periodic
report of the status of collection of such Additional Rents from such tenants.
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<PAGE>
(iv) DEBT SERVICE ON THE MELLON LOAN. The
amount of interest payable under the Mellon Loan shall be apportioned as of the
Closing Date. Buyer shall, at the First Closing, pay to Seller the aggregate
amount of all escrows held by Lender as of the First Closing Date under the
Mellon Loan Documents.
(v) SECURITY DEPOSITS AND CASH. The Net
Purchase Price shall be reduced by the aggregate amount of security deposits
which the Partnership is holding or is obligated to hold under the Leases as of
the First Closing Date and shall be increased by the aggregate amount of cash in
the Partnership's bank account(s) as of the First Closing Date (determined as of
11:59 p.m. on the day immediately preceding the First Closing Date, but after
taking into account any amounts of cash distributed to the Sellers as permitted
under Section 13(c) below).
(vi) MISCELLANEOUS. All other charges and
fees customarily prorated and adjusted in similar transactions, including
utilities, insurance premiums and charges for Service Contracts to be retained
by the Partnership, shall be prorated as of the Closing Date. In the event that
accurate prorations and other adjustments cannot be made at Closing because
current bills are not obtainable or the amount to be adjusted is not yet
ascertainable (as, for example, in the case of utility bills) the parties shall
prorate on the best available information, subject to further adjustment
promptly upon receipt of the final bill or upon completion of final
computations. To the extent that water consumption or other utility charges may
constitute a lien against the Property, Sellers agree that an appropriate amount
in respect of water consumption or other utility charges may be held in escrow
by the Title Company in connection with its issuance of a title insurance policy
to Buyer. The General Partner shall use their reasonable efforts to have all
utility meters read on the Closing Date so as to accurately determine the
proration of current utility bills.
(c) It is acknowledged and agreed that, on or prior
to the First Closing, the General Partner shall cause the Partnership to
distribute to the Sellers all cash and assets of the Partnership other than the
Property; provided that the cash distributed to the Sellers shall not exceed the
cash within the Partnership's bank accounts as of 11:59 p.m. on the day
immediately preceding the First Closing Date.
14. RISK OF LOSS. The risk of loss or damage to the Property
by fire or other casualty until the First Closing shall be borne by the Sellers.
If prior to Closing (i) condemnation proceedings are commenced against all or
any portion of the Property (other than a de minimis condemnation, which shall
mean a condemnation which does not affect any parking or access areas of the
Property and does not have a material adverse affect on the value of the
Property), or (ii) if the Property is damaged by fire or other casualty to the
extent that the cost of repairing such damage shall be Two Hundred Fifty
Thousand Dollars ($250,000.00) or more based on the good faith estimate of an
independent contractor selected by the General Partner and reasonably approved
by Buyer, or (iii) if the Property is damaged by an uninsured risk, then Buyer
shall have the right, upon notice in writing to the Sellers delivered within ten
(10) days after actual notice of such condemnation or fire or other casualty
17
<PAGE>
or litigation, to terminate this Agreement, and thereupon the parties shall be
released and discharged from any further obligations to each other. If Buyer
does not elect to terminate this Agreement or in the event of fire or other
casualty or condemnation not giving rise to a right to terminate this Agreement
by Buyer, 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 in the Partnership
for the benefit of Buyer, and Sellers shall have no obligation to repair or
restore the Property; provided, however, that the Net Purchase Price determined
under Section 2(a) above shall be reduced by (a) the "deductible" applied by the
Partnership's insurance policy, or (b) if the Partnership is self-insured, the
cost of repairing such damage. Buyer shall have the right to participate in the
negotiation and settlement of any casualty or condemnation-related claim if
Buyer does not elect to terminate this Agreement.
15. INDEMNIFICATIONS.
(a) INDEMNIFICATION BY SELLERS.
(i) Subject to Section 7(t) of this
Agreement, each Seller for such Seller only, and for no other Seller, hereby
indemnifies and agrees to defend and hold harmless Buyer and its successors and
assigns from and against any and all claims, expenses, costs, damages, losses
and liabilities (including reasonable attorneys' fees) which may be asserted
against or suffered by any indemnitee, the Partnership or the Property, as a
result of, on account of or arising from any breach by such Seller of any
representation or warranty made by such Seller under Section 6 of this
Agreement, or any breach of any covenant or agreement made by such Seller under
this Agreement. This Section 15(a)(i) shall survive Closing without limitation.
(b) INDEMNIFICATION BY THE GENERAL PARTNER.
(i) Subject to Section 7(t) of this
Agreement, the General Partner hereby indemnifies and agrees to defend and hold
harmless Buyer and its partners and subsidiaries and any officer, director,
employee, agent of any of them, and their respective successors and assigns from
and against any and all claims, expenses, costs, damages, losses and liabilities
(including reasonable attorneys' fees) which may at any time be asserted against
or suffered by, any indemnitee, the Partnership or the Property, or any part
thereof, whether before or after the Closing Date, as a result of, on account of
or arising from any breach of any representation or warranty made by the General
Partner under Section 7 of this Agreement or any breach of any covenant or
agreement made by the General Partner under this Agreement. Any indemnification
of Buyer or the Partnership or other indemnitee under this Section 15(b)(i)
shall survive Closing without limitation (other than indemnification for breach
of representations or warranties which are subject to a limited survival period
described in Section 7 of this Agreement, in which case such indemnification
obligation shall cease and expire with respect to any claim not raised by Buyer,
by written notice to Sellers, within such limited survival period).
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<PAGE>
(ii) Subject to Section 7(t) of this
Agreement, the General Partner hereby indemnifies and agrees to defend and hold
harmless the Partnership, Buyer and its partners and subsidiaries and any
officer, director, employee, agent of any of them, and their respective
successors and assigns from and against any and all claims, expenses, costs,
damages, losses and liabilities (including reasonable attorneys' fees) which may
at any time be asserted against or suffered by any indemnitee, the Partnership
or the Property, or any part thereof, whether before or after the First Closing
Date, as a result of, on account of or arising from any claim relating to or
arising out of any contract, agreement or other obligation to which the
Partnership was a party or any claim relating to any encumbrance or other
occurrence prior to the First Closing Date (other than obligations under the
Mellon Loan accruing after the First Closing Date, obligations accruing after
the First Closing Date under the Leases and Service Contracts, items adjusted as
of the First Closing Date under Section 13 above, and other obligations, claims
or agreements expressly assumed by Buyer in writing), provided (and solely to
the extent) such claim is derived from an occurrence or breach which took place
prior to the First Closing Date, and solely to the extent such claim is not
within the scope of any insurance and/or indemnity agreement in favor of the
Partnership (and Buyer will look to any such insurance and /or indemnity
agreement(s) in connection with any such insured or indemnified claims to the
extent actually covered by such insurance and/or indemnity agreement). Claims
within the scope of the indemnity set forth in this Section 15(b)(ii) shall
include, without limitation, any and all liabilities for federal and state
income and other taxes (other than real estate taxes adjusted under Section 13)
due and payable with respect to any period (or portion thereof) ending on or
prior to the First Closing Date, and such indemnity shall not be subject to
Section 7(t) of this Agreement. The indemnification of Buyer and the Partnership
by the General Partner under this Section 15(b)(ii) shall survive Closing
without limitation.
(c) INDEMNIFICATION BY BUYER. Buyer hereby
indemnifies and agrees to defend and hold harmless Sellers and their respective,
heirs, personal representatives, successors and assigns from and against any and
all claims, expenses, costs, damages, losses and liabilities (including
reasonable attorneys' fees) which may at any time be asserted against or
suffered by Sellers as a result of, on account of or arising from (i) any breach
of any representation, warranty, covenant or agreement on the part of Buyer made
under this Agreement or (ii) any obligation, claim, suit, liability, contract,
agreement, debt or encumbrance or other occurrence created, arising or accruing
after the Closing Date and relating to the Property or its operations (including
without limitation (1) the obligations under the Mellon Loan accruing after the
First Closing, and (2) any accrued liabilities and obligations of the
Partnership which are being adjusted at the First Closing pursuant to Section
13). The foregoing obligations set forth in this Section 15(c) shall survive
Closing without limitation.
(d) RIGHT TO DEFEND CLAIM. If any party entitled to
indemnification under this Section 15 (the "Indemnitee") becomes aware of any
potential claim, suit or action which, if successful, will give rise to a right
to indemnification against another party to this Agreement (the "Indemnitor"),
the Indemnitee shall give the Indemnitor prompt written notice of such potential
claim, suit or action and shall give the Indemnitor the right to defend such
claim, suit or action at the sole cost and expense of the Indemnitor. If the
Indemnitor shall
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<PAGE>
undertake to defend such claim, suit or action, the Indemnitee may, at its own
cost and expense, participate in the defense of such claim, suit or action. If
the Indemnitor declines to defend such claim, suit or action, the Indemnitee's
claim for indemnification against the Indemnitor shall in attorneys' fees and
expenses incurred by the Indemnitee in defending such claim, suit or action.
16. BROKERAGE COMMISSION. Sellers and Buyer each represent and
warrant to the other that it has not made any agreement or taken any action
which may cause anyone to become entitled to a commission as a result of the
transactions contemplated by this Agreement. Buyer and Sellers will indemnify
and defend the other from any and all claims, actual or threatened, for
compensation by any third party by reason of breach of its or their
representation or warranty contained in this Section. The provisions of this
Section shall survive Closing.
17. DEFAULT.
(a) DEFAULT BY SELLERS. If Sellers shall default
under this Agreement before or at Closing, Buyer, as Buyer's sole and exclusive
remedy, may elect either to (i) terminate this Agreement, in which event neither
party shall have any further liability or obligation to the other, except that
Seller shall reimburse Buyer for all of Buyer's Reasonable Costs; (ii) close
without any reduction in the Net Purchase Price; or (iii) file an action for
specific performance of this Agreement to compel Sellers to perform Sellers
obligations under this Agreement and complete Closing. Except as specifically
set forth in this Section 17(a), Buyer shall have no other remedy for default by
Sellers before or at Closing.
(b) DEFAULT BY BUYER. If Buyer defaults in its
obligation to close the purchase of the Property, then the Seller's sole and
exclusive remedy shall be to receive from Buyer all of Seller's reasonable
documented out-of-pocket costs relating to this Agreement, the amount thereof
being fixed and liquidated damages (it being understood that Seller's actual
damages in the event of such default are difficult to ascertain and that such
proceeds represent the parties' best current estimate of such damages). Except
as specifically set forth in this Section 17(b), Seller shall have no other
remedy for any default by Buyer.
The provisions of Sections 17(a) and 17(b) above shall not be
applicable to any breach or default by a party occurring or first becoming
actually known to the other party after the First Closing, and, as to any such
breach or default, the nondefaulting party may exercise any and all remedies
available at law or in equity, subject, however, to any applicable limitations
on survival expressly provided for in this Agreement.
18. RETAINED INTERESTS.
(a) Upon the contribution of the Transferred
Interests to Buyer at the First Closing, the Sellers holding the Retained
Interests (the "Retained Partners") and Buyer (and any other party designated by
Buyer to hold an interest in the Partnership) shall enter into an amended and
restated limited partnership agreement (the "Amended Partnership
20
<PAGE>
Agreement') for the Partnership containing such terms and conditions as are
mutually agreeable to Buyer and the Retained Partners. The Amended Partnership
Agreement shall provide that (i) Buyer (or Buyer's designee) is the general
partner of the Partnership and shall have exclusive authority to manage the
Property and the Partnership, including without limitation the expenditure of
Partnership funds and the distribution of cash flow, (ii) the Retained Partners
shall be limited partners and shall have no personal liability for any debts,
obligations or claims of the Partnership, and (iii) the Retained Partners shall,
in the aggregate, have a capital interest in the Partnership equal to 11% of the
aggregate capital of the Partnership (which aggregate capital of the Partnership
shall equal the Net Purchase Price), and (iv) the Retained Partners shall be
entitled to a cumulative eleven (11%) priority return on his capital interest in
the Partnership (the "Priority Return"). The Retained Partners shall retain full
right, title and interest in and to the Retained Interests until the Second
Closing and shall not transfer or hypothecate the Retained Interests without the
prior written consent of the Buyer.
(b) At the Second Closing, the Retained Partners will
contribute the Retained Interests to Buyer and, in exchange therefor, Buyer
shall pay to the Retained Partners an amount equal to 11% times the Net Purchase
Price of the Property. If, as of the Second Closing, the Retained Partners have
not received the full amount of the Priority Return accrued through the Second
Closing Date, Buyer shall take such actions as may be required to cause the
Partnership to pay to the Retained Partners the unpaid amount of the Priority
Return accrued through the Second Closing (including contributing or advancing
such funds to the Partnership if necessary).
(c) At the Second Closing, the Retained Partner's
shall (i) execute, acknowledge and deliver to Buyer substantially the same
documents set forth in Section 11(a) and (b) above with respect to the Retained
Interests, each dated as of the date of the Second Closing and (ii) execute an
affidavit setting forth that all of the representations and warranties set forth
in Section 6 relating to the Retained Interests are true and correct in all
material respects on the date of the Second Closing.
19. MISCELLANEOUS PROVISIONS.
(a) COMPLETENESS AND MODIFICATION. This Agreement
(together with all Exhibits attached hereto), constitutes the entire agreement
of the parties hereto with respect to the transactions contemplated herein, and
it supersedes all prior discussions, understandings or agreements between the
parties. This Agreement shall not be modified or amended except by an instrument
in writing signed by all of the parties hereto.
(b) BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, and their respective
successors and assigns.
(c) ASSIGNMENT. This Agreement shall not be
assignable by Buyer without the consent of Sellers, provided that,
notwithstanding anything to the contrary contained in this Agreement, Buyer
shall be entitled to assign this Agreement to an entity
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controlled by, controlling or under common control with the Buyer and to direct
the Sellers to transfer their Partnership Interests to an entity or entities
controlled by, controlling, or under common control with the Buyer.
(d) WAIVER: MODIFICATION. Failure by Buyer or Sellers
to insist upon or enforce any of its rights hereto shall not constitute a waiver
or modification thereof.
(e) GOVERNING LAW. This Agreement shall be governed
by and construed under the laws of the Commonwealth of Pennsylvania.
(f) HEADINGS. The headings are herein used for
convenience or reference only and shall not be deemed to vary the content of
this Agreement or the covenants, agreements, representations and warranties
herein set forth, or the scope of any provision hereof.
(g) CONTINUING DOCUMENTATION AND ACCESS. From and
after Closing, the General Partner shall afford Buyer reasonable access to any
and all information in their possession concerning the ownership, use and
operation of the Property (including the right to copy same at the expense of
Buyer) for purposes of any tax examination or audit or other similar purpose,
subject to the agreements of the Sellers, the Partnership or Buyer concerning
confidentiality set forth herein. Buyer agrees and acknowledges that the
information provided to them by the General Partner, the Sellers or the
Partnership regarding the Property or the Partnership is confidential, and that
they will not disclose such information to any other person, other than to their
employees, attorneys, accountants and other consultants, or use such information
for any purpose other than the transaction described herein without the prior
written consent of the General Partner. If this Agreement is terminated or if
the First Closing is not consummated, all information provided to Buyer and, and
all copies thereof, shall be returned to the General Partner.
(h) COUNTERPARTS. This Agreement may be executed in
as many counterparts as may be required; it shall be sufficient that the
signature of, or on behalf of, each party, or that the signatures of the persons
required to bind any party, appear on one or more such counterparts. All
counterparts shall collectively constitute a single agreement.
(i) NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall be delivered by
hand, commercial courier, telecopy or overnight courier (for example, Federal
Express) against receipt, to the addresses indicated below:
22
<PAGE>
IF TO BUYER:
Karen M. Singer, Esquire
Corporate Office Properties Trust
8815 Centre Park Drive - Suite 400
Columbia, MD 21045
Phone: 410-992-7293
Fax: 410-992-7534
WITH A COPY TO:
F. Michael Wysocki, Esquire
Saul, Ewing, Remick & Saul LLP
Centre Square West
1500 Market Street - 38th Floor
Philadelphia, PA 19102
Phone: 215-972-7169
Fax: 215-972-1932
IF TO SELLERS OR THE GENERAL PARTNER:
Mr. Clay W. Hamlin, III
Chief Executive Officer
Corporate Office Properties Trust
401 City Avenue - Suite 615
Bala Cynwyd, PA 19004-1126
Phone: 610-538-1810
Fax: 610-538-1801
Such notice shall be deemed given on the date of receipt by the
addressee or the date receipt would have been effectuated if delivery were not
refused. Each party may designate a new address by written notice to the other
in accordance with this Section 19(i). Any notice required or permitted to be
given by or on behalf of the Sellers hereunder shall be effective if such notice
is executed by the General Partner.
(j) FURTHER ASSURANCES. Sellers and Buyer agree to
execute, acknowledge and deliver any further agreements, documents or
instruments that are reasonably necessary or desirable to carry out the
transactions contemplated by this Agreement.
(k) BUSINESS DAYS. A "business day" shall be Mondays
through Fridays, less and excepting all legal holidays observed by the United
States Government or the Government of the State of Maryland. Any date specified
in this Agreement which does not fall on a business day shall be automatically
extended until the first business day after such date.
23
<PAGE>
(l) TIME OF THE ESSENCE. Time is of the essence in
the performance of all obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
Sell Partnership Interests as of the day and year first written above.
SELLERS:
GATEWAY SHANNON DEVELOPMENT COMPANY
By: /s/ Clay W. Hamlin, III
--------------------------------------
Clay W. Hamlin, III
President
/s/ Clay W. Hamlin, III
--------------------------------------
CLAY W. HAMLIN, III
BUYER:
COPT ACQUISITIONS, INC.
By: /s/ Roger A. Warsche, Jr.
-----------------------------------
Name: Roger A. Warsche, Jr.
---------------------------------
Title: Senior Vice President
--------------------------------
24
<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C> <C>
EXHIBIT "A" Legal Description of Land Recitals
EXHIBIT "1" Transferred and Retained Interests Recitals, Section 18,
EXHIBIT "2(c)(ii)" Terms of Amendment to Mellon Loan Section 2(c)(ii)
EXHIBIT "4(a)" Seller's Deliveries Section 4(a)
EXHIBIT "7(a)" Partnership Agreement Section 7(a)
EXHIBIT "7(d)" Leases and Rent Schedule Section 7(d)
EXHIBIT "7(e)" Service Contracts Section 7(e)
EXHIBIT "7(c)" Violations Section 7(c)
EXHIBIT "7(g)" Insurance List Section 7(g)
EXHIBIT "7(j)" Litigation Section 7(j)
EXHIBIT "7(n)" Operating Statements and Budget Section 7(n)
EXHIBIT "7(o)" Personal Property Section 7(o)
</TABLE>
[SELLERS AND BUYER TO ATTACH FOREGOING AT EXECUTION OF THIS AGREEMENT]
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
LOT NO. 12
ALL THAT CERTAIN lot situate in Lower Paxton Township, Dauphin County, being
designated as Lot No. 12 on the Preliminary/Final Subdivision Plan for Gateway
Corporate Center recorded in Plan Book D, Volume 5, Page 19.
LOT NO. 13
ALL THAT CERTAIN lot situate in Lower Paxton Township, Dauphin County, being
designated as Lot No. 13 on the Subdivision Plan for Heatherwood Commercial Park
dated March 12, 1981, last revised April 29, 1981 by D.P. Raffensperger
Associates, Engineers and Surveyors, recorded in Plan Book M, Volume 3, Page 84.
LOT NO. 16
ALL THAT CERTAIN lot situate in Lower Paxton Township, Dauphin County, being
designated as Lot No. 16 on the Preliminary/Final Subdivision Plan for Gateway
Corporate Center recorded in Plan Book D, Volume 5, Page 19.
<PAGE>
EXHIBIT 1
TRANSFERRED AND RETAINED INTERESTS
GATEWAY CENTRAL LIMITED PARTNERSHIP
<TABLE>
<S> <C>
PARTNERSHIP INTERESTS HELD PRIOR TO FIRST CLOSING:
Gateway Shannon Development Corporation 1.0% General Partnership Interest
Clay W. Hamlin, III 99.0% Limited Partnership Interest
PARTNERSHIP INTERESTS HELD AFTER FIRST CLOSING:
Corporate Office Properties Holdings, Inc. .1% General Partnership Interest
Corporate Office Properties, L.P. 88.9% Limited Partnership Interest
Clay W. Hamlin, III 11.0% Limited Partnership Interest
</TABLE>
<PAGE>
EXHIBIT 4(a)
SELLER DUE DILIGENCE DELIVERIES
(1) Copies of any and all leases and other agreements affecting the
Property.
(2) A rent roll indicating all tenants, spaces occupied and vacant
(including the square footage thereof), base rent, escalations, "pass-throughs"
(including, but not limited to, real estate taxes, utilities, insurance and/or
operating expenses), additional rent, rent adjustments (including, but not
limited to, Consumer Price Index, or other adjustments) construction allowances,
abatements, concessions, lease commencement and expiration dates, renewal or
expansion options, options to purchase, cancellation rights, security deposit
and/or other deposits.
(3) Copies of all hazard, rent loss, liability and other insurance
policies currently in force with respect to the Property and/or Partnership's
business at the Property.
(4) Copies of all engineering and architectural plans and
specifications, drawings, studies and surveys (including, without limitation,
tenant floor plans, tenant build-out plans, and CAD diskettes) relating to the
Property, in Partnership's possession or control, and copies of any reports or
studies (including, but not limited to, environmental reports, inspection
reports of governmental authorities or insurance carriers, ADA reports, soils
reports, and appraisals), in Partnership's possession or control, in respect of
the condition or operation of the Property or recommended improvements thereto.
(5) Copies of the bill or bills issued for the years 1997, 1998 and
1999 for all real estate taxes and personal property taxes and copies of any and
all notices pertaining to real estate taxes or assessments applicable to the
Property. General Partner shall promptly deliver to Buyer copies of any such
bills or notices received by Seller after the date of this Agreement, even if
received after Closing.
(6) Copies of all certificates of occupancy, licenses, permits,
authorizations and approvals required by law or by any governmental authority
having jurisdiction thereover in respect of the Property, or any portion
thereof, occupancy thereof, construction thereon or any use thereof.
(7) Copies of all income and expense statements, year-end financial
monthly and annual operating statements and operating budgets in respect of the
Property for calendar years 1997, 1998 and to the extent available, the current
year ("Operating Statements"). General Partner shall deliver to Purchaser all
Operating Statements prepared in the ordinary course of business promptly upon
preparation thereof relating to periods prior to Closing.
<PAGE>
(8) Copies of all brokerage commission, management, leasing,
maintenance, repair, construction (including those for tenant improvements),
service, pest control, elevator maintenance and supply contracts (including,
without limitation, janitorial, elevator, scavenger, laundry and landscaping
agreements), equipment rental agreements, telephone, telecommunications, and
master antenna agreements, and any other contracts or agreements relating to or
affecting the Property or which will be binding upon the Property or Partnership
subsequent to Closing, all as amended and all warranties relating to such
contracts.
(9) Copies of all contracts for construction repairs or capital
replacements to be performed at the Property, or covering such work performed
during the five (5) years immediately preceding the date of this Agreement, and
all warranties relating to such contracts.
(10) Copies of all warranties and maintenance manuals relating to any
portion of the Property or any Personal Property.
(11) Copies of Partnership's marketing materials pertaining to the
Property.
<PAGE>
Exhibit 2.23
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT (the "AGREEMENT") is made and entered into as of this
21st day of July, 1999, by and between FIRST INDUSTRIAL FINANCING PARTNERSHIP,
L.P., a Delaware limited partnership ("SELLER"), and COPT ACQUISITIONS, INC., a
Delaware corporation, or its assignee ("PURCHASER").
1. SALE.
Seller agrees to sell and convey to Purchaser, and Purchaser agrees to
purchase from Seller, for the purchase price set forth below and on the terms
and conditions set forth in this Agreement, the Project (as hereinafter
defined), including those certain buildings, each of which contains
approximately that number of net rentable square feet specified on EXHIBIT A
attached hereto (the "BUILDINGS"). The Buildings are commonly known by the
street addresses described on EXHIBIT A. For purposes of this Agreement, the
term, "PROJECT" shall be deemed to mean, on a collective basis: (a) the parcels
of land described in EXHIBIT B, attached hereto (the "Land"), together with all
rights, easements and interests appurtenant thereto including, but not limited
to, any streets or other public ways adjacent to said Land and any water or
mineral rights owned by, or leased to, Seller; (b) all improvements located on
the Land, including, but not limited to, the Buildings, and all other on-site
structures, systems, and utilities associated with, and utilized by Seller in
the ownership and operation of the Buildings (all such improvements being
referred to herein as the "IMPROVEMENTS"), but excluding improvements, if any,
owned by any tenant(s) located therein; (c) Seller's interest in all leases and
other agreements to occupy all or any portion of the Project that are in effect
on the Contract Date including, but not limited to, any New Leases (as defined
in SECTION 8.2.1) (the "LEASES"); (d) all equipment, fixtures, machinery and
personalty of every description that is owned by Seller (rather than any tenant
under the Leases or any third party) attached to or used exclusively in
connection with the Project (the "PERSONAL PROPERTY"); (e) all trademarks,
tradenames, development rights, building names and entitlements and other
similar assignable intangible personal property owned by Seller and used
exclusively in connection with the ownership, operation and maintenance of the
Land and the Improvements (the "INTANGIBLE PERSONAL PROPERTY"); (f) the
Approvals (as defined in EXHIBIT D) issued to Seller in connection with the
ownership of the Project to the extent the same are assignable; and (g) to the
extent assignable, subject to proprietary rights therein and without recourse to
Seller, all of Seller's right, title and interest in and to all guaranties and
warranties issued with respect to the Improvements, if any, architectural plans,
drawings and specifications, if any, describing the Improvements, and all
surveys, maps, engineering reports and other technical descriptions of the
Project (collectively, the "REPORTS").
2. PURCHASE PRICE.
The total purchase price to be paid to Seller by Purchaser for the
Project shall be Thirty-Nine Million Five Hundred Thousand and No/100 Dollars
($39,500,000.00), which amount has been allocated among the Buildings as
described on EXHIBIT A (the "PURCHASE PRICE"). Provided that all conditions
precedent to Purchaser's and Seller's obligations to close as set forth in this
Agreement ("CONDITIONS PRECEDENT") have been satisfied and fulfilled, or waived
in writing by Purchaser, the Purchase Price shall be paid to Seller at Closing,
plus or minus prorations and other adjustments hereunder, by federal wire
transfer of immediately available funds.
3. CLOSING.
3.1. CLOSING DATE. The purchase and sale contemplated herein shall be
consummated at a closing ("CLOSING") to take place by mail or at the offices of
Purchaser's counsel, Morgan, Lewis & Bockius LLP, 1701 Market Street,
Philadelphia, Pennsylvania 19103-2921, with a representative of the Title
Company (as hereinafter defined) in attendance and receiving and disbursing
funds. The Closing shall occur (i) within thirty (30) days after the Approval
Date (as hereinafter defined) (the "INITIAL CLOSING DATE"), or (ii) in the event
Purchaser timely exercises its Closing Date Extension Right (as hereinafter
defined) pursuant to SECTION 6.5 hereof, within 60 days after the Approval Date
(the "EXTENDED CLOSING DATE"),
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or (iii) at such other time as the parties may agree upon in writing (the date
upon which Closing occurs pursuant to item (i), (ii) or (iii) above, the
"CLOSING Date"). The Closing shall be effective as of 11:59 p.m. on the Closing
Date.
3.2. CONDITIONS TO CLOSING. It is a Condition Precedent to Purchaser's
obligations to proceed to Closing that, as of the Closing Date (i) Seller has
performed all of its covenants hereunder in all material respects, (ii) the
Project is delivered to Purchaser at Closing free and clear of any occupants or
rights to possession other than tenants under the Leases; (iii) the Title
Company has issued or is prepared to issue the Title Policies (defined below) or
marked up title commitments therefor at Closing, and (iv) Seller shall have
delivered Estoppel Certificates (defined below) satisfying at least the Required
Estoppel Amount (defined below). If any Condition Precedent to Purchaser's
obligations hereunder is not fulfilled, or waived in writing by Purchaser,
Purchaser may, in its sole discretion and as its sole remedy hereunder, at law
or in equity, elect either (x) to terminate this Agreement by delivery of
written notice to Seller, whereupon the Earnest Money, together with all
interest earned thereon, shall be promptly returned to Purchaser and neither
party shall have any further liability hereunder, except as otherwise expressly
provided in SECTIONS 6.3, 17 and 20 below; or (y) proceed to Closing and waive
the failure of the applicable Condition Precedent. It shall also be a Condition
Precedent to Purchaser's obligation to proceed to Closing that during the period
between the Approval Date and the Initial Closing Date, tenants leasing no more
than 5% of the aggregate square footage of the Project as set forth on EXHIBIT A
shall vacate or abandon the Project other than pursuant to the scheduled
expiration of the applicable Leases (the "OCCUPANCY CONDITION"); provided,
however, that the foregoing Occupancy Condition shall not be applicable to the
period, if any, between the Initial Closing Date and the Extended Closing Date,
and any vacation or abandonment of the Project during such period by one or more
tenants, whether pursuant to the scheduled expiration of any such tenant's Lease
or otherwise, shall not constitute the failure of a Condition Precedent
hereunder. It shall be a further Condition Precedent to Purchaser's obligation
to proceed to Closing that all of Seller's representations and warranties
hereunder that were true and correct in all material respects as of the date of
the Approval Date Certificate (defined below) remain true and correct in all
material respects as of the Initial Closing Date (the "REPRESENTATION
CONDITION"); provided, however, that the Representation Condition shall not be
applicable to the period, if any, between the Initial Closing Date and the
Extended Closing Date and the untruth or inaccuracy of any representation and
warranty of Seller as of the Extended Closing Date that was true and correct in
all material respects as of the date of the Approval Date Certificate and the
Initial Closing Date shall not constitute the failure of a Condition Precedent
hereunder. For purposes of determining those representations and warranties made
by Seller to Purchaser that remain true and correct in all material respects as
of the Approval Date, Seller shall deliver to Purchaser, not later than three
(3) days prior to the Approval Date, a certificate (the "APPROVAL DATE
CERTIFICATE") certifying that all of Seller's representations and warranties
made as of the Contract Date remain true and correct as of the date of such
Approval Date Certificate, except for changes and qualifications specified by
Seller in such Approval Date Certificate so as to make the Approval Date
Certificate true and correct in all material respects. The representations,
warranties and certifications contained in such Approval Date Certificate shall
be made by Seller to the standard of knowledge, if any, contained herein for the
applicable representations, warranties or certification and subject to all of
the terms, conditions and limitations contained in SECTION 22 of this Agreement.
Notwithstanding anything contained herein to the contrary, if either or both of
the Representation Condition and the Occupancy Condition is not fulfilled, or
waived in writing by Purchaser, Purchaser may, in its sole discretion and as its
sole remedy hereunder, at law or in equity, elect either (aa) to terminate this
Agreement by delivery of written notice to Seller not later than the Initial
Closing Date, whereupon the Earnest Money, together with all interest earned
thereon, shall be promptly returned to Purchaser and neither party shall have
any further liability hereunder, except as otherwise expressly provided in
SECTIONS 6.3, 17 and 20 below; or (bb) proceed the Closing and waive the failure
of the applicable Condition Precedent.
4. EARNEST MONEY.
4.1. ESCROWEE. On the Contract Date, the parties shall enter into an
escrow agreement in the form attached hereto as EXHIBIT C (the "ESCROW
AGREEMENT," the escrow
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created thereby being referred to herein as the "Escrow"), designating
Commonwealth Land Title Insurance Company as the escrowee thereunder
("ESCROWEE"). The parties hereby authorize their respective attorneys to execute
the Escrow Agreement and to make such amendments thereto as they shall deem
necessary or convenient to close the transaction contemplated hereby.
4.2. EARNEST MONEY DEPOSIT. Not later than three (3) business days
after Seller's execution and delivery of this Agreement (the date of such
execution and delivery, the "CONTRACT DATE"), Purchaser shall deposit into the
Escrow, in accordance with the terms of the Escrow Agreement, and as its initial
earnest money deposit (the "INITIAL EARNEST MONEY"), the sum of Five Hundred
Thousand and No/100 Dollars ($500,000.00). In the event Purchaser elects to
exercise its Closing Date Extension Right pursuant to SECTION 6.5 below,
Purchaser shall deposit within three (3) business days following the delivery of
the Closing Date Extension Notice (as defined in SECTION 6.5 below), as an
additional earnest money deposit (the "ADDITIONAL EARNEST MONEY"), the sum of
Five Hundred Thousand and No/100 Dollars ($500,000.00). The Initial Earnest
Money and the Additional Earnest Money shall be hereinafter collectively
referred to as the "EARNEST MONEY". The Earnest Money shall be invested by the
Escrowee in an interest-bearing account with an FDIC-insured, national bank
having gross assets in excess of $1,000,000,000.00 (an "APPROVED DEPOSITORY").
4.3. APPLICATION AT CLOSING. At Closing, the Earnest Money shall be
delivered to Seller and credited against the Purchase Price. All interest (if
any) earned on the Earnest Money shall be paid to Purchaser, except in the event
of Purchaser's breach of its obligations under this Agreement resulting in
Seller's termination of this Agreement (as hereinafter provided), whereupon the
Earnest Money and all interest earned thereon shall be paid to Seller. All
Earnest Money shall be appropriately dealt with by the Escrowee so as to be
delivered to Seller or Purchaser, as the case may be, as provided herein and as
provided in the Escrow Agreement.
5. SELLER'S DELIVERIES.
Prior to the execution of this Agreement, Seller has, to Seller's
knowledge, delivered or made available to Purchaser all of the documents,
materials, information and agreements described on EXHIBIT D attached hereto
that are in Seller's possession or reasonable control (the "DOCUMENTS"),
including, but not limited to, those documents, materials, information and
agreements identified on EXHIBIT D-1 to this Agreement (the "SCHEDULED
DOCUMENTS"). Seller shall continue to make available to Purchaser or its agents
for inspection at the Harrisburg, Pennsylvania office of First Industrial Realty
Trust, Inc., a Maryland corporation ("FR"), all, to Seller's knowledge, of the
Documents in Seller's possession or reasonable control, which were not
previously delivered by Seller to Purchaser pursuant to the correspondence and
corollary documentation described on SCHEDULE 5 attached hereto.
6. INSPECTION PERIOD.
6.1. BASIC PROJECT INSPECTION. At all times prior to Closing, including
times following the "INSPECTION PERIOD" (which Inspection Period is defined to
be the period from and after the Contract Date and continuing through and
including the date that is thirty (30) days after the Contract Date), Purchaser,
its agents and representatives shall be entitled to conduct a "BASIC PROJECT
INSPECTION," which will include the rights to: (i) enter upon the Land and
Improvements, on reasonable notice to Seller, to perform inspections and tests
of the Project, (ii) make investigations with regard to environmental and other
legal requirements, (iii) review the tenant leases and other contracts affecting
the Project, and (iv) upon three (3) business days' prior written notice to
Seller affording Seller the opportunity to be present at such interview,
interview any tenant of the Project with respect to its current and prospective
occupancy of the Project. If Purchaser determines that the results of any
inspection, test, examination or review do not meet Purchaser's criteria, in its
sole discretion, for the purchase, financing or operation of the Project in the
manner contemplated by Purchaser, then Purchaser may terminate this Agreement by
written notice to Seller (the "TERMINATION NOTICE"), with a copy to Escrowee,
given not later than the last day of the Inspection Period (the "APPROVAL
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DATE"). If Purchaser fails to timely deliver a Termination Notice to Seller
prior to the Approval Date, Purchaser shall be automatically deemed to have
waived its right to terminate this Agreement pursuant to this SECTION 6.1. Upon
the timely termination of this Agreement by Purchaser in accordance with the
terms of this SECTION 6.1, the Initial Earnest Money, together with all interest
thereon, shall be returned to Purchaser and neither party shall have any further
liability to the other hereunder, except as provided in SECTIONS 6.3, 17 and 20
below.
6.2. ENVIRONMENTAL ASSESSMENT AND ADDITIONAL PERIOD. During the
Inspection Period, Purchaser shall have the right to employ one or more
environmental consultants or other professional(s) to perform a so-called "Phase
I" environmental inspection and assessment (the "ASSESSMENT") of the Project,
and Seller acknowledges and consents to such Assessment. Seller shall reasonably
cooperate with Purchaser and its environmental consultants (but without third
party expense to Seller). In the event that (i) the results of the Assessment
are inconclusive or reveal material environmental matters unacceptable to
Purchaser, in its sole judgment, or (ii) Purchaser has not received or has not,
in its sole judgment, had adequate time to review updated Surveys of the Project
(but not the Surveys delivered by Seller, which Purchaser shall be required to
review on or prior to the Approval Date), then Purchaser, at its sole option but
provided that Purchaser satisfies all of the conditions described in the next
sentence, after prior written notice to Seller delivered on or prior to the
Approval Date, shall be entitled to extend the Inspection Period for 15 days
following the Approval Date (the "ADDITIONAL PERIOD"), for the limited purposes
of allowing and accommodating (x) additional required environmental inspections
and tests (the "ADDITIONAL ASSESSMENT"), whether involving an ASTM "Phase II"
evaluation or otherwise (provided the scope of such Additional Assessment has
been approved by Seller, which approval shall not be unreasonably withheld or
delayed), and/or (y) additional review of the updated Surveys, as the case may
be, and for no other purposes whatsoever. If Purchaser timely exercises its
right to extend the Inspection Period by the Additional Period, Purchaser shall
be required to provide written notice to Seller, on or prior to the Approval
Date, certifying to Seller that Purchaser (aa) has obtained financing for the
Project (or has sufficient capital proceeds available to consummate the
transactions contemplated hereby without financing) and completed the Basic
Project Inspection; and (bb) Purchaser is satisfied with the condition of the
Project and Purchaser's underwriting of the Project, including, but not limited
to, the physical condition of the Project and the status of the tenancies,
subject only to the Additional Assessment with regard to the environmental
condition of the Project and/or the completion of Purchaser's review and
approval of the updated Surveys, whereupon Purchaser shall have no further right
to terminate this Agreement by delivery of a Termination Notice on or prior to
the Approval Date. Such Additional Period, if applicable, shall automatically
and concomitantly extend the Initial Closing Date and Extended Closing Date, if
applicable, on a day-to-day basis, for all relevant purposes hereunder. If (i)
Purchaser has elected to extend the Inspection Period by the Additional Period
for the limited purposes described in this SECTION 6.2; and (ii) any Additional
Assessment conducted by Purchaser reveals any environmental condition(s) that
either were not known to Purchaser as of the Approval Date or were known to
Purchaser but not capable of being reasonably evaluated on the basis of
information available to Purchaser and which, in Purchaser's sole judgment,
would have a material adverse affect on the ownership, use or operation of the
Project, Purchaser may elect to terminate this Agreement by written notice to
Seller (an "ADDITIONAL PERIOD TERMINATION NOTICE"), with a copy to Escrowee,
given not later than the last day of the Additional Period, which Additional
Period Termination Notice shall contain a reasonably detailed description of the
environmental conditions revealed by the Additional Assessment together with a
certification made by Purchaser to Seller that Purchaser either (i) had no
knowledge of such environmental conditions as of the Approval Date or (ii) had
knowledge of such environmental condition but lacked sufficient information to
reasonably evaluate such condition. If (a) Purchaser satisfies all of the
conditions described in the preceding sentence and (b) timely delivers an
Additional Period Termination Notice on or prior to the expiration of the
Additional Period, this Agreement shall be deemed properly terminated, whereupon
the Earnest Money, together with all interest earned thereon, shall be promptly
returned to Purchaser and neither party shall have any further liability
hereunder, except as otherwise provided in SECTION 6.3, 17 and 20.
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6.3. PURCHASER'S UNDERTAKING. Purchaser hereby covenants and agrees
that it shall cause all studies, investigations and inspections (including, but
not limited to, the Assessment and any Additional Assessment), performed at the
Project pursuant to this SECTION 6 to be performed in a manner that does not
unreasonably disturb or disrupt the tenancies or business operations of the
Project's tenant(s). Further, in connection with Purchaser's exercise of its
rights under this Agreement, if the Closing fails to occur for any reason
whatsoever, Purchaser hereby covenants and agrees to repair any physical damage
that occurs to the Project due to the exercise by Purchaser (or any person
acting on the behalf or at the request of Purchaser including, without
limitation, its agents, employees, independent contractors, consultants or
representatives) of its rights pursuant to this Agreement (or any entry onto the
Project prior to the date of this Agreement for purposes comparable to those
described in SECTION 6.1), including, without limitation, the right to conduct
the Basic Project Inspection or the Assessment, at Purchaser's sole cost and
expense, and to return the Project to the same condition as existed immediately
prior to the initial entry onto the Project or any portion thereof (or, to the
extent such restoration is not practicable, to a condition of equal or greater
value). During the Inspection Period, Purchaser, its engineers, architects,
employees, contractors and agents shall maintain public liability insurance
policies insuring against claims arising as a result of the Basic Project
Inspection. Said insurance policies shall include personal injury and property
damage coverage, in the amount of not less than $1,000,000 per occurrence and
$5,000,000 annual general aggregate per location. Said insurance policies shall
be issued by an insurance agency with a Best Rating of A-IX or better and
otherwise be reasonably acceptable to Seller and licensed to do business in the
Commonwealth of Pennsylvania. Prior to the commencement of the Basic Project
Inspection, Purchaser shall deliver to Seller, insurance certificates (on ACORD
Form 27) naming Seller as an additional insured and reflecting the coverage
required in this SECTION 6.3. Purchaser hereby indemnifies, protects, defends
and holds Seller harmless from and against any and all losses, damages, claims,
causes of action, judgments, damages, costs and expenses (but in no event any
consequential or speculative damages) that Seller suffers or incurs as a result
of any damage caused at, to, in, or at the Project as a result of any or all of
the studies, investigations and inspections (including, but not limited to, the
Assessment), that Purchaser elects to perform (or cause to be performed)
pursuant to this Agreement. Purchaser's undertaking pursuant to this SECTION 6.3
shall indefinitely survive the Closing or termination of this Agreement.
6.4. CONFIDENTIALITY. Each party agrees to maintain in confidence, the
information contained in this Agreement or pertaining to the sale contemplated
hereby and the information and data furnished or made available by Seller to
Purchaser, its agents and representatives in connection with Purchaser's
investigation of the Project and the transactions contemplated by the Agreement;
provided, however, that each party, its agents and representatives may disclose
such information and data (a) to such party's accountants, attorneys,
prospective lenders, investment bankers, underwriters, ratings agencies,
partners, consultants and other advisors in connection with the transactions
contemplated by this Agreement (collectively "REPRESENTATIVES") to the extent
that such Representatives reasonably need to know such information and data in
order to assist, and perform services on behalf of, Seller or Purchaser; (b) to
the extent required by any applicable statute, law, regulation or governmental
authority, including, without limitation, any rule or regulation promulgated by
the Securities Exchange Commission; and (c) in connection with any litigation
that may arise between the parties in connection with the transactions
contemplated by this Agreement.
6.5. CLOSING DATE EXTENSION RIGHT. Purchaser may elect, in its sole
discretion, to extend the Closing Date (the "CLOSING DATE EXTENSION RIGHT")
until the date that is sixty (60) days from and after the Approval Date by
delivery of written notice to Seller (the "CLOSING DATE EXTENSION NOTICE"), with
a copy to Escrowee, given not later than the date which is ten (10) days prior
to the Initial Closing Date. Purchaser shall deposit the Additional Earnest
Money with Escrowee not later than three (3) business days after the delivery of
the Closing Date Extension Notice and in accordance with SECTION 4.2 above and
the terms of the Escrow Agreement. In the event Purchaser (a) does not timely
deliver the Closing Date Extension Notice to Seller, or (b) fails to deposit the
Additional Earnest Money with Escrowee within three (3) business days following
the delivery of the Closing Date Extension Notice, the Closing Date Extension
Right shall be null and void and the Closing
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Date shall be the date that is set forth in SECTION 3(I) or SECTION 3(III)
hereof, as the case may be.
7. TITLE AND SURVEY MATTERS.
7.1. CONVEYANCE OF TITLE. At Closing, Seller agrees to deliver to
Purchaser special warranty deeds ("Deeds"), in recordable form, conveying record
fee simple title to the Project to Purchaser, free and clear of all liens,
claims and encumbrances except for the following items (the "PERMITTED
EXCEPTIONS"): (1) taxes not yet due and payable; and (2) the rights of tenants
under leases reflected on the rent roll ("RENT ROLL") attached hereto EXHIBIT E.
7.2. TITLE COMMITMENT. Purchaser shall obtain, within ten (10) days
after the Contract Date, commitments, dated after the Contract Date, issued by
Commonwealth Land Title Insurance Company (the "TITLE COMPANY"), for owner's
title insurance policies (the "TITLE POLICIES"), in the full amount of the
Purchase Price, showing fee simple title to the Project in Seller, together with
copies of all recorded documents evidencing title exceptions raised in "Schedule
B" of such title commitment. Any and all costs related to the Title Policies
shall be paid by the Purchaser, including, but not limited to, the costs of the
title insurance premium, the cost of deleting the Schedule B preprinted
exceptions, any endorsements and all search, continuation and later-date fees.
7.3. SURVEY. Seller has delivered to Purchaser, those certain surveys
of the Project described on SCHEDULE 7.3 (the "SURVEYS"). Any updates of the
Surveys, including, but not limited to recertification thereof, shall be the
sole responsibility of Purchaser, and Purchaser shall pay for all costs of
updating the Surveys (and/or procuring new surveys) in connection with the
transaction contemplated hereunder.
7.4. DEFECTS AND CURE. The items described in SECTIONS 7.2 and 7.3 are
collectively referred to as "TITLE EVIDENCE." If the Title Evidence discloses
any liens, claims, encumbrances or other matters, other than the Permitted
Exceptions, to which Purchaser, in its sole and absolute discretion, shall
object (the "DEFECTS"), Purchaser shall notify Seller thereof (the "DEFECT
NOTICE"), in writing, on or prior to the Approval Date (except that Purchaser
shall be entitled to object to New Defects (defined below) disclosed on the
updated Surveys during the Additional Period, if any), and thereafter Seller
shall have the right (but not the obligation, except as hereinafter provided) to
cure and remove such Defects prior to Closing. In the event that Purchaser (xx)
elects to obtain updates to the Surveys; and (yy) extends the Inspection Period
for the Additional Period pursuant to, and in accordance with, SECTION 6.2,
Purchaser may provide an additional Defect Notice on or prior to the expiration
of the Additional Period with respect to only those liens, claims, encumbrances
or other matters that are depicted by such updated Surveys but were not
described or depicted in the Surveys delivered by Seller to Purchaser or the
other Title Evidence (any such Defects, "NEW DEFECTS"). Within ten (10) days
after Seller's receipt of a Defect Notice, Seller shall notify Purchaser
("SELLER'S RESPONSE NOTICE") as to those Defect(s) or New Defects, as the case
may be, if any, that Seller shall attempt to cure prior to Closing, if any. If
Seller fails to deliver a Seller's Response Notice to Purchaser within ten (10)
days, Seller shall be deemed to have notified Purchaser that Seller shall not
cure any Defect(s) or New Defects, as the case may be, raised in the Defect
Notice; provided, however, that Seller shall be obligated to cure and remove all
of the following Defects ("MANDATORY CURE ITEMS"), if any: (i) the liens of any
mortgage, trust deed or deed of trust executed by Seller and evidencing an
indebtedness owed by Seller; (ii) tax liens; (iii) mechanic's liens pursuant to
a written agreement either between (x) the claimant (the "CONTRACT CLAIMANT")
and Seller or its employees, officers or managing agents (the "SELLER PARTIES")
or (y) the Contract Claimant and any other contractor, materialman or supplier
with which Seller or the Seller Parties have a written agreement; and (iv) any
covenant, lien, restriction or easement arising from and after the Contract Date
as a direct result of the intentional act of Seller or the Seller Parties that
is not consented to by Purchaser in its sole and absolute discretion. If Seller
notifies Purchaser (or is deemed to notify Purchaser) that it will not cure any
or all Defect(s) or New Defects, as the case may be (except for Mandatory Cure
Defects which Seller shall remain obligated to cure), then Purchaser may (1)
terminate this Agreement by written notice to Seller given within five (5)
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days after Purchaser receives (or is deemed to receive) Seller's Response
Notice, in which event the Earnest Money, together with all interest earned
thereon, shall be returned to Purchaser and neither party shall have any further
liability to the other hereunder, except as provided in SECTIONS 6.3, 17 and 20
herein; or (2) proceed to close with no reduction in or offset against the
Purchase Price (except that Purchaser may reduce the Purchase Price by the
amount necessary to cure any Mandatory Cure Defects), and thereafter Purchaser
shall be deemed to have accepted such Defect(s) or New Defects, as the case may
be, as Permitted Exceptions, and Purchaser shall be deemed to automatically and
forever waive any and all claims and liabilities against Seller with respect to
such Defect(s) or New Defects, as the case may be. To the extent that Purchaser
fails to timely and properly notify Seller (pursuant to this SECTION 7) of any
such Defect(s) or New Defects, as the case may be, Purchaser shall be deemed to
have accepted the same and to automatically and forever waive its right to
terminate this Agreement pursuant to this SECTION 7.4 and such Defect(s) or New
Defects, as the case may be, shall be deemed Permitted Exceptions for all
purposes hereunder. Seller shall be entitled to reasonably delay closing to a
date no later than thirty (30) days after the Initial Closing Date or the
Extended Closing Date (as the case may be), time being of the essence, to enable
Seller to satisfy its obligations pursuant to this SECTION 7.4.
8. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
8.1. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller
represents and warrants to Purchaser that the following matters are true as of
the Contract Date in all material respects:
8.1.1. DELIVERY OF WRITTEN MATERIALS. To Seller's knowledge,
Seller has not failed to deliver, or make available to Purchaser pursuant to
SECTION 5, any Document in Seller's possession or reasonable control which
contains information that would have a material adverse impact on (i)
Purchaser's ability to use and operate the Project as it is currently being used
and operated or (ii) the value of the Project.
8.1.2. COMPLIANCE WITH LAWS. Except as disclosed by the
Scheduled Documents, Seller has received no written notice from any governmental
authority of, and Seller has no actual knowledge of, (i) any material violation
or alleged material violation of any law, ordinance, rule or regulation which is
in effect as of the date of this Agreement, by the Project or any portion
thereof, including, without limitation, any violation or alleged violation of
any local, state or federal environmental, zoning, handicap or fire law,
ordinance, code, regulation, rule or order, and specifically including, without
limitation, variances or special permits affecting the Project; or (ii) Seller
having failed to discharge and perform all conditions to any permits or other
approvals with respect to the Project. Except as disclosed by the Scheduled
Documents, Seller has received no written notice from any governmental authority
of any improvements, alterations or other work of any kind that must be
completed in order to bring the Project into compliance with the Americans With
Disabilities Act or any and all regulations promulgated thereunder.
8.1.3. LITIGATION. Except as disclosed by the Scheduled
Documents, Seller has received no notice of, and Seller has no actual knowledge
of, pending or threatened litigation or governmental proceedings against Seller,
or the Project, that could result in an encumbrance to the Project or materially
and adversely limit or impair the use or operation thereof, or affect the
validity or enforceability of this Agreement or the Leases or the performance of
Seller under this Agreement.
8.1.4. DUE AUTHORIZATION. Seller is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware and fully qualified to do business in the Commonwealth of Pennsylvania.
Seller has full power, right and authority to own and operate the Project and to
execute, deliver and carry out the terms and provisions of this Agreement and
each of the other agreements, instruments and documents herein required to be
made or delivered by Seller pursuant hereto, and has taken all necessary action
to authorize the execution, delivery and performance of this Agreement and such
other agreements, instruments and documents. The individuals executing this
Agreement and all other agreements, instruments and documents herein required to
be made or delivered
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by Seller pursuant hereto on behalf of Seller are and shall be duly authorized
to sign the same on Seller's behalf and to bind Seller thereto.
8.1.5. ENFORCEABILITY. This Agreement has been, and each and
all of the other agreements, instruments and documents herein required to be
made by Seller pursuant hereto have been, and on the Closing Date will be,
executed by Seller or on behalf of Seller, and when so executed, are and shall
be legal, valid, and binding obligations of Seller enforceable against Seller in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, and other similar laws affecting the
rights of creditors generally and, as to enforceability, the general principles
of equity (regardless of whether enforcement is sought in a proceeding in equity
or at law). No consent of any creditor, investor, judicial or administrative
body, governmental authority or other governmental body or agency, or other
party to such execution and delivery and performance by Seller is required.
8.1.6. NO CONFLICT. The execution and delivery of, and
consummation of the transactions contemplated by this Agreement is not
prohibited by, and will not conflict with, constitute grounds for termination
of, or result in the breach of any of the agreements or instruments to which
Seller is now party or by which it or the Project is bound, or to Seller's
knowledge, any order, rule or regulation of any court or other governmental
agency or official.
8.1.7. ENVIRONMENTAL MATTERS.
(i) Except as disclosed in the Scheduled Documents, (a) Seller
has not filed or received any written notice or other formal written
communication under federal or state law indicating past or present
treatment, generation, storage or disposal of any Hazardous Material on
the Land by Seller; and (b) Seller has not received any written notice
or other formal written communication to the effect that it may be
liable as a result of a release or threatened release of a Hazardous
Material upon or from the Land. Except as disclosed in the Scheduled
Documents, Seller has received no written notice of any threatened
actions or proceedings by any governmental agency or any other party
regarding the disposal or presence of Hazardous Materials at the
Project or regarding any violation of Environmental Law at the Project.
(ii) To Seller's knowledge, except as disclosed in the
Scheduled Documents, Seller has not placed, used, generated, stored, or
disposed of on or under the Land, or transported to or from it, any
Hazardous Material except in the ordinary and normal course of business
and in compliance with Environmental Laws.
(iii) To Seller's knowledge, except as disclosed in the
Scheduled Documents: (a) there are no Hazardous Materials present on
the Land except in the ordinary course of business and in compliance
with Environmental Laws; and (b) the Land, and the use and operation
thereof, is in material compliance with all applicable Environmental
Laws.
(iv) The term "ENVIRONMENTAL LAWS" means all applicable
federal, state or local laws, ordinances, requirements and regulations
(including consent decrees and administrative orders) relating to
health, worker protection, safety, wetlands, waste disposal, or the
protection of the environment, including, without limitation: the
federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the federal Superfund Amendments and
Reauthorization Act of 1986, the federal Resource Conservation and
Recovery Act of 1976, the federal Clean Air Act, the federal Water
Pollution Control Act and federal Clean Water Act of 1977, the federal
Insecticide, Fungicide and Rodenticide Act, the federal Pesticide Act
of 1978, the federal Toxic Substances Control Act, the federal Safe
Drinking Water Act, the federal Hazardous Materials Transportation Act,
and all amendments thereto and regulations adopted pursuant thereto.
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(v) The term "HAZARDOUS MATERIAL" shall mean any substance or
material regulated under any Environmental Law, including, without
limitation, oil and petroleum products and by-products, asbestos,
asbestos-containing materials, polychlorinated biphenyls, radon, urea
formaldehyde, radioactive materials and pesticides.
8.1.8. BANKRUPTCY MATTERS. Neither Seller nor, to Seller's
knowledge, any existing tenant or guarantor under any of the Leases, has made a
general assignment for the benefit of creditors, filed any voluntary petition in
bankruptcy or suffered the filing of an involuntary petition by its creditors,
suffered the appointment of a receiver to take possession of substantially all
of its assets, suffered the attachment or other judicial seizure of
substantially all of its assets, admitted its inability to pay its debts as they
come due, or made an offer of settlement, extension or composition to its
creditors generally.
8.1.9. LEASES. (i) The tenants listed in the Rent Roll
attached hereto as EXHIBIT E are the only tenants occupying the Project; (ii)
other than as described on EXHIBIT E, there are no other oral or written leases,
tenancies or other arrangements under which any other party has a right to
occupy all or any part of the Project, except to the extent of any New Leases
executed and entered into prior to Closing pursuant to SECTION 8.2.1; (iii)
copies of all Leases, and all amendments thereto and guaranties thereof, if any,
have been furnished by Seller to Purchaser and the copies so provided are
accurate and complete except to the extent of any New Leases executed and
entered into prior to Closing pursuant to SECTION 8.2.1; (iv) the Leases have
not been amended, modified or terminated (except for any amendments delivered to
Purchaser pursuant to item (iii) above or any New Leases executed and entered
into prior to Closing pursuant to SECTION 8.2.1); and (v) the Rent Roll attached
hereto as EXHIBIT E is an accurate and complete copy of the Rent Roll prepared
by Seller in the ordinary course of its ownership of the Project current as of
the date specified thereon. To Seller's knowledge, (a) the Leases are presently
valid and in full force and effect and there are no material defaults thereunder
except as disclosed in the Scheduled Documents, (b) except as set forth in
SCHEDULE 8.1.14 or the Title Evidence, no tenant has any right or option to
acquire the Project, or any part thereof; (c) except as set forth in the
Scheduled Documents, no tenant has any right to terminate its Lease prior to the
expiration date thereof set forth in such Lease; (d) any tenant improvements
that Seller, as landlord, is obligated to complete pursuant to any Lease prior
to the date hereof has been completed as of this date and accepted by the
applicable tenant (except the foregoing shall not be applicable to any New
Leases executed and entered into pursuant to SECTION 8.2.1); (e) no tenant under
any of the Leases has prepaid any rent under any of the Leases for more than one
(1) month; (f) except as set forth in the Scheduled Documents, no tenant has
notified Seller, in writing, of any default by Seller, as landlord, pursuant to
such tenant's Lease that remains uncured as of the date hereof; and (g) except
as set forth in the Scheduled Documents, no tenant has notified Seller, in
writing, of any fact or condition that shall constitute a default by Seller, as
landlord, pursuant to such tenant's Lease provided that such fact or condition
is not cured or remedied prior to the expiration of the cure period stipulated
in such tenant's Lease.
8.1.10. EXISTING CONTRACTS. Each of the Existing Contracts (as
defined in EXHIBIT D) is terminable at will without penalty or cancellation fee
upon no more than thirty (30) days notice, except for the brokerage agreements.
To Seller's knowledge, no written notice of any material default or breach by
Seller of any of such Existing Contracts has been received by Seller. To
Seller's knowledge, Seller has performed all obligations pursuant to such
Existing Contracts. Seller shall cause to be terminated by the Closing Date all
of the Existing Contracts (except for brokerage agreements) unless otherwise
directed by Purchaser prior to the Approval Date.
8.1.11. CONDEMNATION. To Seller's knowledge, there is no
condemnation or eminent domain proceeding, pending or contemplated with regard
to any part of the Project.
8.1.12. NO BROKERS. To Seller's knowledge, Seller has
delivered or made available as Scheduled Documents true and complete copies of
any and all listing
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agreements, brokerage agreements or other comparable agreements entered into by
Seller in connection with the Project and any Lease pursuant to which a leasing
commission or finder's fee may be payable subsequent to Closing.
8.1.13. FIRPTA. Seller is not a "foreign person" as such term
is defined in Section 1445(f)(3) of the Internal Revenue Code of 1954, as
amended (the "CODE").
8.1.14. RIGHTS TO PURCHASE. Except as set forth in SCHEDULE
8.1.14 or the Title Evidence, there are no binding agreements, options, rights
of first refusal, conditional sales agreements or other agreements or
arrangements for the purchase and sale of the Project or any portion thereof.
8.1.15. EMPLOYEES. Seller has no employees in the Commonwealth
of Pennsylvania.
8.1.16. APPROVALS. To Seller's knowledge, all Approvals
presently issued to Seller as owner of the Project with respect to the
occupancy, operation, maintenance and ownership of the Project are in full force
and effect and Seller has not received notice of any intention on the part of
the issuing authority to cancel, suspend or modify any of the Approvals or to
take any action or institute any proceeding to effect such cancellation,
suspension or modification.
8.1.17. GOVERNMENTAL ACTIONS. Except as disclosed by the
Scheduled Documents or the Title Evidence, to Seller's knowledge, there are no
threatened, pending or proposed (i) proceedings or governmental actions to
modify the zoning classification of, or to condemn, or to purchase in lieu
thereof, all or any part of the Project; or (ii) reassessment, special
assessments, or new or additional assessments or penalties or interest with
respect to the Project or any other assessments applicable to the Project, other
than reassessments or special assessments occurring in the ordinary course to
all industrial properties located in the same taxing district as the Project or
as a result of the transactions contemplated hereby, or (iii) proceedings before
any court or administrative agency, the adverse resolution of which would have a
materially adverse effect on the value or operations of the Project.
8.2. COVENANTS OF SELLER. Effective as of the Contract Date, Seller
hereby covenants with Purchaser as follows:
8.2.1. NEW LEASES. From and after three (3) days prior to the
Approval Date, Seller shall neither amend any Lease (other than routine
amendments setting forth the commencement date or expiration date of the
applicable Lease or the acceptance of the applicable leased premises by a
tenant), nor execute any new lease, license, or other occupancy agreement for
the Project without Purchaser's prior written approval (which approval shall not
be required if the terms of such amendment or new lease, license or occupancy
agreement are as or more favorable (to landlord) than the leasing parameters for
the applicable space set forth on SCHEDULE 8.2.1 attached hereto, but may be
withheld in Purchaser's sole discretion otherwise, and shall be deemed given if
Purchaser's written disapproval is not delivered to Seller within five (5)
business days following Purchaser's receipt of Seller's written request for such
approval). Seller shall notify Purchaser in writing, on or prior to three (3)
days before the Approval Date, of any amended or newly executed lease, license
or other occupancy agreement for the Project that Seller enters into from and
after the Contract Date but prior to three (3) days before the Approval Date.
Any new lease, license or other agreement affecting the ownership or operation
of the Project that is entered into in accordance with this SECTION 8.2.1 prior
to Closing is herein referred to as a "NEW LEASE."
8.2.2. NEW CONTRACTS. From and after three (3) days prior to
the Approval Date, Seller shall not enter into any new contract with respect to
the ownership and operation of the Project that will survive the Closing, or
that would otherwise affect the use, operation or enjoyment of the Project after
Closing, without Purchaser's prior written approval (which approval shall not be
unreasonably withheld and shall be deemed given if Purchaser's written
disapproval is not delivered to Seller within five (5) business days following
Seller's request for such approval); provided, however, that Seller shall notify
Purchaser in writing, on
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or prior to three (3) days before the Approval Date, of any and all new
contracts which would affect the use, operation and enjoyment of the Project
after Closing that Seller enters into from and after the Contract Date but prior
to three (3) days before Approval Date.
8.2.3. OPERATION OF PROJECT. Seller hereby covenants and
agrees that Seller shall operate and manage the Project in the same manner in
which it is being operated as of the Contract Date, maintaining present
services, and shall maintain the Project in its same repair and working order;
and shall perform and comply with, when due, all of Seller's obligations under
the Leases, Existing Contracts, management agreements, Approvals and other
agreements relating to the Project and otherwise in accordance with applicable
laws, ordinances, rules and regulations affecting the Project.
8.2.4. INSURANCE. The insurance policies, for which
certificates of insurance are included in the Scheduled Documents, shall remain
continuously in force through and including the Closing Date.
8.2.5. CHANGE IN CONDITIONS. Seller shall, to the extent
Seller obtains actual knowledge thereof, promptly notify Purchaser of the
occurrence of any of the following:
(i) any material change in the condition of the Project that
would cause any representation and warranty contained herein by Seller
to Purchaser to be untrue in any material respect to the extent the
same were made as of such date;
(ii) a fire or other casualty causing damage to the Project,
or any portion thereof;
(iii) receipt of written notice of eminent domain proceedings
or condemnation of or affecting the Project, or any portion thereof;
(iv) receipt of written notice from any governmental authority
or insurance underwriter relating to the condition, use or occupancy of
the Project, or any portion thereof, or any real property adjacent to
the Project, or setting forth any requirements with respect thereto;
(v) receipt or delivery of any written default or termination
notice or claim of offset or defense to the payment of rent from any
tenant;
(vi) a change in the occupancy of the leased portions of the
Project, except to the extent resulting from the expiration of the term
of any Lease in accordance with its terms as set forth in the Lease or
the Rent Roll;
(vii) written notice of any actual or threatened litigation
against Seller that would affect or involve the Project or affecting or
relating to the Project, or any portion thereof; and
(viii) the commencement of any strike, lock-out, boycott or
other labor trouble affecting the Project, or any portion thereof.
8.2.6. SECURITY DEPOSITS. From and after the Approval Date,
Seller shall not apply any security deposit held by Seller pursuant to the terms
of any Lease without obtaining the prior written consent of Purchaser, which
consent may be withheld in Purchaser's sole and absolute discretion. Prior to
the Approval Date, Seller may apply any Security Deposit held by Seller at
Seller's sole discretion; provided, however, that Seller shall notify Purchaser
in writing of any and all such applications on or prior to three (3) days before
the Approval Date.
8.2.7. TAX FILINGS. Seller covenants and agrees to timely file
any and all tax returns for calendar year 1999 and all prior years required to
be filed by Seller with the Pennsylvania Department of Revenue (the
"Department"). Without limitation upon the foregoing, Seller shall and does
hereby indemnify, defend and hold Purchaser and its successor and assigns
harmless from any loss, cost, liability or expense (including, without
limitation, reasonable fees of counsel and court costs) actually suffered or
incurred by
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Purchaser or its successors and assigns as a result of any claim made by the
Department or by any other taxing or employment authority of the Commonwealth of
Pennsylvania for unpaid taxes, penalties, interest or court costs related
thereto owing to such authorities from Seller with respect to the Project;
provided, however, that the foregoing indemnity shall in no event apply to any
transfer taxes payable in connection with the transactions contemplated hereby.
The terms of this SECTION 8.2.7 shall survive Closing.
All references in this Agreement to "SELLER'S KNOWLEDGE,"
"SELLER'S ACTUAL KNOWLEDGE" or words of similar import shall refer only to the
actual (as opposed to deemed, imputed or constructive) knowledge of Denise
Neugebauer, Jeff Thomas and James D. Carpenter without inquiry or investigation,
and notwithstanding any fact or circumstance to the contrary, shall not be
construed to refer to the knowledge of any other person or entity. Seller
represents and warrants that (a) James D. Carpenter has been a Senior Investment
Officer of Industrial Properties Investment Services ("IPIS") since May, 1998
and prior to such date an employee of FR since July, 1995; (b) IPIS provides
underwriting services and due diligence assistance to FR and otherwise assists
Seller and its affiliates ("FIRST INDUSTRIAL") in connection with all or
substantially all of its acquisition and disposition of improved property; and
(c) in his capacity as an employee of IPIS, Mr. Carpenter has primary
responsibility for day-to-day oversight of any assistance to First Industrial
that IPIS provides in FR's Eastern region, which region includes the Project.
Seller represents and warrants that Mr. Thomas has been the Regional Director of
FR's Harrisburg region, which includes the Project, since January, 1999 in which
capacities he has overseen the day-to-day ownership and operation of the Project
and has been an employee of FR since July, 1994. Seller represents and warrants
that Ms. Neugebauer has been the accountant at FR's national office primarily
responsible for the day-to-day accounting function related to the Project since
April, 1999 and has been employed by FR since November, 1995.
9. PURCHASER'S COVENANTS AND REPRESENTATIONS.
Effective as of the execution of this Agreement, Purchaser hereby
covenants with Seller as follows:
9.1. 1031 EXCHANGE. The parties recognize and understand that
this transaction may be part of a contemplated "like kind" exchange for the
other party under Section 1031 of the Internal Revenue Code (an "EXCHANGE"). As
such, THE parties agree to reasonably cooperate with each other in effectuating
an Exchange, which cooperation may include the execution of documents,
REASONABLE DELAYS OF THE CLOSING not to exceed a maximum of 10 days by each
party and the taking of other reasonable action, as is reasonably necessary, to
accomplish an Exchange; provided, however that the party not undertaking an
Exchange shall not be required to assume any additional expense or liability in
connection with, or as part of its cooperation with, an Exchange. The covenant
contained in this SECTION 9.1 shall survive the Closing and shall not be merged
into any instrument of conveyance delivered at Closing.
Seller shall indemnify, defend and save and hold harmless
Purchaser of, from and against any loss, cost, expense, liability, damage or
claim of any kind or nature arising from or out of or in connection with
Purchaser's execution or delivery of documents requested by Seller in connection
with the aforesaid Exchange. Without limitation of the foregoing indemnity,
Seller covenants and agrees to pay upon demand any actual costs or expenses paid
or incurred by Purchaser in connection with furnishing the cooperation requested
by Seller hereunder including, without limitation, Purchaser's reasonable legal
fees and costs incurred in connection with the review and negotiation of any
required documentation.
Additionally, Purchaser shall indemnify, defend and save and
hold harmless Seller of, from and against any loss, cost, expense, liability,
damage or claim of any kind or nature arising from or out of or in connection
with Seller's execution or delivery of documents requested by Purchaser in
connection with the aforesaid Exchange. Without limitation of the foregoing
indemnity, Purchaser covenants and agrees to pay upon demand any actual costs or
expenses paid or incurred by Seller in connection with furnishing the
cooperation requested by
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Purchaser hereunder including, without limitation, Seller's reasonable legal
fees and costs incurred in connection with the review and negotiation of any
required documentation.
9.2. AUTHORITY. The execution and delivery of this Agreement
by Purchaser, and the performance of this Agreement by Purchaser, have been duly
authorized by Purchaser, and this Agreement is binding on Purchaser and
enforceable against Purchaser in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the rights of creditors generally and, as to enforceability, the
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity). No consent of any creditor, investor, judicial
or administrative body, governmental authority, or other governmental body or
agency, or other party to such execution, delivery and performance by Purchaser
is required.
10. PROJECT SOLD "AS IS".
10.1. Except as is otherwise expressly provided in this
Agreement, Seller hereby specifically disclaims any warranty (oral or written)
concerning (i) the nature and condition of the Project and the suitability
thereof for any and all activities and uses that Purchaser may elect to conduct
thereon, (ii) the manner, construction, condition and state of repair or lack of
repair of any improvements located thereon, (iii) the nature and extent of any
right-of-way, lien, encumbrance, license, reservation, condition or otherwise,
(iv) the compliance of the Project or its operation with any laws, rules,
ordinances, or regulations of any government or other body, it being
specifically understood that Purchaser shall have full opportunity, during the
Inspection Period, to determine for itself the condition of the Project; and (v)
any other matter whatsoever except as expressly set forth in this Agreement.
Except as is otherwise expressly provided in this Agreement, the sale of the
Project as provided for herein is made on a strictly "AS IS" "WHERE IS" basis as
of the Closing Date. Purchaser expressly acknowledges that, in consideration of
the agreements of Seller herein, SELLER MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, INCLUDING, BUT IN NO WAY
LIMITED TO, ANY WARRANTY OF QUANTITY, QUALITY, CONDITION, HABITABILITY,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROJECT,
ANY IMPROVEMENTS LOCATED THEREON OR ANY SOIL CONDITIONS RELATED THERETO.
10.2. EXCEPT FOR SUCH REPRESENTATIONS AND WARRANTIES AS ARE
EXPRESSLY PROVIDED IN THIS AGREEMENT, PURCHASER SPECIFICALLY ACKNOWLEDGES THAT
PURCHASER IS NOT RELYING ON (AND SELLER HEREBY DISCLAIMS AND RENOUNCES) ANY
OTHER REPRESENTATIONS OR WARRANTIES MADE BY OR ON BEHALF OF SELLER OF ANY KIND
OR NATURE WHATSOEVER. FURTHER, PURCHASER, FOR PURCHASER AND PURCHASER'S
SUCCESSORS AND ASSIGNS, HEREBY RELEASES SELLER FROM AND WAIVES ANY AND ALL
CLAIMS AND LIABILITIES AGAINST SELLER, EXCEPT FOR CLAIMS BASED UPON (A) A BREACH
BY SELLER OF A REPRESENTATION AND WARRANTY EXPRESSLY PROVIDED IN SECTION 8 AND
SUBJECT TO THE TERMS AND LIMITATIONS CONTAINED IN SECTION 22; OR (B) ANY
FRAUDULENT MISREPRESENTATION BY SELLER, FOR, RELATED TO, OR IN CONNECTION WITH,
ANY ENVIRONMENTAL CONDITION AT THE PROJECT (OR THE PRESENCE OF ANY MATTER OR
SUBSTANCE RELATING TO THE ENVIRONMENTAL CONDITION OF THE PROJECT), INCLUDING,
BUT NOT LIMITED TO, CLAIMS AND/OR LIABILITIES RELATING TO (IN ANY MANNER
WHATSOEVER) ANY HAZARDOUS, TOXIC OR DANGEROUS MATERIALS OR SUBSTANCES LOCATED
IN, AT, ABOUT OR UNDER THE PROJECT, OR FOR ANY AND ALL CLAIMS OR CAUSES OF
ACTION (ACTUAL OR THREATENED) BASED UPON, IN CONNECTION WITH OR ARISING OUT OF
CERCLA (THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT
OF 1980, 42 U.S.C. SECTION 9601 ET SEQ., AS AMENDED BY THE SUPERFUND AMENDMENT
AND REAUTHORIZATION ACT OF 1986, AND AS MAY BE FURTHER AMENDED FROM TIME TO
TIME), THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, 42 U.S.C.
SECTION 6901 ET SEQ., OR ANY OTHER CLAIM OR CAUSE OF ACTION (INCLUDING ANY
FEDERAL OR STATE BASED
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STATUTORY, REGULATORY OR COMMON LAW CAUSE OF ACTION) RELATED TO ENVIRONMENTAL
MATTERS OR LIABILITY WITH RESPECT TO OR AFFECTING THE PROJECT.
10.3. Purchaser acknowledges and agrees that the provisions
contained in this SECTION 10 were a material factor in Seller's acceptance of
the Purchase Price and that Seller was unwilling to sell the Project to
Purchaser unless Seller was released as expressly set forth above.
11. SELLER'S CLOSING DELIVERIES.
At Closing (or such other times as may be specified below), Seller
shall deliver or cause to be delivered to Purchaser the following, in form and
substance reasonably acceptable to Purchaser:
11.1. DEEDS. Special Warranty Deeds, prepared by Purchaser's
counsel in form and substance reasonably approved by Seller, duly executed by
Seller, in recordable form conveying the Project to Purchaser pursuant to the
legal descriptions contained in EXHIBIT B attached hereto, subject to the
Permitted Exceptions. In the event of any disparity between the legal
description(s) contained in EXHIBIT B attached hereto, and any updated Survey(s)
obtained by Purchaser, Seller hereby agrees to provide a quitclaim deed
conveying all of Seller's right, title and interest, if any, in the legal
descriptions set forth in such updated Survey(s).
11.2. ASSIGNMENT OF LEASES. An assignment of the Leases
(including all security deposits and/or other deposits thereunder), prepared by
Purchaser's counsel in form and substance reasonably approved by Seller, with
(i) the agreement of the assignor to indemnify, defend and hold Purchaser
harmless from and against any and all claims, damages, costs, and expenses
(including, but not limited to, reasonable attorney's fees) arising from
unperformed obligations of the landlord under the Leases required to have been
performed prior to Closing and (ii) the agreement of Purchaser to indemnify,
defend and hold Seller harmless from and against any and all claims, damages,
costs and expenses (including, but not limited to, reasonable attorney's fees)
arising from liabilities and obligations of the landlord under the Leases first
accruing and required to be performed after the Closing.
11.3. ESTOPPEL CERTIFICATES FROM TENANTS. As a Condition
Precedent to Purchaser's obligation to close hereunder, Seller shall have
obtained and delivered to Purchaser, on or prior to the Closing Date, an
estoppel certificate in the form attached hereto as EXHIBIT F (or in the form
required by the applicable tenant's Lease to the extent a form is attached)
without material and adverse modification or adjustment by the applicable tenant
of such Estoppel Certificate or any modification thereto by the applicable
tenant that is inconsistent with the description of economic terms of the
applicable tenancy contained in the Rent Roll (an "ESTOPPEL CERTIFICATE") dated
no earlier than forty-five (45) days prior to the Closing Date (except to the
extent Purchaser elects to extend Closing pursuant to SECTION 6.5, in which
event Estoppel Certificates must be dated not earlier than seventy-five (75)
days prior to Closing), from (a) tenants that account for at least seventy
percent (70%) of the gross rent of the Project (the "REQUIRED ESTOPPEL AMOUNT");
and (b) all of the tenants identified on SCHEDULE 11.3 (the "CRITICAL TENANTS"),
which Critical Tenants shall be included for purposes of calculating the
Required Estoppel Amount. Notwithstanding anything contained herein to the
contrary, if either or both of Paragraphs 11 and 12 from the form of Estoppel
Certificate attached hereto as EXHIBIT F are (x) removed (in whole or in part)
by a tenant, or (y) modified by a tenant to include a knowledge or notice
standard, or (z) otherwise adjusted or modified by a tenant in a fashion that is
not material and adverse in nature (any such removal or modification described
in items (x), (y) and (z), a "PERMITTED MODIFICATION"), such Permitted
Modifications shall not be deemed a material and adverse modification or
adjustment by a tenant and Seller shall accept an Estoppel Certificate, for
purposes of determining whether the Required Estoppel Amount has been satisfied,
in which Permitted Modifications have been made to either or both of Paragraphs
11 and 12 provided that such Estoppel Certificate otherwise satisfies the
requirements of the preceding sentence. If Seller (despite its diligent efforts)
is unable to obtain an Estoppel Certificate from a sufficient number of tenants
such
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that the Required Estoppel Amount is satisfied, Purchaser's sole remedy shall be
to either (i) terminate this Agreement and receive back the Earnest Money with
all interest accrued thereon; or (ii) proceed to close and automatically and
forever waive such Condition Precedent. In the event Seller is unable to obtain
an Estoppel Certificate from one or more Critical Tenants, Seller shall provide
an Estoppel Certificate in the place and stead of such Critical Tenants for the
benefit of Purchaser in the form required by this SECTION 11.3 (but with
Paragraphs 11 and 12 removed from any Estoppel Certificate in the form attached
hereto as EXHIBIT F), except that Seller shall be entitled to modify such form
to reasonably and accurately describe the condition of such tenancy; provided,
however, that to the extent any such modification by Seller is material and
adverse to the interests of landlord or inconsistent with the economic terms of
the applicable tenancy contained in the Rent Roll, Purchaser's sole remedy shall
be either (i) to terminate this Agreement and receive back the Earnest Money
with all accrued interest thereon; or (ii) proceed to close and automatically
and forever waive such Condition Precedent.
11.4. KEYS. Keys, codes and combinations to all locks located
in the Project.
11.5. TITLE POLICIES. The Title Policies (or "marked-up"
commitments therefor) issued by the Title Company, dated as of the date of the
recordation of the Deeds in the amount of the Purchase Price, in the form
required by SECTION 7.
11.6. CLOSING STATEMENT. A closing statement conforming to the
proration and other relevant provisions of this Agreement.
11.7. ENTITY TRANSFER CERTIFICATE. Entity Transfer
Certification confirming that Seller is a "United States Person" within the
meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
11.8. BILL OF SALE. A quit claim bill of sale assigning,
conveying and transferring to Purchaser, (a) all of the Personal Property,
subject only to the Permitted Exceptions and (b) the Reports, which bill of sale
shall be prepared by Purchaser's counsel in form and substance reasonably
approved by Seller.
11.9. ORIGINAL LEASES. All original Leases in Seller's
possession or reasonable control.
11.10. ORIGINAL APPROVALS. All originals of the Approvals in
Seller's possession or reasonable control.
11.11. ASSIGNMENT OF INTANGIBLE PERSONAL PROPERTY. An
assignment agreement assigning, conveying and transferring to Purchaser the
Intangible Personal Property, which assignment shall be prepared by Purchaser's
counsel in form and substance reasonably approved by Seller.
11.12. TENANT LETTER. Letters to each tenant advising of the
change in ownership and directing the payment of rent to such party as the
Purchaser shall designate, said letter to be prepared by Purchaser's counsel in
form and substance reasonably acceptable to Seller.
11.13. TITLE INSURANCE CERTIFICATES. Such affidavits of title
or other certifications as shall be reasonably required by the Title Company to
insure Purchaser's title to the Project as set forth in SECTION 7.1, and to
remove the Schedule B preprinted exceptions (excepting the "survey" exception,
which exception shall be removed only to the extent Purchaser procures updated
Surveys satisfying the requirements of the Title Company.)
11.14. UPDATED RENT ROLL. An updated schedule of Leases,
containing all information required to be set forth in EXHIBIT E, which updated
Schedule of Leases shall be certified to Seller's knowledge and survive Closing
only subject to the terms, conditions and limitations described in SECTION 22.
15
<PAGE>
11.15. TAX BILLS. Current tax bills and, if available, tax
bills for each of the years of Seller's ownership of the property.
11.16. ASSOCIATION ESTOPPEL. An estoppel certificate (each, an
"ASSOCIATION ESTOPPEL") from the owner's association of any industrial or office
park in which all or some portion of the Project may be located confirming that
all, if any, association dues payable for the period prior to Closing have been
paid in full and affirming Seller's good standing as a member of such
organization. The Association Estoppel for the Buildings identified as A-1
through A-6 on EXHIBIT A shall contain a certification from the applicable
association that any architectural or design approvals required to be obtained
from the applicable association for such Buildings were obtained; provided,
however, that such certification shall not be provided in the Association
Estoppel for the Buildings identified as A-7 and A-8 on EXHIBIT A.
11.17. TAX REDUCTION RIGHTS. An assignment of tax reduction
rights, if any for the period from and after Closing, which assignment shall (i)
expressly preserve for Seller any tax reduction rights for the period prior to
Closing and (ii) be prepared by Purchaser's counsel in form and substance
reasonably acceptable to Seller.
11.18. CLOSING CERTIFICATE. A certificate (the "CLOSING
CERTIFICATE") duly executed by Seller to the effect that, as of the Initial
Closing Date, all of the representations and warranties made by Seller set forth
in this Agreement, as modified by the Approval Date Certificate, remain true and
correct in all material respects as if made on and as of the Initial Closing
Date, except for changes and qualifications specified by Seller in such Closing
Certificate so as to make the certificate true and correct in all material
respects. The representation, warranties and certifications made by Seller to
Purchaser in the Closing Certificate shall be made to the standard of knowledge,
if any, set forth herein for the applicable representation, warranty or
certification and subject to all of the terms, conditions and limitations
contained in SECTION 22 of this Agreement, including, but not limited to, the
provisions limiting the survivability thereof. In the event that the Closing
Certificate indicates that any of the representations and warranties of Seller
set forth in the Approval Date Certificate are no longer true and correct as of
the Initial Closing Date in all material respects, Purchaser may elect, in its
sole discretion and as its sole remedy hereunder, at law or in equity, either to
(i) terminate this Agreement by delivery of written notice to Seller delivered
not later than three (3) days after the date of the Closing Certificate,
whereupon the Earnest Money, together with all interest earned thereon, shall be
promptly returned to Purchaser and neither party shall have any further
liability hereunder, except as otherwise expressly provided in SECTIONS 6.3, 17
and 20; or (ii) proceed to Closing and waive the failure of the applicable
Condition Precedent related to the continued truth and correctness of such
representation and warranty. No such Closing Certificate shall be required for
the period, if any, between the Initial Closing Date and the Extended Closing
Date and the Closing Certificate shall be delivered on or prior to the Initial
Closing Date.
12. PRORATIONS AND ADJUSTMENTS.
The following shall be prorated and adjusted between Seller and
Purchaser as of the Closing Date, except as otherwise specified:
12.1. The amount of all security and other tenant deposits
which are actually held by Seller, and interest due thereon, if any, shall be
credited to Purchaser.
12.2. Purchaser and Seller shall divide the cost of any
earnest money and closing escrows hereunder equally between them (except for any
escrow established solely to accommodate Purchaser's lender, if any, and for any
incremental cost of such lender's participation in any escrow established by the
parties).
12.3. To the extent not billed directly to tenants, water,
electricity, sewer, gas, telephone and other utility charges based, to the
extent practicable, on final meter readings and final invoices. If Seller is
unable to secure final meter readings as of Closing, the adjustments shall be
based on readings dated not more than ten (10) days prior to Closing, and the
unfixed meter charges based thereon for the intervening period shall be
apportioned on the basis of such last reading.
16
<PAGE>
12.4. Amounts paid or payable under those of the Existing
Contracts assigned by Seller to Purchaser at Closing shall be prorated.
12.5. To the extent not payable by tenants directly to the
taxing authority, all accrued general real estate, personal property and ad
valorem taxes for the current year applicable to the Project shall be prorated
on an accrual basis, utilizing actual final tax bills, if available prior to
Closing. If such bills are not available, then such taxes shall be prorated on
the basis of the most currently available tax bills for the Project.
12.6. All assessments, general or special, shall be prorated
as of the Closing Date, with Seller being responsible for any installments of
assessments which are due prior to the Closing Date and Purchaser being
responsible for any installments of assessments which are due on or after the
Closing Date.
12.7. All base rents and other charges, including, without
limitation, all additional rent, shall be prorated at Closing if and to the
extent received by Seller in the calendar month in which Closing occurs. All
base rent paid following the Closing Date by any tenant of the Project who is
indebted under a lease for base rent for any period prior to and including the
Closing Date shall be deemed a "POST-CLOSING RECEIPT" until such time as all
such indebtedness is paid in full. Post-Closing Receipts for each tenant
(whether collected by Seller or Purchaser) shall be allocated as follows: (a)
first, to Purchaser and Seller (on a prorated basis) to pay any rent owing from
such tenant for the month in which Closing occurs; (b) second, to Purchaser to
pay any rent then owing from such tenant to Purchaser; and (iii) third, to
Seller to pay any rent owing from such tenant to Seller for the period prior to
Closing; provided, however, that any and all Post-Closing Receipts received more
than one hundred eighty (180) days after Closing shall be the property of
Purchaser, except for Post-Closing Receipts received by Seller pursuant to any
legal action initiated prior to one hundred eighty (180) days after Closing,
which shall continue to be allocated between the parties pursuant to the terms
of this sentence. Within ten (10) days following each receipt by Purchaser or
Seller of a Post-Closing Receipt, Purchaser or Seller, as the case may be, shall
pay such Post-Closing Receipt to the other party to the extent owing pursuant to
the terms of the preceding sentence. Seller shall be entitled to pursue any and
all actions at law or in equity to collect any delinquent rents owing to Seller
as well as any other sums owing to Seller from such tenant pursuant to the terms
of its Lease; provided, however, that Seller shall not be entitled to pursue any
action to evict such tenant or otherwise terminate such tenant's Lease. Each of
Seller and Purchaser retains the right to conduct an audit, at reasonable times
and upon reasonable notice, of the other's books and records to verify the
accuracy of the Post-Closing Receipts reconciliation statement and, in the event
the auditing party verifies that more than ten percent (10%) of any Post-Closing
Receipts have been misallocated for the benefit of the non-auditing party, the
non-auditing party shall pay to the auditing party said additional Post-Closing
Receipts and the reasonable cost of performing the auditing party's audit. This
SECTION 12.7 shall survive the Closing and the delivery and recording of the
deed for a period of eighteen (18) months.
12.8. Commissions of leasing and rental agents and tenant
improvement allowances for any Leases (other than New Leases) relating to the
base lease term or any renewal term that is pending as of the Contract Date
shall be paid in full at or prior to Closing by Seller, without contribution or
proration from Purchaser (any such commissions or tenant improvements
allowances, "SELLER'S COMMISSIONS"). Commissions of leasing and rental agents
and tenant improvement allowances for (x) any renewals (other than renewals
pending as of the Contract Date) or expansions of any Lease that are either
listed on SCHEDULE 12.8 attached hereto or set forth in any Lease, and (y) any
New Leases shall be the sole responsibility of Purchaser, without contribution
or proration from Seller (any such commissions or tenant improvements
allowances, "PURCHASER'S COMMISSIONS"). Seller hereby agrees to and does
indemnify, protect and defend and hold harmless Purchaser, and its successors
and assigns (the "PURCHASER'S INDEMNIFIED PARTIES"), from and against all
losses, claims, costs, expenses and damages (including, but not limited to,
reasonable fees of counsel and court costs) (collectively, "LOSSES") that the
Purchaser's Indemnified Parties may actually suffer and incur as a direct result
of (i) the failure by Seller to timely pay or discharge any of the Seller's
Commissions; and (ii) any commissions owing to leasing and rental agents and
17
<PAGE>
tenant improvement allowances for any renewals (other than renewals pending as
of the Contract Date) or the expansions of any Lease that are not either
identified on SCHEDULE 12.8, identified in any Lease or actually known to
Purchaser on or prior to Closing. Purchaser agrees to and does hereby indemnify,
protect and defend and hold harmless Seller, and its successors and assigns (the
"SELLER'S INDEMNIFIED PARTIES"), from and against all Losses that the Seller's
Indemnified Parties may actually suffer or incur as a direct result of the
failure by Purchaser to timely pay or discharge any of the Purchaser's
Commissions. The terms of this SECTION 12.8 shall survive the Closing and the
delivery of any conveyance documentation.
12.9. Such other items that are customarily prorated in
transactions of this nature shall be ratably prorated.
Except as provided in SECTION 12.7, any and all prorations made
pursuant to this Agreement on the Closing Date shall be deemed final.
13. CLOSING EXPENSES.
Seller shall only pay for: (i) the cost of recording the Deeds, (ii)
the cost, if any, of delivering the Survey (exclusive of any updates thereof
commissioned by Purchaser), (iii) transfer taxes and (iv) subject to SECTION
12.2 hereof, one-half of the cost of any escrows hereunder. Subject to SECTION
12.2 hereof, Purchaser will pay for one-half of any escrow costs hereunder, the
cost of the Title Policies, including all premiums, "extended form coverage" and
any and all endorsements to the Title Policies, and the cost of any updates to
the Surveys.
14. DESTRUCTION, LOSS OR DIMINUTION OF PROJECT.
If, prior to Closing, all or any portion of the Project is damaged by
fire or other natural casualty (collectively "DAMAGE"), or is taken or made
subject to condemnation, eminent domain or other governmental acquisition
proceedings (collectively "EMINENT DOMAIN"), then:
14.1. If the aggregate cost of repair or replacement or the
value of the Eminent Domain (collectively, "REPAIR and/or REPLACEMENT") is
$100,000.00 or less, in the reasonable opinion of Purchaser's and Seller's
respective engineering consultants, and provided that tenants occupying more
than 5% of the aggregate square footage of the Project shall not have a right to
terminate their respective Leases on account of such Damage or Eminent Domain or
shall have such rights, but shall have waived such rights, Purchaser shall close
and take the Project as diminished by such events with an assignment by Seller
of all casualty insurance or condemnation proceeds and all claims therefor and
the payment by Seller to Purchaser of all applicable deductible amounts.
14.2. If (a) the aggregate cost of repair and/or replacement
is greater than $100,000.00, in the reasonable opinion of Purchaser's and
Seller's respective engineering consultants, or (b) if tenant's occupying more
than 5% of the aggregate square footage of the Project shall have a right to
terminate their respective Leases on account of such Damage or Eminent Domain
that have not been waived, then Purchaser, at its sole option, may elect either
to (i) terminate this Agreement by written notice to Seller and receive an
immediate return of the Earnest Money, together with all interest earned
thereon, and neither party shall have any further liability to the other
hereunder, except as provided in SECTIONS 6.3, 17 and 20; or (ii) proceed to
close and take the Project as diminished by such events; together with an
assignment of the proceeds of Seller's casualty insurance for all Damage (or
condemnation awards for any Eminent Domain) and the payment by Seller to
Purchaser of any applicable deductible amounts.
14.3. In the event of a dispute between Seller and Purchaser
with respect to the cost of repair and/or replacement with respect to the
matters set forth in this SECTION 14, an engineer designated by Seller and an
engineer designated by Purchaser shall select an independent engineer licensed
to practice in the jurisdiction where the Project is located who shall resolve
such dispute. All fees, costs and expenses of such third engineer so selected
shall be shared equally by Purchaser and Seller.
18
<PAGE>
15. DEFAULT.
15.1. DEFAULT BY SELLER. If Seller shall have failed to
perform any of the covenants and agreements contained herein to be performed by
Seller within the time for performance as specified herein (including Seller's
obligation to close), Purchaser may either (i) terminate Purchaser's obligations
under this Agreement by written notice to Seller with a copy to Escrowee, in
which event the Earnest Money, together with all interest earned thereon, shall
be returned to Purchaser; or (ii) Purchaser may file an action for specific
performance of this Agreement. Except as otherwise expressly provided in SECTION
15.2, Purchaser shall have no other remedy for any default by Seller, including
any right to damages. In the event that any of the Conditions Precedent shall
not have been satisfied on or prior to Closing, Purchaser's sole remedy
hereunder, at law or in equity, shall be to terminate this Agreement by written
notice to Seller, with a copy to Escrowee, and receive the return of the Earnest
Money, together with all interest earned thereon, whereupon neither party shall
have any further liability hereunder except as otherwise expressly provided in
SECTIONS 6.3, 17 and 20.
15.2. PURCHASER'S OUT-OF-POCKET COSTS. In the event (a)
Seller's breach or default hereunder directly results from an intentional act or
omission of Seller taken with the intention of frustrating Closing or the
willful misconduct of Seller and (b) Purchaser elects to terminate this
Agreement on account of such breach or default, then, upon such termination by
Purchaser hereunder, in addition to receiving the immediate return of the
Earnest Money, anything in this Agreement contained to the contrary
notwithstanding, Purchaser shall also be entitled to receive from Seller, upon
demand, Purchaser's actual, documented out-of-pocket costs and expenses
associated with this Agreement and Purchaser's anticipated acquisition of the
Project including, without limitation, Purchaser's reasonable fees and costs of
counsel, title expenses, survey costs, and other costs and expenses associated
with Purchaser's due diligence, including, without limitation, legal, financial
and accounting due diligence, Purchaser's structural inspection of the Project
and Purchaser's environmental assessment of the Project (collectively,
"TRANSACTION COSTS"). The foregoing list is not intended to be exclusive, but
representative of the costs and expenses that the parties anticipate that
Purchaser will incur in anticipation of this transaction. Seller's maximum
reimbursement liability under this SECTION 15.2 shall not exceed $50,000.00.
15.3. DEFAULT BY PURCHASER. Purchaser recognizes that the
Project will be removed by Seller from the market during the existence of this
Agreement and that if this purchase and sale is not consummated because of
Purchaser's default, Seller shall be entitled to compensation for such
detriment. Seller and Purchaser acknowledge that it is extremely difficult and
impracticable ascertain the extent of the detriment, and to avoid this problem,
Seller and Purchaser agree that if the purchase and sale contemplated in this
Agreement is not consummated because of Purchaser's default under this
Agreement, Seller shall be entitled to retain the Earnest Money and all interest
earned thereon as liquidated damages. The parties agree that the sum stated
above as liquidated damages shall be in lieu of any other relief to which Seller
might otherwise be entitled, Seller hereby specifically waiving any and all
rights which it may have to damages or specific performance as a result of
Purchaser's default under this Agreement.
16. SUCCESSORS AND ASSIGNS.
Neither party shall assign this Agreement without the prior written
consent of the other, except that either party may assign its interest in and
obligations under this Agreement to a so-called "Qualified Intermediary" in
order to accomplish an Exchange. Without limitation of the foregoing, Purchaser
shall have the further right, at its option, to assign its rights under this
Agreement to Corporate Office Properties Trust, or Corporate Office Properties,
L.P., or to a limited liability company in which COPLP shall be a member or to
another limited general partnership in which COPT, COPLP or their affiliate,
shall be a partner, provided that such assignee assumes and accepts all of
Purchaser's liabilities and obligations hereunder in writing.
19
<PAGE>
17. LITIGATION.
In the event of litigation between the parties with respect to the
Project, this Agreement, the Escrow Agreement, the performance of their
respective obligations hereunder or the effect of a termination under this
Agreement or the Escrow Agreement, the losing party shall pay all reasonable,
documented costs and expenses incurred by the prevailing party in connection
with such litigation, including, but not limited to, reasonable attorneys' fees
of counsel selected by the prevailing party. Notwithstanding any provision of
this Agreement to the contrary, the obligations of the parties under this
SECTION 17 shall survive termination of this Agreement.
18. NOTICES.
Any notice, demand or request which may be permitted, required or
desired to be given in connection therewith shall be given in writing and
directed to Seller and Purchaser as follows:
Seller: First Industrial Financing Partnership, L.P.
440 Commercial Street, 5th Floor
Boston, MA 02109
Attn: James D. Carpenter
With a copy to
its attorneys: Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive
27th Floor
Chicago, Illinois 60606
Attn: Mark J. Beaubien, Esq.
Purchaser: COPT Acquisitions, Inc.
401 City Avenue, Suite 615
Bala Cynwyd, Pennsylvania 19004
Attn: Jim Davis
With a copy to
its attorneys: Corporate Office Properties Trust
8815 Center Park Drive, Suite 400
Columbia, Maryland 21045
Attn: John H. Gurley, Esq.
Vice President and General Counsel
- and -
Morgan, Lewis & Bockius, LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
Attn: Eric L. Stern, Esq.
Notices shall be deemed properly delivered and received when and if
either (i) personally delivered; or (ii) one (1) business day after deposits
with Federal Express or other overnight courier.
19. BENEFIT.
This Agreement is for the benefit only of the parties hereto and no
other person or entity shall be entitled to rely hereon, receive any benefit
herefrom or enforce against any party hereto any provision hereof.
20. BROKERAGE.
Each party hereto represents and warrants to the other that it has
dealt with no brokers or finders in connection with this transaction, except for
Cushman & Wakefield ("BROKER"). Seller shall pay any brokers' commission due to
Broker, if any. Seller hereby indemnifies, protects, defends and holds Purchaser
harmless from and against all losses, claims, costs, expenses and damages
(including, but not limited to, reasonable attorneys' fees of counsel selected
by Purchaser) resulting from the claims of any broker, finder, or other such
party, including Broker, claiming by, through or under the acts or agreements of
Seller. Purchaser hereby indemnifies, protects, defends and holds Seller
harmless from and against all losses,
20
<PAGE>
claims, costs, expenses and damages (including, but not limited to, reasonable
attorney's fees of counsel selected by Seller) resulting from the claims of any
broker, finder or other such party, other than Broker, claiming by, through or
under the acts or agreements of Purchaser. The obligations of the parties
pursuant to this SECTION 20 shall survive any termination of this Agreement.
21. MISCELLANEOUS.
21.1. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties with respect to the transaction contemplated
herein, and all prior or contemporaneous oral agreements, understandings,
representations and statements, and all prior written agreements,
understandings, letters of intent and proposals are merged into this Agreement.
Neither this Agreement nor any provisions hereof may be waived, modified,
amended, discharged or terminated except by an instrument in writing signed by
the party against which the enforcement of such waiver, modification, amendment,
discharge or termination is sought, and then only to the extent set forth in
such instrument.
21.2. TIME OF THE ESSENCE. Time is of the essence of this
Agreement. If any date herein set forth for the performance of any obligations
by Seller or Purchaser or for the delivery of any instrument or notice as herein
provided should be on a Saturday, Sunday or legal holiday, the compliance with
such obligations or delivery shall be deemed acceptable on the next business day
following such Saturday, Sunday or legal holiday. As used herein, the term
"legal holiday" means any state or federal holiday for which financial
institutions or post offices are generally closed in the Commonwealth of
Pennsylvania for observance thereof.
21.3. CONSTRUCTION. The headings of various Sections in this
Agreement are for convenience only, and are not to be utilized in construing the
content or meaning of the substantive provisions hereof.
21.4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
21.5. PARTIAL INVALIDITY. The provisions hereof shall be
deemed independent and severable, and the invalidity or partial invalidity or
enforceability of any one provision shall not affect the validity of
enforceability of any other provision hereof.
21.6. NO RECORDING. Neither this Agreement nor any memorandum
thereof shall be recorded and the act of recording by Purchaser shall be deemed
a default by Purchaser hereunder.
22. SURVIVAL.
All representations and warranties by the respective parties contained
herein or made by Seller in the Approval Date Certificate, the Updated Rent Roll
or the Closing Certificate, as the case may be, shall survive the Closing Date,
the delivery of the Deeds and transfer of title to the Land for a period of nine
(9) months. Notwithstanding anything to the contrary contained herein, if
Purchaser (x) is notified in any Scheduled Document, Estoppel Certificate
received by Purchaser prior to Closing, third party reports prepared for the
benefit of Purchaser in connection with its Basic Project Inspection or the
Additional Assessment, if any, that are received prior to Closing in final or
draft form, or Title Evidence received by Purchaser prior to Closing or in a
writing by Seller received by Purchaser prior to Closing (all
21
<PAGE>
of the foregoing, "IMPUTED NOTICE DOCUMENTS"), which notice and knowledge shall
be imputed to Purchaser to the extent contained in such Imputed Notice
Documents, or (y) obtains actual (as opposed to deemed, imputed or constructive
knowledge) knowledge prior to Closing, whether as a result of its review of the
Documents or otherwise, (aa) that any representation or warranty made by Seller
is not true or correct as of the date of this Agreement, or that such
representation or warranty is not true or correct as of the date of the Approval
Date Certificate, the Updated Rent Roll or the Closing Certificate, as the case
may be, or (bb) that Seller has failed to perform any covenant and agreement
herein contained and Purchaser shall nevertheless elect to acquire the Project
notwithstanding such fact, Purchaser shall not be entitled to commence any
action after Closing to recover damages from Seller due to such representation
or warranty failing to be true or correct (and Purchaser shall not be entitled
to rely on such representation or warranty), or such covenant and agreement
having failed to be performed by Seller. Furthermore, no claim for a breach of
any representation or warranty of Seller, or the failure of a covenant or
agreement of Seller, shall be actionable or payable unless (a) the valid claims
for all such breaches collectively aggregate more than Twenty-Five Thousand
Dollars ($25,000), in which event the full amount of such claims shall be
actionable, and (b) written notice containing a description of the specific
nature of such breach shall have been given by Purchaser to Seller prior to the
expiration of said nine (9) month period and an action shall have been commenced
by Purchaser against Seller within fifteen (15) months of Closing.
Notwithstanding anything contained herein to the contrary, the maximum amount
that Purchaser shall be entitled to collect from Seller in connection with all
suits, litigation or administrative proceeding resulting from any and all
breaches of any representations, warranties and certifications of Seller
contained in SECTION 8 hereof, the Approval Date Certificate, the Updated Rent
Roll or the Closing Certificate shall in no event exceed Two Million and No/100
Dollars ($2,000,000) in the aggregate. The limitations described in the
preceding sentence shall not apply in those instances where any
misrepresentation by Seller in this Agreement, the Approval Date Certificate,
the Updated Rent Roll or the Closing Certificate is determined by a court of
competent jurisdiction to have constituted a fraud by Seller upon Purchaser
within the meaning of the common law of the Commonwealth of Pennsylvania.
23. SEC REPORTING (8-K) REQUIREMENTS.
For the period of time commencing on the Closing Date and continuing
through the first anniversary of the Closing Date, Seller shall, from time to
time, upon reasonable advance written notice from Purchaser, provide Purchaser
and its representatives, at Purchaser's sole cost and expense, with (I) access
to all financial and other information pertaining to the period of Seller's
ownership and operation of the Project, to enable Purchaser and its third party
accountants (the "ACCOUNTANTS") to prepare financial statements in compliance
with any or all of (a) Rule 3-05 or 3-14 of Regulation S-X of the Securities and
Exchange Commission (the "Commission"), as applicable; (b) any other rule issued
by the Commission and applicable to Purchaser; and (c) any registration
statement, report or disclosure statement filed with the Commission by, or on
behalf of Purchaser; and (II) a representation letter in a form to be mutually
and reasonably agreed to by Seller and Purchaser on or prior to Closing, signed
by the individual(s) responsible for Seller's financial reporting, which
representation letter may be required by the Accountants in order to render an
opinion concerning Seller's financial statements.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Purchase and Sale on the date first above written.
SELLER:
FIRST INDUSTRIAL FINANCING
PARTNERSHIP, L.P., a Delaware limited
partnership
By: First Industrial Finance Corporation, its
sole general partner
By: /s/illegible
-------------------------------
Its:
------------------------------
PURCHASER:
COPT ACQUISITIONS, INC., a Delaware
corporation
By: /s/illegible
----------------------------------
Its: President
---------------------------------
S-1
<PAGE>
EXHIBITS
A Address and Size of Buildings
B Legal Description of the Land
C Escrow Agreement
D Documents
D-1 Scheduled Documents
E Rent Roll
F Estoppel Certificate
SCHEDULES
Schedule 7.3 Surveys
Schedule 8.1.14 Rights to Purchase
Schedule 8.2.1 Lease Amendment or New Lease Terms
Schedule 11.3 Critical Tenants
Schedule 12.8 Leasing Commissions and Tenant Improvements
<PAGE>
EXHIBIT A
ADDRESS AND SIZE OF BUILDINGS
<TABLE>
<CAPTION>
Property Square Feet Valuation
-------- ----------- ---------
<S> <C> <C> <C>
A-1. 6340 Flank Drive 68,200
A-2. 6345 Flank Drive 69,443
A-3. 6360 Flank Drive 46,500
A-4. 6380 Flank Drive 32,000
A-5. 6400 Flank Drive 52,399
A-6. 6405 Flank Drive 32,000
-------
Total Gateway 300,542 $28,650,000
A-7. 5035 Ritter Road 56,000
A-8. 5070 Ritter Road 60,000
------
116,000 $10,850,000
---------------------------------------------
Total Portfolio 416,542 $39,500,000
---------------------------------------------
</TABLE>
A-1
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION OF THE LAND
B-1
<PAGE>
LEGAL DESCRIPTION
6340 FLANK DRIVE
HARRISBURG, PENNSYLVANIA
PARCEL 1:
ALL THAT CERTAIN piece or parcel of land, situate in the Township of Lower
Paxton, County of Dauphin, Commonwealth of Pennsylvania, known as Lot No. 6 of
Heatherwood Commercial Park, as shown on the Plan recorded in the Office of the
Recorder of Deeds in and for the County of Dauphin, in Plan Book "M", Volume 3,
Page 84, more particularly bounded and described as follows:
BEGINNING at a point on the north side of Flank Drive, formerly known as Butler
Drive, at the division line between Lot No. 5 and Lot No. 6, said point being
also a distance of 299.00 feet east of the intersection of the east side of
Aster Drive and the north side of Flank Drive, formerly known as Butler Drive;
THENCE by the line of Lots No. 5, 4 and 3 North 15 degrees 01 minutes west
518.68 feet to a point at the right of way line of route I-81. L.R. 1005; THENCE
BY same North 74 degrees 40 minutes 30 seconds East 560.00 feet to a point at
line of Lot No. 7; THENCE by same South 15 degrees 01 minutes East 501.05 feet
to a point on the north side of Flank Drive, formerly known as Butler Drive,
THENCE by the same and a curve to the right having a radius of 540.00 feet, an
arc length of 149.81 feet to a point; THENCE by the same South 74 degrees 59
minutes West 412.09 feet to the point and place of BEGINNING.
BEING the same premises which Bedford Associates, New York limited partnership
by deed dated June 30, 1987 and recorded in the Recorded of Deeds Office in and
for Dauphin County, in Record Book 967, page 246 granted and conveyed to Rouse &
Associates 6340 Flank Drive Limited Partnership, a Pennsylvania limited
partnership.
PARCEL 2:
Easement for "Common Areas" as granted in the Declaration of Protective
Covenants Heatherwood Commercial Park recorded at Book 257, page 525.
B-1-1
<PAGE>
LEGAL DESCRIPTION
6345 FLANK DRIVE
HARRISBURG, PENNSYLVANIA
PARCEL 1:
ALL THAT CERTAIN piece or parcel of land, situate in the Township of Lower
Paxton, County of Dauphin, Commonwealth of Pennsylvania, known as Lot No. 14 of
Heatherwood Commercial Park, as shown on the Plan recorded in the Office of the
Recorder of Deeds in and for the County of Dauphin in Plan Book M, Volume 3,
Page 84, more particularly bounded and described as follows:
BEGINNING at a point of tangent on the Easterly side of Dorchester Road (50 feet
wide), said point being measured from a point of curve on the Northerly side of
Allentown Boulevard (120 feet wide); on the arc of a circle curving to the right
having a radius of 25 feet the arc distance of 39.27 feet;
THENCE extending from said beginning point along the Easterly side of Dorchester
Road, North 15 degrees 01 minute West 445.10 feet to a point of curve;
THENCE extending on the arc of a circle curving to the right having a radius of
25 feet the arc distance of 39.27 feet, having a chord bearing of North 29
degrees 59 minutes East 35.36 feet to a point of tangent on the southerly side
of Flank Drive, formerly known as Butler Drive (60 feet wide);
THENCE extending along the said Southerly side of Flank Drive, formerly known as
Butler Drive, North 74 degrees 59 minutes East 362.09 feet to a point of curve,
THENCE continuing along Flank Drive, formerly known as Butler Drive, on the arc
of a circle curving to the left having a radius of 600 feet the arc distance of
159.16 feet having a chord bearing of North 67 degrees 23 minutes 03 seconds
East 158.69 feet to a point being the Northwest corner of Lot No. 13;
THENCE extending along said lot the following two courses and distances;
(1) South 36 degrees 01 minute East 252.87 feet and
(2) South 15 degrees 01 minute East 280.00 feet to a point on the
Northerly side of Allentown Boulevard;
Thence extending along said Allentown Boulevard, South 74 degrees 59 minutes
West 610.00 feet to a point of curve;
THENCE extending on the arc of a circle curving to the right having a radius of
25 feet the arc distance of 39.27 feet, having a chord bearing of North 60
degrees 01 minutes West 35.36 feet, to the first mentioned point and place of
BEGINNING.
PARCEL 2:
Easement to "Common Areas" as granted in the Declaration of Protective Covenants
Heatherwood Commercial Park recorded at 257, page 525.
B-1-2
<PAGE>
LEGAL DESCRIPTION
6360 FLANK DRIVE
LOWER PAXTON TOWNSHIP
HARRISBURG, PENNSYLVANIA
PARCEL 1:
ALL THAT CERTAIN piece or parcel of land, situate in the Township of Lower
Paxton, County of Dauphin, Commonwealth of Pennsylvania, known as Lot #7 of
Heatherwood Commercial Park, as shown on the plan recorded in the Office of the
Recorder of deeds in and for the County of Dauphin in Plan Book "M", Volume 3,
Page 84, more particularly bounded and described as follows:
BEGINNING at a point on the north side of Flank Drive, formerly known as Butler
Drive, at the division line between Lot No. 6 and Lot No. 7, said point being
also a distance of 860.90 feet east of the intersection of the east side of
Aster Drive and the north side of Flank Drive, formerly known as Butler Drive;
THENCE by the division line between Lot NO. 6 and Lot No. 7 North 15 degrees of
01 minute West 501.05 feet to a point at the right of way line of Route I-81,
L.R. 1105; THENCE by the same North 74 degrees 40 minutes 30 seconds East 294.43
feet to a point at a curve; THENCE by same and a curve to the right having a
radius of 11,359.20 feet, an arc length of 289.95 feet to a point at line of Lot
No. 8; THENCE by same South 15 degrees 01 minute East 303.52 feet to a point on
the north side of Flank Drive, formerly known as Butler Drive; THENCE by same
and a curve to the left having a radius of 800.00 feet, an arc length of 193.90
feet to a point; THENCE by same South 53 degrees 59 minutes West 376.08 feet to
a point; THENCE by same and a curve to the right having a radius of 540.00 feet,
an arc length of 48.11 feet to a point, the place of BEGINNING.
PARCEL 2:
Easement for Common Areas as granted in the Declaration of Protective Covenants
Heatherwood Commercial Park recorded in Book 257 page 525.
B-1-3
<PAGE>
LEGAL DESCRIPTION
6380 FLANK DRIVE
LOWER PAXTON TOWNSHIP
HARRISBURG, PENNSYLVANIA
PARCEL 1:
ALL THAT CERTAIN piece or parcel of land, situate in the Township of Lower
Paxton, County of Dauphin, Commonwealth of Pennsylvania, known as Lot No. 6 of
Heatherwood Commercial Park, as shown on the Plan recorded in the Office of the
Recorder of Deeds in and for the County of Dauphin, in Plan Book "M", Volume 3,
Page 84, more particularly bounded and described as follow:
BEGINNING at a point on the north side of Flank Drive, formerly known as Butler
Drive, at the division line between Lot No. 5 and Lot No. 6, said point being
also a distance of 299.00 feet east of the intersection of the east side of
Aster Drive and the north side of Flank Drive, formerly known as Butler Drive;
THENCE by the line of Lots No. 5, 4 and 3 North 15 degrees 01 minutes west
518.68 feet to a point at the right of way line of Route I-81, L.R. 1005; THENCE
by same North 74 degrees 40 minutes 30 seconds East 560.00 feet to a point at
line of Lot No. 7; THENCE by same South 15 degrees 01 minutes East 501.05 feet
to a point on the north side of Flank Drive, formerly known as Butler Drive;
THENCE by the same and a curve to the right having a radius of 540.00 feet, an
arc length of 149.81 feet to a point; THENCE by the same South 74 degrees 59
minutes West 412.09 feet to the point and place of BEGINNING.
BEING the same premises which Bedford Associates, a New York limited partnership
by deed dated June 30, 1987 and recorded in the Recorder of Deeds Office in and
for Dauphin County, in Record Book 967, page 246 granted and conveyed to Rouse &
Associates - 6340 Flank Drive Limited Partnership, a Pennsylvania limited
partnership.
PARCEL 2:
Easement for "Common Areas" as granted in the Declaration of Protective
Covenants Heatherwood Commercial Park recorded at Book 257, page 525.
B-1-4
<PAGE>
LEGAL DESCRIPTION
6400 FLANK DRIVE
LOWER PAXTON TOWNSHIP
HARRISBURG, PENNSYLVANIA
PARCEL 1:
ALL THAT CERTAIN lot or parcel of land situate in Lower Paxton Township, Dauphin
County, Pennsylvania, bounded and described according to a Subdivision Plan for
Gateway Corporate Center by Kidde Consultants, Inc. dated July 18, 1990 recorded
November 19, 1990 in Plan Book "D", Volume 5, page 19, as follows:
BEGINNING at a point on the northern right of way of Flank Drive, at the
division line between Lot No. 8 and No. 9, said point being a distance of
1,973.69 feet East of the intersection of the eastern right of way of Aster
Drive and the northern right of way of Flank Drive; THENCE by the division line
between Lot No. 8 and Lot No. 9 North 10 degrees 22 minutes 18 seconds West,
345.09 feet to a point at the right of way line of Route I-81 S.R. 0081; THENCE
by the same and a curve to the right having a radius of 11,359.20 feet, an arc
length of 523.45 feet to a point; THENCE by the same South 8 degrees 37 minutes
East 10.00 feet to a point; THENCE by the same along a curve to the right having
a radius of 11,349.20 feet, an arc length of 106.61 feet to a point; THENCE
along the lands N/F of B.&K, Inc., South 23 degrees 42 minutes 30 seconds West
249.68 feet to a point; THENCE along the same South 37 degrees 36 minutes East,
242.00 feet to a point, said point being the northeast corner of Lot No. 10;
THENCE along the same, South 79 degrees 37 minutes 42 seconds West, 451.38 feet
to a point; THENCE by the same north 69 degrees 26 minutes 23 seconds West,
44.74 feet to a point on the right of way of Flank Drive; THENCE by the same and
a curve to the left having a radius of 60.00 feet, an arc length of 133.89 feet
to a point; THENCE by the same and a curve to the right having a radius of 30.00
feet, an arc length of 22.30 feet to a point; THENCE by the same and a curve to
the left having a radius of 330.00 feet, an arc length of 7.40 feet to a point
and the place of BEGINNING.
BEING DESIGNATED at Lot No. 9 on the above captioned plan.
PARCEL 2:
Easement to "Common Areas" as granted in the Declaration of Protective Covenants
Heatherwood Commercial Park recorded in Book 257, page 525.
B-1-5
<PAGE>
LEGAL DESCRIPTION
6405 FLANK DRIVE
HARRISBURG, PENNSYLVANIA
PARCEL 1:
ALL THAT CERTAIN lot or parcel of land situate in Lower Paxton Township, Dauphin
County, Pennsylvania, bounded and described according to Subdivision Plan for
Gateway Corporate Center by Kidde Consultants, Inc., dated July 18, 1990 and
recorded November 19, 1990 in Plan Book "D", Volume 5, page 19, as follows, to
wit:
BEGINNING at a point on the East end of the Flank Drive Cul-de-sac, at the
division line between Lot No. 9 and Lot No. 10, said point being a distance of
2,137.28 feet East of the intersection of the eastern right-of-way of Aster
Drive and the northern right-of-way of Flank Drive; THENCE by the division line
between Lot No. 9 and Lot No. 10 South 69 degrees 26 minutes 23 seconds East,
44.74 feet to a point; THENCE by the same North 79 degrees 37 minutes 42 seconds
East, 451.38 feet to a point; THENCE along the lands N/F of B & K, Inc., South
37 degrees 36 minutes East, 89.46 feet to a point; THENCE along the lands N/F of
Dauphin Management Corp. South 14 degrees 09 minutes 15 seconds East, 484.65
feet to a point along the northern right of way of Allentown Boulevard, S.R.
0022; THENCE by the same, South 74 degrees 59 minutes West, 100.00 feet to a
point; THENCE by the line between Lot No. 10 and Lot No. 16 North 15 degrees 01
minute West, 38.17 feet to a point; THENCE along the same, North 84 degrees 09
minutes 05 seconds West, 474.01 feet to a point; THENCE by the line between Lot
No. 10 and Lot No. 11, North 10 degrees 22 minutes 18 seconds West, 381.35 feet
to a point; THENCE by the same North 69 degrees 26 minutes 23 seconds West,
25.93 feet to a point on the right of way of the Flank Drive Cul-de-sac; THENCE
by the same and a curve to the left having a radius of 60.00 feet, an arc length
of 34.47 feet to a point and the place of BEGINNING.
BEING designated as Lot No. 10 on the above captioned plan.
PARCEL 2:
Easement for "Common Areas: as granted in the Declaration of Protective
Covenants Heatherwood Commercial Park recorded in Book 257, page 525.
B-1-6
<PAGE>
LEGAL DESCRIPTION
5035 RITTER ROAD
LOWER ALLEN TOWNSHIP
MECHANICSBURG, PENNSYLVANIA
PARCEL 1:
ALL THAT CERTAIN tract or parcel of land situate in Lower Allen Township,
Cumberland County, Pennsylvania, more particularly bounded and described
according to a Final Subdivision Plan of Tract "B" of a portion of "Rossmoyne
Industrial Park" for Smith Land & Improvement Corporation, by Robert E. Hartman,
Jr., P.E. and R.S. dated May 8, 1987 and revised June 17, 1987, recorded August
24, 1987 in Plan Book 53, page 122, and being designated as Lot B-2 thereon, as
follows:
BEGINNING at a point on the southern right of way line of "Ritter Road" (a 60
foot right of way) said point being located and referenced in a northwesterly
direction from the center line intersection of "Louise Drive" and "Ritter Road"
the following four (4) courses and distances:
1. from said intersection along the center line of "Ritter Road"
north 38 degrees 09 minutes 37 seconds west, a distance of
735.96 feet to a point; thence
2. along the same on the arc of a curve, curving to the left,
having a radius of 250.00 feet, an arc length of 392.70 feet
to a point; thence
3. along the same north 51 degrees 50 minutes 23 seconds west, a
distance of 586.85 feet to a point; thence
4. south 40 degrees 42 minutes 20 seconds east, a distance of
30.03 feet to a point on the southern right-of-way line of
"Ritter Road" the point of BEGINNING.
THENCE from said point of BEGINNING along lands of Smith Land & Improvement
Corporation south 40 degrees 42 minutes 20 seconds east, a distance of 460.45
feet to a point; THENCE along the same south 51 degrees 50 minutes 23 seconds
west, a distance of 534.93 feet to a point;
THENCE along the same North 38 degrees 09 minutes 37 seconds West, a distance of
460.00 feet to a point on the southern right-of-way line of "Ritter Road";
THENCE along the southern right-of-way line of "Ritter Road" north 51 degrees 50
minutes 23 seconds east, a distance of 514.48 feet to a point, the place of
BEGINNING.
BEING Lot No. B-2 on Plan of Rossmoyne Industrial Park.
PARCEL 2:
TOGETHER with easements in and to the "Common Areas" as granted in the
Declaration of Protective Covenants recorded at Book 354, page 570.
B-1-7
<PAGE>
LEGAL DESCRIPTION
5070 RITTER ROAD
MECHANICSBURG, PENNSYLVANIA
PARCEL 1:
ALL that certain land and premises situate in Upper Allen Township, Cumberland
County, Pennsylvania being Lot #D-2 in Final Subdivision Plan of Tracts "D" and
"F" Lots D-2 and F-3 a portion of "Rossmoyne Industrial Park" for Smith Land &
Improvement Corporation by J. Michael Brill & Associates, Inc., J. Michael
Brill, P.E. dated May 9, 1988 and recorded in Cumberland County Courthouse on
June 23, 1988 in Plan Book 55, page 114, as follows:
BEGINNING at a point on the northern right-of-way line of "Ritter Road" (a 60
foot right-of-way) said point being located and referenced form the centerline
intersection of "Ritter Road" and "Scott Street" the following two (2) courses
and distances:
1. From said intersection along the centerline of "Ritter Road"
south 51 degrees 50 minutes 23 seconds West, a distance of
526.35 feet to a point;
2. Thence north 38 degrees 09 minutes 37 seconds west, a distance
of 30.00 feet to a point on the northern right-of-way line of
Ritter Road, the point of BEGINNING.
THENCE from said point of beginning, along the northern right-of-way line of
"Ritter Road" south 51 degrees 50 minutes 23 second west, a distance of 515.29
feet to a point; THENCE along other lands now or formerly of Smith Land &
Improvement Corporation, North 38 degrees 09 minutes 37 seconds West, a distance
of 423.38 feet to a point on the southern right-of-way line of U.S. Route #15
(L.R. #123); THENCE along the southern right-of-way line of U.S. Route #15 on an
arc of a curve curving to the right having a radius of 2789.79 and an arc length
of 312.85 feet to a point; THENCE along the same north 51 degrees 04 minutes 37
seconds east, a distance of 203.38 feet to a point; THENCE along Lot #D-1 south
38 degrees 09 minutes 37 seconds east, a distance of 447.77 feet to a point on
the northern right-of-way line of "Ritter Road", being the point of BEGINNING.
PARCEL 2:
Easement in and to the "Common Area" contained in the Declaration of Protective
Covenants for Rossmoyne Business Center recorded at Book 354, page 570.
B-1-8
<PAGE>
EXHIBIT C
EARNEST MONEY ESCROW INSTRUCTIONS
These Earnest Money Escrow Instructions ("INSTRUCTIONS") are entered
into as of this _______ day of ___________, 199__ by and among First Industrial
FINANCING PARTNERSHIP, L.P. ("SELLER"), ("PURCHASER"), and COMMONWEALTH LAND
TITLE INSURANCE COMPANY ("ESCROWEE").
WHEREAS, Purchaser and Seller entered into an Agreement of Purchase and
Sale, dated _______________, 199__ (the "AGREEMENT"), for the purchase and sale
of the Project (as defined in the Agreement and hereinafter collectively
referred to as the "PROPERTY"); and
WHEREAS, the parties desire to enter into escrow instructions with
Escrowee pursuant to which Purchaser shall deposit earnest money, as required
under the Agreement (the "ESCROW").
NOW THEREFORE, in consideration of the mutual covenants contained in
these Instructions, and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Deposit.
1.1. INITIAL EARNEST MONEY. Pursuant to the terms and
provisions of the Agreement, and simultaneously with the execution hereof,
Purchaser has deposited with Escrowee earnest money in the sum of
____________________ ($_____________) [the "EARNEST MONEY"].
1.2. ADDITIONAL EARNEST MONEY. Pursuant to the terms and
provisions of the Agreement, simultaneously with its delivery of the Closing
Date Extension Notice, Purchaser has deposited with Escrowee earnest money in
the sum of ($_________) (the "ADDITIONAL EARNEST MONEY"). The Initial Earnest
Money and the Additional Earnest Money shall hereinafter collectively be
referred to as the "EARNEST MONEY".
1.3. INVESTMENT OF EARNEST MONEY. Escrowee shall invest the
Earnest Money in interest-bearing securities, bank deposits and/or so-called
"money market funds" established and managed by nationally recognized firms, as
selected by Purchaser. All interest earned on the Earnest Money shall be paid as
specifically provided in these Instructions.
2. APPLICATION OF EARNEST MONEY AT CLOSING AND UPON TERMINATION
OF AGREEMENT.
2.1. AT CLOSING. At Closing (as defined in the Agreement), (i)
the Earnest Money shall be delivered by Escrowee to Seller and credited against
the payment of the Purchase Price, and (ii) all interest earned thereon shall be
delivered by Escrowee to Purchaser, whereupon the Escrow shall terminate.
2.2. UPON TERMINATION OF CONTRACT. Notwithstanding the
foregoing, the Agreement provides certain circumstances in which Purchaser shall
have the unilateral right to terminate the Agreement on or before ___________,
199__ (the "APPROVAL DATE"), by delivery of written notice to Seller and
Escrowee (the "TERMINATION NOTICE"). Upon Escrowee's receipt of the Termination
Notice (provided Escrowee receives such Termination Notice on or before
______________, Escrowee shall immediately and simultaneously (x) deliver a copy
of the Termination Notice to Seller, in the manner provided in SECTION 5 below,
and (y) disburse the full amount of the Earnest Money, together with any and all
interest earned thereon, to Purchaser.
3. DEFAULT.
3.1. PURCHASER'S DEFAULT. In the event that after the Approval
Date Purchaser breaches or defaults under the obligations imposed on it under
the Agreement, and Seller desires
C-1
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to obtain the Earnest Money from Escrowee (pursuant to the terms of the
Agreement), Seller shall be required to present to Escrowee: Seller's affidavit
of default (the "DEFAULT AFFIDAVIT"), executed under penalty of perjury by an
authorized representative of Seller, certifying to Purchaser and Escrowee that
Purchaser is in default under the Agreement and, therefore, Seller is entitled
to the Earnest Money proceeds. Upon receipt of the Default Affidavit from
Seller, Escrowee shall (i) deliver a copy of the Default Affidavit to Purchaser,
in the manner as provided in SECTION 5 below and (ii) if, within four (4)
business days after the date on which the Default Affidavit is deemed to be
delivered to Purchaser (pursuant to SECTION 5 below), Escrowee has not received
from Purchaser a notice ("OBJECTION NOTICE") objecting to Escrowee's compliance
with the Default Affidavit, Escrowee shall deliver the Earnest Money, together
with all interest earned thereon, to Seller.
3.2. SELLER'S DEFAULT. In the event that after the Approval
Date, Seller breaches or defaults under the obligations imposed on it under the
Agreement, and Purchaser desires the return of the Earnest Money from Escrowee
(pursuant to the terms of the Agreement), Purchaser shall be required to present
to Escrowee: its own Default Affidavit executed under penalty of perjury by an
authorized representative of Purchaser certifying to Seller and Escrowee that
Seller is in default under the Agreement and, therefore, Purchaser is entitled
to return of the Earnest Money proceeds. Upon receipt of the Default Affidavit
from Purchaser, Escrowee shall (i) deliver a copy of the Default Affidavit to
Seller as provided in SECTION 5 below, and (ii) if, within four (4) business
days after the date on which the Default Affidavit is deemed to be delivered to
Seller (pursuant to SECTION 5 below), Escrowee has not received from Seller an
Objection Notice, objecting to Escrowee's compliance with the Default Affidavit,
Escrowee shall deliver the Earnest Money, together with all interest earned
thereon, to Purchaser.
4. OBJECTION NOTICES. If Escrowee receives an Objection Notice
from either Seller or Purchaser within the time period set forth in SECTION 3
above, then Escrowee shall refuse to comply with the Default Affidavit then in
question ("OBJECTIONABLE DEFAULT AFFIDAVIT") until Escrowee receives (a) joint
written instructions executed by both Purchaser and Seller, or (b) a final
non-appealable order with respect to the disposition of the Earnest Money from a
federal or state court of competent jurisdiction ("COURT ORDER"), in either of
which events Escrowee shall then disburse the Earnest Money and all interest
earned thereon, in accordance with such direction or order, as the case may be.
Notwithstanding the immediately preceding sentence, if the party that delivers
the Objection Notice does not (i) commence litigation with respect to the
Earnest Money by filing a complaint or action for a declaratory judgment in an
appropriate court of competent jurisdiction ("LITIGATION"), and (ii) provide
notice and a copy of such complaint or action for declaratory judgment to
Escrowee and the other party to these Instructions within thirty (30) days after
delivery of the then-applicable Objection Notice, then Escrowee shall disburse
the Earnest Money in accordance with the Objectionable Default Affidavit.
Notwithstanding anything to the contrary in the Agreement or these
Instructions, Seller and Purchaser hereby agree that in the event that (A)
either or both of them delivers a Default Affidavit pursuant to SECTION 3; (B)
the recipient of a Default Affidavit delivers an Objection Notice in response
thereto; (C) the party delivering an Objection Notice commences Litigation; (D)
the Litigation is ultimately resolved by the issuance of a Court Order; and (E)
the Court Order authorizes the disbursement of the Earnest Money to the party
that delivered the Default Affidavit that gave rise to the Objection Notice and
ensuing Litigation (the "INITIATING PARTY"), then the party that delivered such
Objection Notice shall be required to pay to the Initiating Party interest on
the Earnest Money, from the date on which the Initiating Party delivered its
Default Affidavit through the date on which the Escrowee disburses the Earnest
Money (and all interest accrued thereon) to the Initiating Party, which interest
shall be at the per annum rate of five percent (5.0%) in excess of the per annum
rate publicly announced, from time to time, by The First National Bank of
Chicago as its "prime" or "base" or "reference" rate of interest.
C-2
<PAGE>
5. NOTICES. Notices hereunder shall be deemed properly delivered
when and if either (i) personally delivered; or (ii) one (1) business day after
deposit with Federal Express or other commercial overnight courier; or (iii) two
(2) business days after deposit in the U.S. Mail, by registered or certified
mail, return receipt requested, postage prepaid, to the parties as set forth
below:
Seller: First Industrial Financing Partnership, L.P.
440 Commercial Street, 5th Floor
Boston, MA 02109
Attn: James D. Carpenter
With a copy to
its attorneys: Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive
27th Floor
Chicago, Illinois 60606
Attn: Mark J. Beaubien
Purchaser: COPT Acquisitions, Inc.
401 City Avenue, Suite 615
Bala Cynwyd, Pennsylvania 19004
Attn: Jim Davis
With a copy to
its attorneys: Corporate Office Properties Trust
8815 Center Park Drive, Suite 400
Columbia, Maryland 21045
Attn: John Gurley, Esq.
- and -
Morgan, Lewis & Bockius, LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
Attn: Eric L. Stern, Esq.
Escrowee: Commonwealth Land Title Insurance Company
----------------------------------------
----------------------------------------
----------------------------------------
6. ESCROWEE OBLIGATIONS. The parties agree that, except as
otherwise expressly provided in SECTION 4, the actions of, and the relationship
between, Purchaser and Seller shall be governed by the terms of the Agreement.
In all events and under all circumstances (except as otherwise expressly
provided in SECTION 4), the ultimate rights and obligations of Seller and
Purchaser shall be strictly governed and controlled by the terms and provisions
of the Agreement, rather than these Instructions. In the event of any conflict
between the terms and provisions of the Agreement and these Instructions, the
terms and provisions of the Agreement shall control in all events and
circumstances except as otherwise expressly provided in SECTION 4.
Notwithstanding the existence of the Agreement or any references herein to the
Agreement, the parties agree that Escrowee (but not Seller and Purchaser) shall
be governed solely by the terms and provisions of these Instructions. The
parties furthermore agree that, except as otherwise specifically provided in
SECTION 4 above, Escrowee is hereby expressly authorized to regard, comply with,
and obey any and all orders, judgments or decrees entered or issued by any
court, and, in case Escrowee obeys and complies with any such order, judgment or
decree of any court, it shall not be liable to either of the parties hereto or
to any other person, firm or corporation by reason of such compliance.
Notwithstanding any such order, judgment or decree entered without jurisdiction
or subsequently reversed, modified, annulled, set aside or vacated in case of
any suit or proceeding regarding this escrow to which Escrowee is or may be at
any time a party,
C-3
<PAGE>
Escrowee shall have a lien on the contents hereof for any or all costs,
attorneys' fees (whether such attorneys shall be regularly retained or specially
employed) and other expenses that have been incurred by Escrowee or for which
Escrowee becomes liable for on account, and Escrowee shall be entitled to
reimburse itself therefor out of the Earnest Money deposit and the undersigned
jointly and severally agree to pay Escrowee, upon demand, all such costs and
expenses so incurred.
7. LITIGATION. In the event of litigation between the parties with respect to
these Instructions, the performance of their respective obligations hereunder,
or the effect of a termination under the Agreement or these Instructions, the
losing party shall pay all costs and expenses incurred by the prevailing party
in connection with such litigation, including, but not limited to, court costs
and reasonable fees of counsel selected by the prevailing party. Notwithstanding
any provision of the Agreement or these Instructions to the contrary, the
obligations of the parties under this SECTION 7 shall survive a termination of
either or both of the Agreement and these Instructions.
8. COUNTERPART. These Instructions may be executed in counterparts, each of
which shall constitute an original but all of which together shall constitute
one and the same instrument.
SELLER:
FIRST INDUSTRIAL FINANCING
PARTNERSHIP, L.P., a Delaware limited
partnership
By: First Industrial Finance Corporation,
its sole general partner
By:
--------------------------------
Its:
-------------------------------
PURCHASER:
---------------------------------------
-------------------------
By:
------------------------------------
Its:
-----------------------------------
ACCEPTED BY ESCROWEE:
Commonwealth Land Title Insurance Company
By:
-------------------------
Its
-------------------------
C-4
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EXHIBIT D
DOCUMENTS
(a) ENVIRONMENTAL REPORTS. Copies of all final, written third
party reports, issued to Seller regarding soil conditions, ground water,
wetlands, underground tanks, subsurface conditions and/or other environmental
conditions concerning the Project.
(b) LEASES. A copy of all Leases covering all or any portion
of the Project (including all amendments and modifications thereto), together
with copies of all other underlying agreements and work letters, side letters,
guaranties and amendments, and copies of any agreements with respect to any
commissions due or to become due from Seller in connection with any such
existing Leases. Seller shall provide Purchaser with access to Seller's tenant
files with respect to the Project. In addition, a copy of the rent roll (the
"RENT ROLL") prepared by Seller in the ordinary course of Seller's business.
(c) BOOKS AND RECORDS. Copies of the income and expense
statements for the Project prepared by Seller in the ordinary course of Seller's
business for the last three (3) years of Seller's ownership of the Project (the
"OPERATING STATEMENTS"), including the Operating Statement to the extent
prepared for the current year to date, together with access to those supporting
materials in Seller's possession or reasonable control.
(d) APPROVALS. Copies of all, if any, of the following in
Seller's possession: any development approvals which have been obtained or which
have been applied for by Seller or on behalf of Seller and are pending in
connection with the Project; reports, licenses and permits for the Project
required by any zoning or environmental laws; copies of any subdivision plans or
plats, and certifications, rezonings, general plan amendments, parcel maps and
development agreements; and copies of all other permits, licenses, franchises,
certifications, authorizations, approvals and permits issued by any governmental
or quasi-governmental authorities to or for Seller for the construction,
ownership, operation, use and occupancy of the Project, or any part thereof (all
of the foregoing, are collectively herein referred to as "APPROVALS").
(e) EXISTING TITLE POLICIES AND SURVEYS. A copy of the most
recent owner's title insurance policy issued to Seller for the Project, and a
copy of the Surveys.
(f) INSURANCE CERTIFICATES. Copies of current insurance
certificates evidencing the insurance required to be maintained by any tenants
under any of the Leases to the extent in Seller's possession.
(g) EXISTING CONTRACTS. Copies of all of the following written
items in Seller's possession: (i) brokerage, service, maintenance, operating,
repair, supply, purchase, and other contracts and commitments relating to the
operation, construction or management of the Project (excluding any recorded
documents); (ii) equipment leases relating to equipment or property leased by
Seller and located in or upon the Project or used in connection therewith; and
(iii) guaranties and warranties issued to Seller in effect with respect to the
Project or Personal Property or any portion thereof, and all amendments and
modifications to any of the foregoing (the documents described in items (i) and
(ii), the "EXISTING CONTRACTS").
D-1
<PAGE>
EXHIBIT D-1
SCHEDULED DOCUMENTS
(a) Environmental Reports (see attached)
(b) Leases (see attached)
(c) Books and Records (see attached)
(d) Approvals (see attached)
(e) Existing Title Policies and Surveys (see attached)
(f) Insurance Certificates (see attached)
(g) Existing Contracts (see attached)
D-1-1
<PAGE>
Exhibit D-1(e)
EXITING TITLE POLICIES AND SURVEYS
TITLE POLICIES
Title Policy issued by First American Title Insurance Company dated July 6, 1994
for 6340 Flank Drive
Title Policy issued by First American Title Insurance Company dated July 6, 1994
for 6345 Flank Drive
Title Policy issued by First American Title Insurance Company dated July 6, 1994
for 6360 Flank Drive
Title Policy issued by First American Title Insurance Company dated July 6, 1994
for 6380 Flank Drive
Title Policy issued by First American Title Insurance Company dated July 6, 1994
for 6400 Flank Drive
Title Policy issued by First American Title Insurance Company dated July 6, 1994
for 6405 Flank Drive
Title Policy issued by First American Title Insurance Company dated July 6, 1994
for 5035 Ritter Road
Title Policy issued by First American Title Insurance Company dated July 6, 1994
for 5070 Ritter Road
SURVEYS
<TABLE>
<CAPTION>
Property Address Revised Date Surveyor Name Description
---------------- ------------ ------------- -----------
<S> <C> <C> <C>
5035 Ritter Road 5/25/94 KCI Technologies, Inc. As-Built Survey
5070 Ritter Road 5/25/94 KCI Technologies, Inc. As-Built Survey
6340 Flank Drive 5/25/94 KCI Technologies, Inc. As-Built Survey
6345 Flank Drive 5/25/94 KCI Technologies, Inc. As-Built Survey
6360 Flank Drive 4/26/94 KCI Technologies, Inc. As-Built Survey
6380 Flank Drive 5/25/94 KCI Technologies, Inc. As-Built Survey
6400 Flank Drive 5/25/94 KCI Technologies, Inc. As-Built Survey
6405 Flank Drive 5/25/94 KCI Technologies, Inc. As-Built Survey
</TABLE>
D-1(e)-1
<PAGE>
EXHIBIT E
RENT ROLL
E-1
<PAGE>
EXHIBIT F
ESTOPPEL CERTIFICATE
F-1
<PAGE>
SCHEDULE 7.3
SURVEYS
See Schedule D-1(e)
S-7.3-1
<PAGE>
SCHEDULE 8.1.14
RIGHTS TO PURCHASE
None
S-8.1.14-1
<PAGE>
SCHEDULE 8.2.1
LEASE AMENDMENT OR NEW LEASE TERMS
S-8.2.1-1
<PAGE>
SCHEDULE 11.3
CRITICAL TENANTS
<TABLE>
<CAPTION>
STREET ADDRESS TENANT NAME SQUARE FEET
-------------- ----------- -----------
<S> <C> <C>
6340 Flank Drive Lancaster/Lebanon 29,700
Merkert Enterprises 18,500
6345 Flank Drive Allstate Insurance 20,600
6360 Flank Drive Ikon Office Solutions 9,394
6400 Flank Drive PA Coalition Against Domestic Violence 26,859
REM Hagerty/Schwartz & Dixon 14,340
6405 Flank Drive Cowles Magazine 32,000
5035 Ritter Road AOPC 41,676
5070 Ritter Road Maryland Group Insurance 32,000
Vale National Training Center 17,600
</TABLE>
S-11.3-1
<PAGE>
SCHEDULE 12.8
LEASING COMMISSIONS AND TENANT IMPROVEMENTS
S-12.8-1
<PAGE>
PROMISSORY NOTE
$60,000,000 Columbia, Maryland
Dated: September 30, 1999
FOR VALUE RECEIVED, CORPORATE OFFICE PROPERTIES, L.P.
("BORROWER"), a Delaware limited partnership, having its principal place of
business at 8815 Centre Park Drive, Suite 400, Columbia. Maryland 21045,
promises to pay to TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
("LENDER"), a New York corporation, or order, at Lender's offices at 730 Third
Avenue, New York, New York 10017 or at such other place as Lender designates in
writing, the principal sum of SIXTY MILLION DOLLARS ($60,000,000) (the principal
sum or so much of the principal sum as may be advanced and outstanding from time
to time, the "PRINCIPAL"), in lawful money of the United States of America, with
interest on the Principal from the date of this Promissory Note (this "NOTE")
through and including the date of repayment in full of the Principal at the
fixed rate of seven and 72/100ths percent (7.72%) per annum (the "FIXED INTEREST
RATE").
This Note is guaranteed by, INTER ALIA, a Conditional Payment Guaranty
(the "Conditional Guaranty") from Airport Square II, LLC, Airport Square IV,
LLC, Airport Square V, LLC, Airport Square X, LLC, Airport Square XI, LLC,
Airport Square XIII, LLC, Airport Square XIV, LLC, Airport Square XIX, LLC,
Airport Square XX, LLC, Airport Square XXI, LLC, Tech Park I, LLC, Tech Park II,
LLC, and Tech Park IV, LLC, jointly and severally (collectively, the
"Conditional Guarantors") dated of even date herewith. The Conditional Guaranty
is secured by, among other things, the Indemnity Deed of Trust, Assignment of
Leases and Rents and Security Agreement (the "Deed of Trust") also dated as of
the date of this Note, but made by the Conditional Guarantors for the benefit of
the Lender as security for the Conditional Guaranty. All capitalized terms not
expressly defined in this note will have the definitions set forth in the Deed
of Trust.
Section 1. Payments of Principal and Fixed Interest.
(a) "ADVANCE OF PRINCIPAL" shall mean the one advance of Principal
funded by the Lender under this Note in the full Principal amount on the date of
this Note.
(b) Borrower will make monthly installment payments ("DEBT SERVICE
PAYMENTS") as follows:
(i) On October 1, 1999, a payment of accrued interest on the
Advance of Principal made hereunder at the Fixed Interest Rate; and
(ii) On November 1, 1999, and on the first day of each
succeeding calendar
<PAGE>
month through and including September 1, 2006, payments in the amount
of Four Hundred Fifty Two Thousand Sixteen and 16/100 Dollars
($452,016.16), each of which will be applied first to interest on the
Principal at the Fixed Interest Rate and then to the Principal.
(c) On October 1, 2006 (the "MATURITY DATE"), Borrower will pay the
Principal in full together with accrued interest at the Fixed Interest Rate and
all other amounts due under the Loan Documents.
Borrower acknowledges that the monthly payment provided for in clause
(b)(ii), above, will not fully repay the Principal and that a balloon payment of
the entire unpaid, Principal balance, together with accrued interest and other
amounts due, will be due on the Maturity Date.
Section 2. Prepayment Provisions.
(a) The following definitions apply:
"DISCOUNT RATE" means the yield on a U.S. Treasury issue selected by Lender, as
published in THE WALL STREET JOURNAL, two weeks prior to prepayment, having a
maturity date corresponding (or most closely corresponding, if not identical) to
the Maturity Date, and, if applicable, a coupon rate corresponding (or most
closely corresponding, if not identical) to the Fixed Interest Rate.
"DEFAULT DISCOUNT RATE" means the Discount Rate less 300 basis points until
April 1, 2003, and thereafter means the Discount Rate.
"DISCOUNTED VALUE" means the Discounted Value of a Note Payment based on the
following formula:
NP
------------
(1 + R/12) to the power of n = Discounted Value
NP = Amount of Note Payment
R = Discount Rate or Default Discount Rate as the case may be.
n = The number of months between the date of prepayment and
the scheduled date of the Note Payment being discounted
rounded to the nearest integer.
"EVASION PERCENTAGE" = four percent (4%), until April 1, 2003, and thereafter
means one percent (1%).
2
<PAGE>
"NOTE PAYMENTS" means (i) the scheduled Debt Service Payments for the period
from the date of prepayment through the Maturity Date and (ii) the scheduled
repayment of Principal, if any, on the Maturity Date.
"PREPAYMENT DATE PRINCIPAL" means the Principal on the date of prepayment, prior
to prepayment.
(b) This Note may not be prepaid in full or in part before March 30,
2003. Commencing on April 1, 2003, provided there is no Event of Default,
Borrower may prepay this Note in full, but not in part (except pursuant to
Section 12.4(b) of the Deed of Trust), on the first day of any calendar month,
upon 90 days' prior notice to Lender and upon payment in full of the Debt which
will include a payment (the "PREPAYMENT PREMIUM") equal to the greater of (i) an
amount equal to the product of one percent (1%) times the Prepayment Date
Principal or (ii) the amount by which the sum of the Discounted Values of Note
Payments, calculated at the Discount Rate, exceeds the Prepayment Date
Principal. Provided there is no Event of Default, this Note may be prepaid in
full without payment of the Prepayment Premium during the last 90 days of the
Term.
(c) After an Acceleration or upon any other prepayment not permitted by
the Loan Documents, any tender of payment of the amount necessary to satisfy the
Debt accelerated, any decree of foreclosure, any statement of the amount due at
the time of foreclosure (including foreclosure by power of sale) and any tender
of payment made during any redemption period after foreclosure, will include, in
lieu of the Prepayment Premium, a payment (the "EVASION PREMIUM") equal to the
greater of (i) an amount equal to the product of the Evasion Percentage times
the Prepayment Date Principal, and (ii) the amount by which the sum of the
Discounted Values of the Note Payments, calculated at the Default Discount Rate,
exceeds the Prepayment Date Principal.
(d) Borrower acknowledges that:
(i) a prepayment will cause damage to Lender;
(ii) the Evasion Premium is intended to compensate Lender for the loss
of its investment and the expense incurred and time and effort
associated with making the Loan, which will not be fully repaid if the
Loan is prepaid;
(iii) it will be extremely difficult and impractical to ascertain the
extent of Lender's damages caused by a prepayment after an Event of
Default or any other prepayment not permitted by the Loan Documents;
and
(iv) the Evasion Premium represents Lender and Borrower's reasonable
estimate of Lender's damages for the prepayment and is not a penalty.
Section 3. Guaranty; Security for Guaranty. Borrower's obligations
under this Note and the other Loan Documents (the "BORROWER'S OBLIGATIONS") are
guaranteed pursuant to the
3
<PAGE>
Conditional Guaranty by the Conditional Guarantors. The obligations of the
Conditional Guarantors under the Guaranty are secured by the Deed of Trust by
the Conditional Guarantor to William H. Goebel and Matthew T. Murphy, as
trustees, for the benefit of the Lender encumbering certain real properties
located in Anne Arundel County, Maryland, and other property of the Conditional
Guarantors as more particularly described therein (the "PROPERTY"), and by an
Indemnity Assignment of Leases and Rents (the "ASSIGNMENT") of even date
herewith by the Conditional Guarantors for the benefit of the Lender. The Deed
of Trust and the Assignment contain terms and provisions which provide grounds
for acceleration of the Debt together with additional remedies in the event of
default thereunder. Failure on the part of Lender to exercise any right granted
herein or in the aforesaid Deed of Trust or Assignment shall not constitute a
waiver of such right or preclude the subsequent exercise and enforcement
thereof. This Note, the Conditional Guaranty, the Deed of Trust and all
documents now or hereafter executed by Borrower or Conditional Guarantors or
held by Lender or Trustees relating to the Loan, including all amendments, are
herein collectively referred to as the "LOAN DOCUMENTS".
Section 4. Events of Default.
(a) It is an "EVENT OF DEFAULT" under this Note:
(i) if Borrower fails to pay any amount due, as and when required,
under this Note or any other Loan Document and the failure continues
for a period of 5 days; or
(ii) if an Event of Default occurs under any other Loan Document.
(b) If an Event of Default occurs, Lender may declare all or any
portion of the Debt immediately due and payable ("ACCELERATION") and exercise
any of the other Remedies.
Section 5. Default Rate. Interest on the Principal will accrue at the
rate of 12.72% per annum ("Default Interest Rate") from the date an Event of
Default occurs.
Section 6. Late Charges.
(a) If Borrower fails to pay any Debt Service Payment when due and the
failure continues for a period of 5 days or more or fails to pay any amount due
under the Loan Documents on the Maturity Date, Borrower agrees to pay to Lender
an amount (a "LATE CHARGE") equal to five cents ($.05) for each one dollar
($1.00) of the delinquent payment.
(b) Borrower acknowledges that:
(i) a delinquent payment will cause damage to Lender;
(ii) the Late Charge is intended to compensate Lender for loss of
use of the delinquent payment and the expense incurred and time and
effort associated with recovering the delinquent payment;
4
<PAGE>
(iii) it will be extremely difficult and impractical to ascertain the
extent of Lender's damages caused by the delinquency; and
(iv) the Late Charge represents Lender and Borrower's reasonable
estimate of Lender's damages from the delinquency and is not a penalty.
Section 7. Limitation of Liability. (a) Notwithstanding any provision
in this Note to the contrary, except as set forth in subsections (b) through (e)
below, if Lender seeks to enforce the collection of the Principal, the Interest,
the Late Charges, the Prepayment Premiums, the Expenses, any additional advances
made by Lender in connection with the Loan and all other amounts payable under
the Loan Documents (the "DEBT"), Lender will first declare a default under this
Note and exercise its remedies under the Conditional Guaranty and under the Deed
of Trust instead of instituting suit on this Note. If following a sale of all of
the parcels comprising the Property under the Deed of Trust a lesser sum is
realized therefrom than that due under the then outstanding Debt, Lender will
not institute any Proceeding against Borrower or Borrower's general partners or
principals, if any, for or on account of the deficiency, and Lender shall not
have recourse against Borrower or Borrower's general partner for any portion of
the Debt, except in each instance as set forth in subsections (b) through (e)
below.
(b) The limitation of liability in subsection (a) will not
affect or impair (i) Lender's rights and remedies under the other Loan
Documents, including Lender's right as mortgagee or secured party to commence an
action to foreclose any lien or security interest Lender has under the Loan
Documents against any parcel remaining encumbered thereby or any additional
collateral held; (ii) the validity of the Loan Documents, the Borrower's
Obligations, the obligations of the Conditional Guarantors under the Loan
Documents to which they are a party (the "GUARANTORS' OBLIGATIONS"); or (iii)
Lender's right to present and collect on any letter of credit or other credit
enhancement document held by Lender in connection with the Borrower's
Obligations.
(c) The following are excluded and excepted from the
limitation of liability in subsection (a) and Lender may recover personally
against Borrower and its general partners, for the following:
(i) all losses suffered and liabilities and expenses incurred
by Lender relating to any fraud or intentional
misrepresentation or omission by Borrower or Conditional
Guarantors or any of their partners, members, officers,
directors, shareholders or principals in connection with (A)
the performance of any of the conditions to Lender making the
loan evidenced hereby (the "LOAN"); (B) any inducements to
Lender to make the Loan; (C) the execution and delivery of the
Loan Documents; (D) any certificates, representations or
warranties given in connection with the Loan; or (E)
Borrower's performance of the Borrower's Obligations or
Guarantors' performance of the Guarantors' Obligations;
5
<PAGE>
(ii) all Rents derived from the Property after a default under
the Loan Documents which default is a basis of a Proceeding by
Lender to enforce collection of the Debt and all moneys that,
on the date such a default occurs, are on deposit in one or
more accounts used by or on behalf of Conditional Guarantors
(or any of them) relating to the operation of the Property,
except to the extent properly applied to payment of Debt
Service Payments, Impositions, Insurance Premiums and any
reasonable and customary expenses incurred by Conditional
Guarantors in the operation, maintenance and leasing of the
Property or delivered to Lender;
(iii) the cost of remediation of any Environmental Activity
affecting the Property and any other losses suffered and
liabilities and expenses incurred by Lender relating to a
default under the Article of the Deed of Trust entitled
"ENVIRONMENTAL";
(iv) all security deposits collected by Conditional Guarantors
or any of Conditional Guarantors' predecessors and not
refunded to Tenants in accordance with their respective
Leases, applied in accordance with the Leases or Law or
delivered to Lender, and all advance rents (more than thirty
(30) days in advance) collected by Conditional Guarantors or
any of Conditional Guarantors' predecessors and not applied in
accordance with the Leases or delivered to Lender;
(v) the replacement cost of any Fixtures or Personal Property
removed from the Property after an Event of Default occurs;
(vi) all losses suffered and liabilities and expenses incurred
by Lender relating to any acts or omissions by Conditional
Guarantors that result in waste (including economic and
non-physical waste) on the Property;
(vii) all protective advances and other payments made by
Lender pursuant to express provisions of the Loan Documents to
protect Lender's security interest in the Property or to
protect the assignment of the property described in and
effected by the Assignment, but only to the extent that the
Rents would have been sufficient to permit Conditional
Guarantors to make the payment and Conditional Guarantors
failed to do so;
(viii) any misappropriation of the proceeds of the Loan, to
the extent the proceeds of the Loan are not used to repay
prior liens, including mechanics' liens affecting the Property
as of the date hereof, and all mechanics' or similar liens
relating to work performed on or materials delivered to the
Property prior to Lender exercising its Remedies, but only to
the extent Lender had advanced funds to pay for the work or
materials;
(ix) all Proceeds that are not applied in accordance with the
Deed of Trust or
6
<PAGE>
not paid to Lender as required under the Deed of Trust; and
(x) all losses suffered and liabilities and expenses incurred
by Lender or Trustees in connection with the imposition or
collection by any Government or any person, at any time, of
any recordation tax, transfer tax or any other charge relating
to or on account of the recordation of the Deed of Trust or
Lender's lien thereunder.
(d) Nothing under subparagraph (a) above will be deemed to be
a waiver of any right which Lender may have under Section 506(a), 506(b),
1111(b) or any other provisions of the Bankruptcy Code or under any other Law
relating to bankruptcy or insolvency to file a claim for the full amount of the
Debt or to require that any collateral securing any or all of the Borrower's
Obligations and the Guarantors' Obligations will continue to secure such
obligations in accordance with the Loan Documents.
(e) Notwithstanding the foregoing, it is expressly understood
and agreed that the aforesaid limitation of liability will in no way affect or
apply to Borrower, and Borrower will be liable for the Debt, if Borrower or any
of Conditional Guarantors, or any of their general partners, members or
officers, as the case may be, or any person, seeks to set aside the Guaranty as
a preference in any bankruptcy or similar proceeding.
Section 8. WAIVERS. BORROWER WAIVES PRESENTMENT FOR PAYMENT, DEMAND,
DISHONOR AND NOTICE OF ANY OF THE FOREGOING. BORROWER FURTHER WAIVES ANY
PROTEST, LACK OF DILIGENCE OR DELAY IN COLLECTION OF THE DEBT OR ENFORCEMENT OF
THE LOAN DOCUMENTS. BORROWER AND ALL ENDORSERS, SURETIES AND GUARANTORS OF THE
BORROWER'S OBLIGATIONS CONSENT TO ANY EXTENSIONS OF TIME, RENEWALS, WAIVERS AND
MODIFICATIONS THAT LENDER MAY GRANT WITH RESPECT TO THE BORROWER'S OBLIGATIONS
AND TO THE RELEASE OF ANY SECURITY FOR THE CONDITIONAL GUARANTY AND AGREE THAT
ADDITIONAL MAKERS MAY BECOME PARTIES TO THIS NOTE AND ADDITIONAL ENDORSERS,
GUARANTORS OR SURETIES MAY BE ADDED WITHOUT NOTICE AND WITHOUT AFFECTING THE
LIABILITY OF THE ORIGINAL MAKER OR ANY ORIGINAL ENDORSER, SURETY OR GUARANTOR.
BORROWER, BY ITS EXECUTION OF THIS NOTE, AND LENDER, BY ITS ACCEPTANCE HEREOF,
EACH HEREBY VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EACH MAY HAVE TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS NOTE. IN ADDITION:
SECTION 8.1. WAIVER OF STATUTE OF LIMITATIONS. BORROWER
WAIVES THE RIGHT TO CLAIM ANY STATUTE OF LIMITATIONS AS A DEFENSE TO BORROWER'S
PAYMENT AND PERFORMANCE OF THE BORROWER'S OBLIGATIONS.
7
<PAGE>
SECTION 8.2. WAIVER OF NOTICE. BORROWER WAIVES THE RIGHT
TO RECEIVE ANY NOTICE FROM LENDER WITH RESPECT TO THE LOAN DOCUMENTS EXCEPT FOR
THOSE NOTICES THAT LENDER IS EXPRESSLY REQUIRED TO DELIVER PURSUANT TO THE LOAN
DOCUMENTS.
SECTION 8.3. [INTENTIONALLY DELETED]
SECTION 8.4. GENERAL WAIVER. BORROWER ACKNOWLEDGES THAT (A)
BORROWER AND BORROWER'S PARTNERS, MEMBERS OR PRINCIPALS, AS THE CASE MAY BE, ARE
KNOWLEDGEABLE BORROWERS OF COMMERCIAL FUNDS AND EXPERIENCED REAL ESTATE
DEVELOPERS OR INVESTORS WHO UNDERSTAND FULLY THE EFFECT OF THE ABOVE PROVISIONS;
(B) LENDER WOULD NOT MAKE THE LOAN WITHOUT THE PROVISIONS OF THIS SECTION; (C)
THE LOAN IS A COMMERCIAL OR BUSINESS LOAN UNDER THE LAWS OF THE STATE OR
COMMONWEALTH WHERE THE PROPERTY IS LOCATED NEGOTIATED BY LENDER AND BORROWER AND
THEIR RESPECTIVE ATTORNEYS AT ARMS LENGTH; AND (D) ALL WAIVERS BY BORROWER IN
THIS SECTION HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY, AFTER
BORROWER FIRST HAS BEEN INFORMED BY COUNSEL OF BORROWER'S OWN CHOOSING AS TO
POSSIBLE ALTERNATIVE RIGHTS, AND HAS BEEN MADE AS AN INTENTIONAL RELINQUISHMENT
AND ABANDONMENT OF A KNOWN RIGHT AND PRIVILEGE. THE FOREGOING ACKNOWLEDGMENT IS
MADE WITH THE INTENT THAT LENDER AND ANY SUBSEQUENT HOLDER OF THE NOTE WILL RELY
ON THE ACKNOWLEDGMENT.
Section 9. Commercial Loan. Borrower warrants that the Loan is a
commercial loan within the meanings of Section 12-101 ET SEQ. of the Commercial
Law Article of the Annotated Code of Maryland (1990 Repl. Vol., as amended).
Section 10. Usury Limitations. Borrower and Lender intend to comply
with all Laws with respect to the charging and receiving of interest. Any
amounts charged or received by Lender for the use or forbearance of the
Principal to the extent permitted by Law, will be amortized and spread
throughout the Term until payment in full so that the rate or amount of interest
charged or received by Lender on account the Principal does not exceed the
Maximum Interest Rate. If any amount charged or received under the Loan
Documents that is deemed to be interest is determined to be in excess of the
amount permitted to be charged or received at the Maximum Interest Rate, the
excess will be deemed to be a prepayment of Principal when paid, without
premium, and any portion of the excess not capable of being so applied will be
refunded to Borrower. If during the Term the Maximum Interest Rate, if any, is
eliminated, then for purposes of the Loan, there will be no Maximum Interest
Rate.
Section 11. Applicable Law. This Note is governed by and will
be construed in accordance with the Laws of the State of Maryland.
8
<PAGE>
Section 12. Time of the Essence. Time is of the essence with respect to
the payment and performance of the Borrower's Obligations.
Section 13. Cross-default. A default under any other note now or
hereafter secured by the Loan Documents or under any loan document related to
such other note constitutes a default under this Note and under the other Loan
Documents. When the default under the other note constitutes an Event of Default
under that note or the related loan document, an Event of Default also will
exist under this Note and the other Loan Documents.
Section 14. [INTENTIONALLY DELETED]
Section 15. Construction. Unless expressly provided otherwise in this
Note, this Note will be construed in accordance with the Exhibit attached to
this Note entitled "RULES OF CONSTRUCTION".
Section 16. Miscellaneous Provisions.
(a) Payment of Expenses. Borrower is obligated to pay all fees and
expenses (the "Expenses") incurred by Lender that are otherwise payable in
connection with the Loan or Borrower, including reasonable attorneys' fees and
expenses and any fees and expenses relating to the (i) the preparation,
execution, acknowledgment, delivery and recording or filing the Loan Documents;
(ii) any Proceeding or other claim asserted against Lender; (iii) any
inspection, assessment, survey and tests permitted under the Loan Documents;
(iv) any destruction event under the Deed of Trust; (v) the preservation of
Lender's security and exercise of any rights or Remedies available at Law, in
equity or otherwise; and (vi) the Leases and the Property Documents. Borrower
will pay the Expenses immediately on demand, together with any applicable
interest, Premiums or penalties. If Lender pays any of the Expenses, Borrower
will reimburse Lender the amount paid by Lender immediately upon demand,
together with interest on such amount at the Default Interest Rate from the date
which is five (5) days after the date of which Lender demanded payment through
and including the date Borrower reimburses Lender. The Expenses together with
any applicable interest, Premiums or penalties constitute a portion of the Debt.
(b) Duty to Defend. If Lender or any of its trustees, officers,
participants, employees or affiliates is a party in any Proceeding relating to
the Borrower or the Loan, Borrower will indemnify and hold harmless the party
and will defend the party and attorneys and other professionals retained by
Borrower and approved by Lender. Lender may elect to engage its own attorneys
and other professionals, at Borrower's expense, to defend or to assist in the
defense of the party. In all events, case strategy will be determined by Lender
if Lender so elects and no Proceeding will be settled without Lender's prior
approval which may be withheld in its sole discretion.
(c) Notices. Notices shall be given as provided in the Deed of Trust,
except that any notice made to Borrower shall be made at the address set forth
above.
9
<PAGE>
(d) Lender's Discretion. Whenever under this Note any matter is
required to be satisfactory to Lender, Lender's approval, determination or
election will be made in Lender's reasonable discretion unless expressly
provided to the contrary.
(e) Unenforceable Provisions. If any provision of this Note is found to
be illegal or unenforceable or would operate to invalidate any other part of
this Note, then the provision will be deemed expunged and this Note will be
construed as though the provision was not contained herein, and the remainder of
the Note shall remain in full force and effect.
(f) Relationship Between Borrower and Lender.
(i) Lender is not a partner of or joint venturer with Borrower
or any other entity as a result of the Loan; the relationship between Lender and
Borrower is strictly that of creditor and debtor. Each Loan Document is an
agreement between the parties to that Loan Document for the mutual benefit of
those parties, and no entities other than the parties to that Loan Document will
be a third party beneficiary or will have any claim against Lender or Borrower
by virtue of the Loan Document. As between Lender and Borrower, any actions
taken by Lender under the Loan Documents will be taken for Lender's protection
only, and Lender has not and will not be deemed to have assumed any
responsibility to Borrower or to any other entity by virtue of Lender's actions.
(ii) All conditions to Borrower's performance of its
Obligations under the Loan Documents are imposed solely for the benefit of
Lender. No entity other than Lender will have standing to require satisfaction
of the conditions in accordance with the provisions or will be entitled to
assume that Borrower will refuse to perform its Obligations in the absence of
strict compliance with any of the conditions.
(g) Service of Process. Borrower irrevocably consents to service of
process by registered or certified mail, postage prepaid, return receipt
requested, to Borrower at its address set forth above.
(h) Entire Agreement. Oral agreements or commitments between Borrower
and Lender to lend money, to extend credit or to forbear from enforcing
repayment of the Debt, including promises to extend or renew the Debt, are not
enforceable. Any agreements between Borrower and Lender relating to the Loan are
contained in the Loan Documents, which contain the complete and exclusive
statement of the agreements between Borrower and Lender, and except as Borrower
and Lender may later agree in writing to amend the Loan Documents. The language
of each Loan Document will be construed as a whole according to its fair meaning
and will not be construed against the draftsman.
(i) No Oral Amendment. The Loan Documents may not be amended, waived or
terminated orally or by any act or omission made individually by Borrower or
Lender but may be amended, waived or terminated only by a written document
signed by a party against which enforcement of the amendment, waiver or
termination is sought.
(j) Time of the Essence. Time is of the essence with respect to
Borrower's payment
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and performance of the Obligations.
(k) Successors and Assigns. This Note binds the parties hereto and
their respective successors, assigns, heirs, administrators, executors, agents
and representatives and inure to the benefit of Lender and its successors,
assigns, heirs, administrators, executors, agents and representatives.
Section 17. Joint and Several Liability; Successors and Assigns. If
Borrower consists of more than one entity, the obligations and liabilities of
each such entity will be joint and several. This Note binds Borrower and its
successors, assigns, heirs, administrators, executors, agents and
representatives and inures to the benefit of Lender and its successors, assigns,
heirs, administrators, executors, agents and representatives.
Section 18. Absolute Obligation. Except for the Section of this Note
entitled "LIMITATION OF LIABILITY", no reference in this Note to the other Loan
Documents and no other provision of this Note or of the other Loan Documents
will impair or alter the obligation of Borrower, which is absolute and
unconditional, to pay the Principal, interest at the Fixed Interest Rate and any
other amounts due and payable under this Note, as and when required.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of
the date first set forth above.
WITNESS/ATTEST: CORPORATE OFFICE PROPERTIES, L.P.
By: Corporate Office Properties Trust,
its general partner
by: (SEAL)
- ------------------------------ ----------------------------------
Name: Roger A. Waesche, Jr.
-------------------------------
Title: Senior Vice President
-------------------------------
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EXHIBIT A
RULES OF CONSTRUCTION
(a) References in any Loan Document to numbered Articles or Sections
are references to the Articles and Sections of that Loan Document. References in
any Loan Document to lettered Exhibits are references to the Exhibits attached
to that Loan Document, all of which are incorporated in and constitute a part of
that Loan Document. Article, Section and Exhibit captions used in any Loan
Document are for reference only and do not describe or limit the substance,
scope or intent of that Loan Document or the individual Articles, Sections or
Exhibits of that Loan Document.
(b) The terms "include", "including" and similar terms are construed as
if followed by the phrase "without limitation".
(c) The terms "Land", "Improvements", "Fixtures and Personal Property",
"Condemnation Awards", "Insurance Proceeds" and "Property" are construed as if
followed by the phrase "or any part thereof".
(d) Any agreement by or duty imposed on Borrower or a Conditional
Guarantor in any Loan Document to perform any obligation or to refrain from any
act or omission constitutes a covenant running with the ownership or occupancy
of the Land and the Improvements, which will bind all parties hereto and their
respective successors and assigns, and all lessees, subtenants and assigns of
same, and all occupants and subsequent owners of the Property, and will inure to
the benefit of Lender and all subsequent holders of the Note and the Deed of
Trust and includes a covenant by Borrower and the Conditional Guarantors to
cause their respective partners, members, principals, agents, representatives
and employees to perform the obligation or to refrain from the act or omission
in accordance with the Loan Documents. Any statement or disclosure contained in
any Loan Document about facts or circumstances relating to the Property,
Borrower, Conditional Guarantors, or the Loan constitutes a representation and
warranty by Borrower and the Conditional Guarantors made as of the date of the
Loan Document in which the statement or disclosure is contained.
(e) The term "to Borrower's knowledge" is construed as meaning to the
best of Borrower's knowledge after diligent inquiry.
(f) The singular of any word includes the plural and the plural
includes the singular. The use of any gender includes all genders.
(g) The terms "person", "party" and "entity" include natural persons,
firms, partnerships, limited liability companies and partnerships, corporations
and any other public or private legal entity.
(h) The term "provisions" includes terms, covenants, conditions,
agreements and requirements.
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(i) The term "amend" includes modify, supplement, extend, replace or
substitute and the term "amendment" includes modification, supplement,
extension, replacement and substitution.
(j) Reference to any specific Law or to any document or agreement,
including the Note, the Conditional Guaranty, the Deed of Trust, any of the
other Loan Documents, and any Property Documents includes any future amendments
to the same, as the case may be.
(k) No inference in favor of or against a party with respect to any
provision in any Loan Document may be drawn from the fact that the party drafted
the Loan Document.
(l) The term "certificate" means the sworn, notarized statement of the
entity giving the certificate, made by a duly authorized person satisfactory to
Lender affirming the truth and accuracy of every statement in the certificate.
Any document that is "certified" means the document has been appended to a
certificate of the entity certifying the document that affirms the truth and
accuracy of everything in the document being certified. In all instances the
entity issuing a certificate must be satisfactory to Lender.
(m) Any appointment of Lender as Borrower's attorney-in-fact is
irrevocable and coupled with an interest. Lender may appoint a substitute
attorney-in-fact. Borrower ratifies all actions taken by the attorney-in-fact
but, nevertheless, if Lender requests, Borrower will specifically ratify any
action taken by the attorney-in-fact by executing and delivering to the
attorney-in-fact or to any entity designated by the attorney-in-fact all
documents necessary to effect the ratification.
(n) Any document, instrument or agreement to be delivered by Borrower
will be in form and content satisfactory to Lender.
(o) All obligations, rights, remedies and waivers contained in the Loan
Documents will be construed as being limited only to the extent required to be
enforceable under the Law.
(p) The unmodified word "days" means calendar days.
<PAGE>
INDEMNITY DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS
AND SECURITY AGREEMENT
by and between
AIRPORT SQUARE II, LLC
AIRPORT SQUARE IV, LLC
AIRPORT SQUARE V, LLC
AIRPORT SQUARE X, LLC
AIRPORT SQUARE XI, LLC
AIRPORT SQUARE XIII, LLC
AIRPORT SQUARE XIV, LLC
AIRPORT SQUARE XIX, LLC
AIRPORT SQUARE XX, LLC
AIRPORT SQUARE XXI, LLC
TECH PARK I, LLC
TECH PARK II, LLC
and
TECH PARK IV, LLC
as Grantor
and
WILLIAM H. GOEBEL and MATTHEW T. MURPHY,
as Trustees
for the benefit of
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
OF AMERICA,
As Lender
Property Known As
Airport Square II
Airport Square IV
Airport Square V
Airport Square X
Airport Square XI
Airport Square XIII
Airport Square XIV
Airport Square XIX
Airport Square XX
Airport Square XXI
Tech Park I
Tech Park II
Tech Park IV
This Indemnity Deed of Trust Was Prepared By
And After Recordation This Indemnity Deed of Trust Should be
Returned To:
William H. Goebel, Esquire
c/o Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
<PAGE>
INDEMNITY DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS
AND SECURITY AGREEMENT
THIS INDEMNITY DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS AND
SECURITY AGREEMENT (this "DEED OF TRUST") made this 30 day of September, 1999,
by Airport Square II, LLC, Airport Square IV, LLC, Airport Square V, LLC,
Airport Square X, LLC, Airport Square XI, LLC, Airport Square XIII, LLC, Airport
Square XIV, LLC, Airport Square XIX, LLC, Airport Square XX, LLC, Airport Square
XXI, LLC, Tech Park I, LLC, Tech Park II, LLC, and Tech Park IV, LLC
(collectively, "GRANTOR"), each, a Maryland limited liability company, having
their principal place of business at 8815 Centre Park Drive, Suite 400,
Columbia, Maryland 21045 to WILLIAM H. GOEBEL and MATTHEW T. MURPHY having an
office at c/o 730 Third Avenue, New York, New York 1007 ("TRUSTEES"), for the
benefit of TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA ("LENDER"), a
New York corporation, having an address at 730 Third Avenue, New York, New York
l0017.
RECITALS:
A. Lender agreed to make a loan to Corporate Office Properties, L.P. a
Delaware limited partnership (the "BORROWER") and Borrower has agreed to accept
a loan (the "LOAN") in the maximum principal amount of $60,000,000.
B. To evidence the Loan, Borrower executed and delivered to Lender
Borrower's promissory note (the "NOTE"), dated of even date herewith, in the
principal amount of Sixty Million Dollars ($60,000,000) (that amount or so much
as is outstanding from time to time is referred to as the "PRINCIPAL"). Pursuant
to the Note, Borrower promises to pay the Principal with interest thereon to the
order of Lender as set forth in the Note and with the balance, if any, of the
Debt being due and payable on October 1, 2006 (the "MATURITY DATE").
C. Grantor has executed a Conditional Guaranty Agreement of even date
herewith, to and for the benefit of Lender (the "GUARANTY"), pursuant to which
Grantor has, jointly and severally, conditionally guaranteed to Lender the
Borrower's obligations under the Note. The Guarantor is not primarily obligated
under the Loan.
D. To secure the Grantor's obligations under the Guaranty, this Deed
of Trust conveys, among other things, Grantor's fee interest in the certain real
property located in the County of Anne Arundel, State of Maryland more
particularly described in EXHIBIT A as Parcels 1 through 13 (the "LAND").
E. As a condition precedent to making the Loan to Borrower, Lender
required Grantor to execute and deliver this Deed of Trust to secure the
Guarantor's Obligations under the Guaranty. As used herein, "OBLIGATIONS" means
and includes: (a) all present and future liabilities and obligations of Grantor
under the Guaranty, this Deed of Trust and the other Financing Documents,
including principal, interest and all other amounts due or to become due
<PAGE>
under the Guaranty, this Deed of Trust and the other Financing Documents, and
(b) all present and future liabilities and obligations of Grantor under the
provisions of this Deed of Trust including (i) all Expenses, and (ii) any and
all other amounts and indemnifications which are included as a part of the
Obligations pursuant to the provisions of this Deed of Trust. The Guaranty,
this Deed of Trust, and any other agreements or documents both now and
hereafter furnished or executed by Grantor or any other person or persons to
evidence, secure, guaranty or in connection with the Obligations are
hereinafter collectively referred to as the "FINANCING DOCUMENTS".
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.1. DEFINITIONS. Capitalized terms used in this Deed of Trust are
defined in EXHIBIT B or in the text with a cross-reference in EXHIBIT B.
SECTION 1.2. RULES OF CONSTRUCTION. This Deed of Trust will be interpreted
in accordance with the rules of construction set forth in EXHIBIT C.
ARTICLE II
GRANTING CLAUSES
SECTION 2.1. ENCUMBERED PROPERTY. Grantor irrevocably grants, mortgages,
warrants, conveys, assigns and pledges to Trustees, in trust, WITH POWER OF SALE
and the right of entry and possession, and grants to Trustees a security
interest in, the following property, rights, interests and estates now or in the
future owned or held by Grantor (the "PROPERTY") for the uses and purposes set
forth in this Deed of Trust forever:
(i) the Land;
(ii) all buildings and improvements located on the Land (the
"IMPROVEMENTS");
(iii) all easements; rights of way or use, including any rights of ingress
and egress; streets, roads, ways, sidewalks, alleys and passages; strips
and gores; sewer rights; water, water rights, water courses, riparian
rights and drainage rights; air rights and development rights; oil and
mineral rights; and tenements, hereditaments and appurtenances, in each
instance adjoining or otherwise appurtenant to or benefitting the Land or
the Improvements;
(iv) all materials intended for construction, re-construction, alteration
or repair of the Improvements, such materials to be deemed included in the
Land and the Improvements
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immediately on delivery to the Land; all fixtures and personal property
that are attached to, contained in or used in connection with the Land or
the Improvements (excluding personal property owned by tenants and
excluding removable fixtures and appurtenances), including: furniture;
furnishings; machinery; motors; elevators; fittings; microwave ovens;
refrigerators; office systems and equipment; plumbing, heating,
ventilating and air conditioning systems and equipment; maintenance and
landscaping equipment; lighting, cooking, laundry, dry cleaning,
refrigerating, incinerating and sprinkler systems and equipment;
telecommunications systems and equipment; computer or word processing
systems and equipment; security systems and equipment; and equipment
leases for any of the property described in this subsection (the "FIXTURES
AND PERSONAL PROPERTY");
(v) all agreements, ground leases, grants of easements or rights-of-way,
permits, declarations of covenants, conditions and restrictions,
disposition and development agreements, planned unit development
agreements, cooperative, condominium or similar ownership or conversion
plans, management, leasing, brokerage or parking agreements or other
material documents affecting Borrower of the Land, the Improvements or the
Fixtures and Personal Property, including the documents described in
EXHIBIT D but expressly excluding the Leases (the "PROPERTY DOCUMENTS");
(vi) all inventory (including all goods, merchandise, raw materials,
incidentals, office supplies and packaging materials) held for sale, lease
or resale or furnished or to be furnished under contracts of service, or
used or consumed in the ownership, use or operation of the Land, the
Improvements or the Fixtures and Personal Property, all documents of title
evidencing any part of any of the foregoing and all returned or
repossessed goods arising from or relating to any sale or disposition of
inventory;
(vii) all intangible personal property relating to the Land, the
Improvements or the Fixtures and Personal Property, including choses in
action and causes of action (except those personal to Grantor), corporate
and other business records, inventions, designs, promotional materials,
blueprints, plans, specifications, patents, patent applications,
trademarks, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, claims for refunds or rebates of
taxes, insurance surpluses, refunds or rebates of taxes and any letter of
credit, guarantee, claim, security interest or other security held by or
granted to Grantor to secure payment by an account debtor of any of the
accounts of Grantor arising out of the ownership, use or operation of the
Land, the Improvements or the Fixtures and Personal Property, and
documents covering all of the foregoing; all accounts, accounts
receivable, documents, instruments, money, deposit accounts, funds
deposited in accounts established with a bank, savings and loan
association, trust company or other financial institution in connection
with the ownership, use or operation of the Property, including any
reserve accounts or escrow accounts, and all investments of the funds and
all other general intangibles;
(viii) all awards and other compensation paid after the date of this Deed
of Trust for any Condemnation (the "CONDEMNATION AWARDS");
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(ix) all proceeds of and all unearned premiums on the Policies (the
"INSURANCE PROCEEDS");
(x) all licenses, certificates of occupancy, contracts, management
agreements, operating agreements, operating covenants, franchise
agreements, permits and variances relating to the Land, the Improvements
or the Fixtures and Personal Property;
(xi) all books, records and other information, wherever located, which are
in Borrower's possession, custody or control or to which Grantor is
entitled at law or in equity and which are related to the Property,
including all computer or other equipment used to record, store, manage,
manipulate or access the information;
(xii) all deposits held from time to time by the Accumulations Depositary
to provide reserves for Taxes and Assessments together with interest
thereon, if any (the "ACCUMULATIONS");
(xiii) all after-acquired title to or remainder or reversion in any of the
property described in this Section; all additions, accessions and
extensions to, improvements of and substitutions or replacements for any
of such property; all products and all cash and non-cash proceeds,
immediate or remote, of any sale or other disposition of any of such
property, excluding sales or other dispositions of inventory in the
ordinary course of the business of operating the Land or the Improvements;
and all additional lands, estates, interests, rights or other property
acquired by Grantor after the date of this Deed of Trust for use in
connection with the Land and Improvements, all without the need for any
additional mortgage, assignment, pledge or conveyance to Lender but
Grantor will execute and deliver to Lender, upon Lender's request, any
documents reasonably requested by Lender to further evidence the
foregoing; and
(xiv) all deposits for reserves held from time to time by an escrow holder
in accordance with the Pledge and Security Agreement described in the
Section entitled "RESERVES" and all accounts established to maintain the
deposits together with investments thereof and interest thereon.
SECTION 2.2. HABENDUM CLAUSE. The Property is conveyed to Trustees, and
the Trustees' successors and assigns, to have and to hold forever in fee simple,
but subject, however, to defeasance as described in Section 2.4 of this Deed of
Trust.
SECTION 2.3. SECURITY AGREEMENT.
The Property includes both real and personal property and this Deed of
Trust is a real property mortgage and also a "security agreement" and a
"financing statement" within the meaning of the Maryland Uniform Commercial
Code. By executing and delivering this Deed of Trust, Grantor grants to Lender,
as security for the Obligations, a security interest in the Property to the full
extent that any of the Property may be subject to the Uniform Commercial Code.
SECTION 2.4. CONDITIONS TO GRANT. This Deed of Trust is made on the
express condition
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that if Grantor pays and performs the Obligations in full in accordance with the
Loan Documents, whether such obligations are now existing or hereafter arising,
then, the lien of this Deed of Trust will be released at Grantor's expense. Any
contractual provisions of a Loan Document that expressly provides in such Loan
Document to continue beyond the repayment of the Loan and release of lien of the
Deed of Trust shall continue in accordance with their terms.
ARTICLE III
OBLIGATIONS SECURED
SECTION 3.1. THE OBLIGATIONS. This Deed of Trust secures the Obligations,
PROVIDED that the foregoing does not limit, qualify or affect in any way the
present, absolute nature of the Assignment.
ARTICLE IV
TITLE AND AUTHORITY
SECTION 4.1. TITLE TO THE PROPERTY.
(a) Subject to the conveyance effectuated by this Deed of Trust, Grantor
has and will continue to have good and marketable title in fee simple absolute
to the Land and the Improvements and good and marketable title to the Fixtures
and Personal Property, all free and clear of liens, encumbrances and charges
except the Permitted Exceptions, and has the right to mortgage, give, grant,
bargain, sell, lien, setoff, convey, confirm, pledge, assign and hypothecate the
same. To Grantor's knowledge, there are no facts or circumstances that might
give rise to a lien, encumbrance or charge on the Property. Subject to the
Permitted Exceptions, Grantor shall forever specially warrant, defend and
preserve such title and the validity and priority of the lien of this Deed of
Trust and shall forever warrant and defend the same to Lender against the claims
of all persons whomsoever.
(b) Grantor owns and will continue to own all of the other Property free
and clear of all liens, encumbrances and charges except the Permitted
Exceptions.
(c) This Deed of Trust is and will remain a valid and enforceable first
lien on and security interest in the Property, subject only to the Permitted
Exceptions.
SECTION 4.2. AUTHORITY.
(a) Grantor is and will continue to be (i) duly organized, validly
existing and in good standing under the Laws of the state or commonwealth in
which it was organized or incorporated and (ii) duly qualified to conduct
business, in good standing, in the state or commonwealth where the Property is
located.
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<PAGE>
(b) Grantor has and will continue to have all approvals required by Law or
otherwise and full right, power and authority to (i) own and operate the
Property and carry on Grantor's business as now conducted or as proposed to be
conducted; (ii) execute and deliver those of the Financing Documents to which it
is a party; (iii) grant, mortgage, warrant the title to, convey, assign and
pledge the Property to Lender pursuant to the provisions of this Deed of Trust;
and (iv) perform the Obligations.
(c) The execution and delivery of the Financing Documents and the
performance of the Obligations do not and will not conflict with or result in a
default under any Laws or any Leases or Property Documents and do not and will
not conflict with or result in a default under any agreement binding upon any
party to the Financing Documents.
(d) The Financing Documents constitute and will continue to constitute
legal, valid and binding obligations of all parties to the Financing Documents
enforceable in accordance with their respective terms.
SECTION 4.3. NO FOREIGN PERSON. Grantor is not a "foreign person" within
the meaning of Section 1445(f)(3) of the Code. Borrower is not a "foreign
person" within the meaning of Section 1445(f)(3) of the Code.
SECTION 4.4. LITIGATION. There are no Proceedings or, to Grantor's
knowledge, investigations against or affecting Grantor or the Property and, to
Grantor's knowledge, there are no facts or circumstances that might give rise to
a Proceeding or an investigation against or affecting Grantor or the Property.
Grantor will give Lender prompt notice of the commencement of any Proceeding or
investigation against or affecting the Property or Grantor which could have a
material adverse effect on the Property or on Lender's interests in the Property
or under the Financing Documents. Grantor also will deliver to Lender such
additional information relating to the Proceeding or investigation as Lender may
request from time to time.
ARTICLE V
PROPERTY STATUS, MAINTENANCE AND LEASES
SECTION 5.1. STATUS OF THE PROPERTY.
(a) Grantor has obtained and will maintain in full force and effect all
certificates, licenses, permits and approvals that are issued or required by Law
or by any entity having jurisdiction over the Property or over Grantor or that
are necessary for the Permitted Use, for occupancy and operation of the Property
for the conveyance described in this Deed of Trust and for the conduct of
Grantor's business on the Property in accordance with the Permitted Use.
(b) The Property is and will continue to be serviced by all public
utilities required for the Permitted Use of the Property.
(c) All roads and streets necessary for service of and access to the
Property for the current or contemplated use of the Property have been completed
and are and will continue to be
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serviceable, physically open and dedicated to and accepted by the Government for
use by the public.
(d) The Property is free from damage caused by a Casualty.
(e) All costs and expenses of labor, materials, supplies and equipment
used in the construction of the Improvements have been paid in full.
SECTION 5.2. MAINTENANCE OF THE PROPERTY. Grantor will maintain the
Property in thorough repair and good and safe condition, suitable for the
Permitted Use, including, to the extent necessary, replacing the Fixtures and
Personal Property with property at least equal in quality and condition to that
being replaced. Grantor will not erect any new buildings, building additions or
other structures on the Land or otherwise materially alter the Improvements
without Lender's prior consent which may be withheld in Lender's sole
discretion. The Property will be managed by a property manager satisfactory to
Lender pursuant to a management agreement satisfactory to Lender and terminable
by Grantor upon 30 days notice to the property manager.
SECTION 5.3. CHANGE IN USE. Grantor will use and permit the use of the
Property for the Permitted Use and for no other purpose.
SECTION 5.4. WASTE. Grantor will not commit or permit any waste (including
economic and non-physical waste), impairment or deterioration of the Property or
any alteration, demolition or removal of any of the Property without Lender's
prior consent which may be withheld in Lender's sole discretion.
SECTION 5.5. INSPECTION OF THE PROPERTY. Subject to the rights of tenants
having a highly restrictive entry provision under the Leases in GSA or other
United States government leases in Airport Square IV, X, XI, XIV, XIX, XX and
XXI, Lender has the right to enter and inspect the Property on reasonable prior
notice, except during the existence of an Event of Default, when no prior notice
is necessary. Lender has the right to engage an independent expert to review and
report on Grantor's compliance with Grantor's obligations under this Deed of
Trust to maintain the Property, comply with Law and refrain from waste,
impairment or deterioration of the Property and the alteration, demolition or
removal of any of the Property except as may be permitted by the provisions of
this Deed of Trust. If the independent expert's report discloses material
failure to comply with such obligations or if Lender engages the independent
expert after the occurrence of an Event of Default, then the independent
expert's review and report will be at Grantor's expense, payable on demand.
SECTION 5.6. LEASES AND RENTS.
Grantor assigns the Leases and the Rents to Lender absolutely and not
merely as additional collateral or security for the payment and performance of
the Obligations, but subject to a license back to Grantor of the right to
collect the Rents unless and until an Event of Default occurs at which time the
license will terminate automatically, all as more particularly set forth in the
Assignment, the provisions of which are incorporated in this Deed of Trust by
reference.
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SECTION 5.7. PARKING. Grantor will provide, maintain, police and light
parking areas within the Property, including any sidewalks, aisles, streets,
driveways, sidewalk cuts and rights-of-way to and from the adjacent public
streets, in a manner consistent with the Permitted Use and sufficient to
accommodate the greatest of: (i) the number of parking spaces required by Law;
(ii) the number of parking spaces required by the Leases and the Property
Documents; or (iii) for each of the parcels constituting the Property, the
following number of spaces: (A) Parcel 1 - 435 spaces, (B) Parcel 2 - 212
spaces, (C) Parcel 3 - 353 spaces, (D) Parcel 4 - 263 spaces, (E) Parcel 5 - 242
spaces, (F) Parcel 6 - 250 spaces, (G) Parcel 7 - 260 spaces, (H) Parcel 8 - 286
spaces, (I) Parcel 9 - 374 spaces, (J) Parcel 10 - 278 spaces, (K) Parcel 11 -
198 spaces, (L) Parcel 12 - 187 spaces; and (M) Parcel 13 - 206 spaces; subject,
however, in each instance to temporary reduction resulting from repairs or
alterations at the Property. The parking areas will be reserved and used
exclusively for ingress, egress and parking for Grantor and the tenants under
the Leases and their respective employees, customers and invitees and in
accordance with the Leases and the Property Documents.
SECTION 5.8. SEPARATE TAX LOT. Each of the Parcels constituting the
Property is and will remain assessed for real estate tax purposes as one or more
wholly independent tax lots, separate from any property that is not part of the
Property.
SECTION 5.9. CHANGES IN ZONING OR RESTRICTIVE COVENANTS. Grantor will not
(i) initiate, join in or consent to any change in any Laws pertaining to zoning,
any restrictive covenant or other restriction which would restrict the Permitted
Uses for the Property; (ii) permit the Property to be used to fulfill any
requirements of Law for the construction or maintenance of any improvements on
property that is not part of the Property; (iii) permit the Property to be used
for any purpose not included in the Permitted Use; or (iv) impair the integrity
of each of the Parcels of the Property as a single, legally subdivided zoning
lot separate from all other property.
SECTION 5.10. LENDER'S RIGHT TO APPEAR. Lender has the right to appear in
and defend any Proceeding brought regarding the Property and to bring any
Proceeding, in the name and on behalf of Borrower or Grantor or in Lender's
name, which Lender, in its sole but reasonable discretion, determines should be
brought to protect Lender's interest in the Property.
ARTICLE VI
IMPOSITIONS AND ACCUMULATIONS
SECTION 6.1. IMPOSITIONS. Subject to the requirements of any separate
agreement between Grantor and Lender as described in Sections 6.2 and 6.4:
(a) Grantor will pay each Imposition at least 5 days before the date (the
"IMPOSITION PENALTY DATE") that is the earlier of (i) the date on which the
Imposition becomes delinquent and (ii) the date on which any penalty, interest
or charge for non-payment of the Imposition accrues.
(b) Before each Imposition Penalty Date, Grantor will deliver to Lender a
receipted bill
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or other evidence of payment.
(c) Grantor, at its own expense, may contest any Taxes or Assessments,
PROVIDED that the following conditions are met:
(i) not less than 15 days prior to the Imposition Penalty Date, Grantor
delivers to Lender notice of the proposed contest;
(ii) the contest is by a Proceeding promptly initiated and conducted
diligently and in good faith;
(iii) there is no Event of Default;
(iv) the Proceeding suspends the collection of the contested Taxes or
Assessments or Grantor otherwise secures assurances reasonably
satisfactory to Lender from the taxing authority that the taxation will be
stayed pending such proceeding;
(v) the Proceeding is permitted under and is conducted in accordance with
the Leases and the Property Documents;
(vi) the Proceeding precludes imposition of criminal or civil penalties
and sale or forfeiture of the Property and Lender will not be subject to
any civil suit; and
(vii) Grantor either deposits with the Accumulations Depository reserves
or furnishes a bond or other security satisfactory to Lender, in either
case in an amount sufficient to pay the contested Taxes or Assessments,
together with all interest and penalties or Grantor pays all of the
contested Taxes or Assessments under protest.
(d) INSTALLMENT PAYMENTS. If any Assessment is payable in installments,
Grantor will nevertheless pay the Assessment in its entirety on the day the
first installment becomes due and payable or a lien, unless Lender, in its sole
discretion, approves payment of the Assessment in installments.
SECTION 6.2. ACCUMULATIONS.
(a) Grantor made an initial deposit with either Lender or a mortgage
servicer or financial institution designated or approved by Lender from time to
time to receive, hold and disburse the Accumulations in accordance with this
Section (the "ACCUMULATIONS DEPOSITORY") and in accordance with the Pledge and
Security Agreement (the "Pledge and Security Agreement") to be entered into
among Grantor, Lender and a pledge agent for the Accumulations Depository. On
the first day of each calendar month during the Term Grantor will deposit with
the Accumulations Depository an amount equal to one-twelfth (1/12) of the annual
Taxes and Assessments as determined by Lender or its designee. At least 30 days
before each Imposition Penalty Date, Grantor will deliver to the Accumulations
Depository any bills and other documents that are necessary to pay the Taxes and
Assessments.
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(b) The Accumulations will be applied to the payment of Taxes and
Assessments. Any excess Accumulations after payment of Taxes and Assessments
will be returned to Grantor or credited against future payments of the
Accumulations, at Lender's election or as required by Law. If the Accumulations
are not sufficient to pay Taxes and Assessments, Grantor will pay the deficiency
to the Accumulations Depository within 5 days of demand. At any time after an
Event of Default occurs, Lender may apply the Accumulations as a credit against
any portion of the Obligations selected by Lender in its sole discretion.
(c) The Accumulations Depository will hold the Accumulations as additional
security for the Obligations until applied in accordance with the provisions of
this Deed of Trust. If Lender is not the Accumulations Depository, the
Accumulations Depository will deliver the Accumulations to Lender upon Lender's
demand at any time after an Event of Default.
(d) If the Property is sold or conveyed other than by foreclosure or
transfer in lieu of foreclosure, all right, title and interest of Grantor to the
Accumulations will automatically, and without necessity of further assignment,
be held for the account of the new owner, subject to the provisions of this
Section and Grantor will have no further interest in the Accumulations.
(e) The Accumulations Depository has deposited the initial deposit and
will deposit the monthly deposits into a separate interest bearing account in
the name of Borrower, as pledged to the Lender as secured party, all in
accordance with the Pledge and Security Agreement.
(f) Lender has the right to pay, or to direct the Accumulations Depository
to pay, any Taxes or Assessments unless Grantor is contesting the Taxes or
Assessments in accordance with the provisions of this Deed of Trust, in which
event any payment of the contested Taxes or Assessments will be made under
protest in the manner prescribed by Law or, at Lender's election, will be
withheld.
(g) If Lender assigns this Deed of Trust, Lender will pay, or cause the
Accumulations Depository to pay, the unapplied balance of the Accumulations to
or at the direction of the assignee. Simultaneously with the payment, Lender and
the Accumulations Depository will be released from all liability with respect to
the Accumulations and Grantor will look solely to the assignee with respect to
the Accumulations. When the Obligations have been fully satisfied, any unapplied
balance of the Accumulations will be returned to Grantor.
SECTION 6.3. CHANGES IN TAX LAWS. If a Law requires the deduction of the
Obligations from the value of the Property for the purpose of taxation or
imposes a tax, either directly or indirectly, on the Obligations, any Financing
Document or Lender's interest in the Property, Grantor will pay the tax with
interest and penalties, if any. If Lender determines that Grantor's payment of
the tax may be unlawful, unenforceable, usurious or taxable to Lender, the
Obligations will become immediately due and payable on 90 days' prior notice
unless the tax must be paid within the 120-day period, in which case, the
Obligations will be due and payable within the lesser period, but in such latter
event, without the payment of the Prepayment Premium or the Evasion Premium, if
then applicable.
SECTION 6.4. RESERVES. Grantor made an initial deposit and will make
periodic deposits
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into an account established as additional security for the payment and
performance of the Obligations and further deposits towards potential
obligations of capital improvement costs at the Property, each to be held and
disbursed in accordance with the Pledge and Security Agreement.
ARTICLE VII
INSURANCE, CASUALTY, CONDEMNATION
AND RESTORATION
SECTION 7.1. INSURANCE COVERAGES.
(a) Borrower and Grantor will maintain such insurance coverages and
endorsements in form and substance and in amounts as Lender may require in its
sole reasonable discretion, from time to time. Until Lender notifies Borrower or
Grantor of changes in Lender's requirements, Borrower and Grantor will maintain
not less than the insurance coverages and endorsements Lender required for
closing of the Loan.
(b) The insurance, including renewals, required under this Section will be
issued on valid and enforceable policies and endorsements reasonably
satisfactory to Lender (the "POLICIES").
Each Policy will contain a standard waiver of subrogation and a
replacement cost endorsement and will provide that Lender will receive not less
than 30 days' prior written notice of any cancellation, termination or
non-renewal of a Policy or any material change other than an increase in
coverage and that Lender will be named under a standard mortgage endorsement as
loss payee.
(c) The insurance companies issuing the Policies (the "INSURERS") must be
authorized to do business in the State or Commonwealth where the Property is
located, must have been in business for at least 5 years, must carry an A.M.
Best Company, Inc. policy holder rating of A or better and an A.M. Best Company,
Inc. financial category rating of Class X or better and must be otherwise
satisfactory to Lender. Lender may select an alternative credit rating agency
and may impose different credit rating standards for the Insurers.
Notwithstanding Lender's right to approve the Insurers and to establish credit
rating standards for the Insurers, Lender will not be responsible for the
solvency of any Insurer.
(d) Notwithstanding Lender's rights under this Article, Lender will not be
liable for any loss, damage or injury resulting from the inadequacy or lack of
any insurance coverage.
(e) Grantor and Borrower will each comply with the provisions of the
Policies and with the requirements, notices and demands imposed by the Insurers
and applicable to Grantor, Borrower or the Property.
(f) Grantor and Borrower will pay the Insurance Premiums for each Policy
not less than 30 days before the expiration date of the Policy being replaced or
renewed and will deliver to Lender a certified copy of each Policy (for the
initial closing or any replacements of the original policy, with an ACORD 27
certificate for any renewals thereafter) marked "Paid" not less than
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10 days prior to the expiration date of the Policy being replaced or renewed.
(g) Neither Grantor nor Borrower will carry separate insurance concurrent
in kind or form or contributing in the event of loss with any other insurance
carried by Grantor or Borrower.
(h) If Grantor and/or Borrower carries any insurance under a blanket
policy, it will deliver to Lender prior to the date hereof or for any
replacement policy a certified duplicate copy of the blanket policy (and
certificates as described in paragraph (f), above, for renewals) which will
allocate to the Property the amount of coverage required under this Section and
otherwise will provide the same coverage and protection as would a separate
policy insuring only the Property.
(i) Grantor will give the Insurers prompt notice of any change in
ownership or use of the Property. This subsection does not abrogate the
prohibitions on transfers set forth in this Deed of Trust.
(j) If the Property is sold at a foreclosure sale or otherwise is
transferred so as to extinguish the Obligations, all of Grantor's right, title
and interest in and to the Policies then in force will be transferred
automatically to the purchaser or transferee.
SECTION 7.2. CASUALTY AND CONDEMNATION.
(a) Grantor will give Lender notice of any Casualty immediately after it
occurs and will give Lender notice of any Proceeding in Condemnation immediately
after Grantor receives notice of commencement or notice that such a Proceeding
will be commencing. Grantor immediately will deliver to Lender copies of all
documents Grantor delivers or receives relating to the Casualty or the
Proceeding, as the case may be.
(b) If the amount of any Insurance Proceeds or Condemnation Awards, as
estimated by Lender in its sole but reasonable discretion, is equal to or less
than Five Hundred Thousand Dollars ($500,000), and if Grantor is not at the date
of the Casualty subject of an Event of Default beyond any applicable notice and
cure period, then in the event of both such instances Grantor shall be
authorized to act without Lender's review or consent in collecting, adjusting
and compromising any claims for loss, damage or destruction under the Policies
or with any Condemnation Proceeding, as may be applicable. If Grantor is
entitled to settle such claims without Lender's review or consent, Grantor shall
still be required to have the Insurance proceeds or Condemnation Awards, as the
case may be, held and applied in accordance with the terms of this Section 7.2
(c) If the amount of any Insurance Proceeds or Condemnation Award exceeds
$500,000, in Lender's sole but reasonable estimation, or if any Event of Default
under any Loan Document then remains uncured beyond any applicable notice or
cure period (each such event, a "Consent Trigger"), then Grantor authorizes
Lender, at Lender's option, to act on Grantor's behalf to collect, adjust and
compromise any claims for loss, damage or destruction under the Policies on such
terms as Lender determines in Lender's sole discretion. Further, in the event of
any
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Consent Trigger, Grantor authorizes Lender to act, at Lender's option, on
Grantor's behalf in connection with any Condemnation Proceeding. Grantor will
execute and deliver to Lender all documents requested by Lender and all
documents as may be required by Law to confirm such authorizations. Nothing in
this Section will be construed to limit or prevent Lender from joining with
Grantor either as a co-defendant or as a co-plaintiff in any Condemnation
Proceeding.
(c) If a Consent Trigger occurs but Lender elects not to act on Grantor's
behalf as provided in this Section, then Grantor promptly will file and
prosecute all claims (including Lender's claims) relating to the Casualty and
will prosecute or defend (including defense of Lender's interest) any
Condemnation Proceeding. Grantor will have the authority to settle or compromise
the claims or Proceeding, as the case may be, PROVIDED that Lender has approved
in Lender's sole discretion any compromise or settlement that exceeds
$500,000.00. Any check for Insurance Proceeds or Condemnation Awards, as the
case may be (the "PROCEEDS") will be made payable to Lender and Grantor. Grantor
will endorse the check to Lender immediately upon Lender presenting the check to
Grantor for endorsement or if Grantor receives the check first, will endorse the
check immediately upon receipt and forward it to Lender. If any Proceeds are
paid to Grantor, Grantor immediately will deposit the Proceeds with Lender, to
be applied or disbursed in accordance with the provisions of this Deed of Trust.
Lender will be responsible for only the Proceeds actually received by Lender.
SECTION 7.3. APPLICATION OF PROCEEDS. After deducting the costs incurred
by Lender in collecting the Proceeds, Lender may, in its sole discretion, (i)
apply the Proceeds as a credit against any portion of the Debt selected by
Lender in its sole discretion of the Debt (in which event neither the Prepayment
Premium nor the Evasion Premium, if any, shall apply); (ii) apply the Proceeds
to restore the Improvements, PROVIDED that Lender will not be obligated to see
to the proper application of the Proceeds and PROVIDED FURTHER that any amounts
released for Restoration will not be deemed a payment on the Debt; or (iii)
deliver the Proceeds to Grantor.
SECTION 7.4. CONDITIONS TO AVAILABILITY OF PROCEEDS FOR RESTORATION.
Notwithstanding the preceding Section, after a Casualty or a Condemnation
(a "DESTRUCTION EVENT"), Lender will make the Proceeds (less any costs incurred
by Lender in collecting the Proceeds) available for Restoration in accordance
with the conditions for disbursements set forth in the Section entitled
"RESTORATION", PROVIDED that the following conditions are met:
(i) Each of the entities described above as an original Grantor hereunder,
or the transferee under a Permitted Transfer, if any, continues to be
Grantor at the time of the Destruction Event and at all times thereafter
until the Proceeds have been fully disbursed;
(ii) no default under the Financing Documents exists at the time of the
Destruction Event;
(iii) all Leases in effect immediately prior to the Destruction Event and
all Property Documents in effect immediately prior to the Destruction
Event that are essential to the use and operation of the Property continue
in full force and effect, subject to any rental
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abatements provided in the leases, notwithstanding the Destruction Event;
(iv) the annual Rents (excluding security deposits) under Leases in effect
on the date of the Destruction Event, plus any rental insurance proceeds
paid or to be paid to Grantor, plus any additional collateral satisfactory
to Lender in its sole but reasonable discretion, are providing debt
service coverage for the annual Debt Service Payments of 1.40 after
payment of annual Insurance Premiums, Impositions and operating expenses
of the Property (including ground rent, if any), PROVIDED that, if the
combined Rents, rental insurance and other approved collateral, if any, do
not provide such debt service coverage, then Grantor expressly authorizes
and directs Lender to apply an amount from the Proceeds to reduction of
Principal in order to reduce the annual Debt Service Payments sufficiently
for such debt service coverage to be achieved (in which event neither the
Prepayment Premium nor the Evasion Premium, if any, shall apply). The
reduced debt service payments will be calculated using the Fixed Interest
Rate and an amortization schedule that will achieve the same proportionate
amortization of the reduced Principal over the then remaining Term as
would have been achieved if the Principal and the originally scheduled
Debt Service Payments had not been reduced. Grantor will execute any
documentation that Lender deems reasonably necessary to evidence the
reduced Principal and debt service payments.
SECTION 7.5. RESTORATION.
(a) If the total Proceeds for any Destruction Event are $500,000.00 or
less and Lender elects or is obligated by Law or under this Article to make the
Proceeds available for Restoration, Lender will disburse to Grantor the entire
amount received by Lender and Grantor will commence Restoration promptly after
the Destruction Event and complete Restoration not later than the Restoration
Completion Date.
(b) If the Proceeds for any Destruction Event exceed $500,000.00 and
Lender elects or is obligated by Law or under this Article to make the Proceeds
available for Restoration, Lender will disburse the Proceeds and any Additional
Funds (the "RESTORATION FUNDS") upon Grantor's request as Restoration
progresses, generally in accordance with normal construction lending practices
for disbursing funds for construction costs, PROVIDED that the following
conditions are met:
(i) Grantor commences Restoration promptly after the Destruction Event
and completes Restoration on or before the Restoration Completion
Date;
(ii) if Lender requests, Grantor delivers to Lender prior to commencing
Restoration, for Lender's approval, plans and specifications and a
detailed budget for the Restoration;
(iii) Grantor delivers to Lender satisfactory evidence of the costs of
Restoration incurred prior to the date of the request, and such
other documents as Lender may request including mechanics' lien
waivers and title insurance endorsements;
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(iv) Grantor pays all costs of Restoration whether or not the Restoration
Funds are sufficient and, if at any time during Restoration, Lender
determines that the undisbursed balance of the Restoration Funds is
insufficient to complete Restoration, Grantor deposits with Lender,
as part of the Restoration Funds, an amount equal to the deficiency
(or a guaranty or other collateral reasonably satisfactory to Lender
in its sole but reasonable discretion) within 30 days of receiving
notice of the deficiency from Lender; and
(v) there is no default under the Financing Documents at the time
Grantor requests funds or at the time Lender disburses funds.
(c) If an Event of Default occurs at any time after the Destruction Event,
then Lender will have no further obligation to make any remaining Proceeds
available for Restoration and may apply any remaining Proceeds as a credit
against any portion of the Debt selected by Lender in its sole discretion.
(d) Lender may elect at any time prior to commencement of Restoration or
while work is in progress to retain, at Grantor's expense, an independent
engineer or other consultant to review the plans and specifications, to inspect
the work as it progresses and to provide reports. If any matter included in a
report by the engineer or consultant is unsatisfactory to Lender, Lender may
suspend disbursement of the Restoration Funds until the unsatisfactory matters
contained in the report are resolved to Lender's satisfaction.
(e) If Grantor fails to commence and complete Restoration in accordance
with the terms of this Article, then in addition to the Remedies, Lender may
elect to restore the Improvements on Grantor's behalf and reimburse itself out
of the Restoration Funds for costs and expenses incurred by Lender in restoring
the Improvements, or Lender may apply the Restoration Funds as a credit against
any portion of the Debt selected by Lender in its sole discretion.
(f) Lender may commingle the Restoration Funds with its general assets but
shall assure that any Restoration Funds so commingled shall nonetheless be made
available by Lender for application under this Section 7.5; and Lender will not
be liable to pay any interest or other return on the Restoration Funds unless
otherwise required by Law. Lender will not hold any Restoration Funds in trust.
Lender may elect to deposit the Restoration Funds with a depository satisfactory
to Lender under a disbursement and security agreement satisfactory to Lender,
which Agreement shall provide for a segregation of funds and obligation to pay
interest.
(g) Grantor will pay all of Lender's expenses incurred in connection with
a Destruction Event or Restoration. If Grantor fails to do so, then in addition
to the Remedies, Lender may from time to time reimburse itself out of the
Restoration Funds.
(h) If any excess Proceeds remains after Restoration, Lender may elect, in
its sole discretion either to apply the excess as a credit against any portion
of the Debt as selected by Lender in its sole discretion or to deliver the
excess to Grantor.
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ARTICLE VIII
COMPLIANCE WITH LAW AND AGREEMENTS
SECTION 8.1. COMPLIANCE WITH LAW. Grantor, the Property and the use of the
Property complies and will continue to comply with Law and with all agreements
and conditions necessary to preserve and extend all rights, licenses, permits,
privileges, franchises and concessions (including zoning variances, special
exceptions and non-conforming uses) relating to the Property or Grantor. Grantor
will notify Lender of the commencement of any investigation or Proceeding
relating to a possible violation of Law promptly (but in no event beyond five
(5) business days) after Grantor receives notice thereof and, will deliver
promptly to Lender copies of all documents Grantor receives or delivers in
connection with the investigation or Proceeding. Grantor will not alter the
Property in any manner that would increase Grantor's responsibilities for
compliance with Law.
SECTION 8.2. COMPLIANCE WITH AGREEMENTS. There are no defaults, events of
defaults or events which, with the passage of time or the giving of notice,
would constitute an event of default under the Property Documents. Grantor will
pay and perform all of its obligations under the Property Documents as and when
required by the Property Documents. Grantor will cause all other parties to the
Property Documents to pay and perform their obligations under the Property
Documents as and when required by the Property Documents. Grantor will not amend
or waive any provisions of the Property Documents; exercise any options under
the Property Documents; give any approval required or permitted under the
Property Documents that would adversely affect the Property or Lender's rights
and interests under the Financing Documents; cancel or surrender any of the
Property Documents; or release or discharge or permit the release or discharge
of any party to or entity bound by any of the Property Documents, without, in
each instance, Lender's prior approval (excepting therefrom all service
contracts or other agreements entered into in the normal course of business that
are cancelable upon not more than 30 days notice). Grantor promptly will deliver
to Lender copies of any notices of default or of termination that Grantor
receives or delivers relating to any Property Document.
SECTION 8.3. ERISA COMPLIANCE.
(a) Neither Grantor nor any of its constituent entities is or will be an
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA") that is subject to Title I of ERISA or a
"plan" as defined in Section 4975(e)(1) of the Code that is subject to Section
4975 of the Code, and neither the assets of Borrower, Grantor or of any of their
constituent entities are or will constitute "plan assets" of one or more such
plans for purposes of Title I of ERISA or Section 4975 of the Code.
(b) Grantor is not and will continue to not be a "GOVERNMENTAL PLAN"
within the meaning of Section 3(32) of ERISA and transactions by or with Grantor
or Borrower are not and will not be subject to any Laws regulating investments
of and fiduciary obligations with respect to governmental plans.
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(c) Grantor will not engage in any transaction which would cause any
obligation or any action under the Financing Documents or the Loan Documents,
including Lender's exercise of the Remedies, to be a non-exempt prohibited
transaction under ERISA.
SECTION 8.4. SECTION 6045(e) FILING. Grantor will supply or cause to be
supplied to Lender either (i) a copy of a completed Form 1099-S, Statement for
Recipients of Proceeds from Real Estate, Broker and Barter Exchange Proceeds
prepared by Grantor's attorney or other person responsible for the preparation
of the form, together with a certificate from the person who prepared the form
to the effect that the form has, to the best of the preparer's knowledge, been
accurately prepared and that the preparer will timely file the form; or (ii) a
certification from Grantor that the Loan is a refinancing of the Property or is
otherwise not required to be reported to the Internal Revenue Service pursuant
to Section 6045(e) of the Code. Under no circumstances will Lender or Lender's
counsel be obligated to file the reports or returns.
ARTICLE IX
ENVIRONMENTAL
SECTION 9.1. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES.
Except as disclosed in the Environmental Report and to Grantor's knowledge
as of the date of this Deed of Trust:
(i) no Environmental Activity has occurred or is occurring on the
Property other than the use, storage, and disposal of Hazardous
Materials which (A) is in the ordinary course of business consistent
with the Permitted Use; (B) is in compliance with all Environmental
Laws and (C) has not resulted in Material Environmental
Contamination of the Property; and
(ii) no Environmental Activity has occurred or is occurring on any
property in the vicinity of the Property which has resulted in
Material Environmental Contamination of the Property.
SECTION 9.2. ENVIRONMENTAL COVENANTS.
(a) Grantor will not cause or permit any Material Environmental
Contamination of the Property.
(b) No Environmental Activity will occur on the Property other than the
use, storage and disposal of Hazardous Materials which (A) is in the ordinary
course of business consistent with the Permitted Use; (B) is in compliance with
all Environmental Laws; and (C) does not create a risk of Material Environmental
Contamination of the Property.
(c) Grantor will notify Lender immediately upon Grantor becoming aware of
(i) any Material Environmental Contamination of the Property or (ii) any
Environmental Activity with
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respect to the Property that is not in accordance with the preceding subsection
(b). Grantor promptly will deliver to Lender copies of all documents delivered
to or received by Grantor regarding the matters set forth in this subsection,
including notices of Proceedings or investigations concerning any Material
Environmental Contamination of the Property or Environmental Activity or
concerning Grantor's status as a potentially responsible party (as defined in
the Environmental Laws). Grantor's notification of Lender in accordance with the
provisions of this subsection will not be deemed to excuse any default under the
Financing Documents resulting from the violation of Environmental Laws or the
Material Environmental Contamination of the Property or Environmental Activity
that is the subject of the notice. If Grantor receives notice of a suspected
violation of Environmental Laws in the vicinity of the Property that poses a
risk of Material Environmental Contamination of the Property, Grantor will give
Lender notice and copies of any documents received relating to such suspected
violation.
(d) From time to time at Lender's request, Grantor will deliver to Lender
any information known and documents available to Grantor relating to the
environmental condition of the Property.
(e) Lender may perform or engage an independent consultant to perform an
assessment of the environmental condition of the Property and of Grantor's
compliance with this Section at any time for reasonable cause or after an Event
of Default (if, in both instances, Lender has reasonable suspicion to believe
that an Environmental Activity has occurred which could result in a Material
Environmental Contamination). In connection with the assessment: (i) Lender or
consultant may enter and inspect the Property and perform tests of the air,
soil, ground water and building materials; (ii) Grantor will cooperate and use
best efforts to cause tenants and other occupants of the Property to cooperate
with Lender or consultant; (iii) Grantor will receive a copy of any final report
prepared after the assessment, to be delivered to Grantor not more than 10 days
after Grantor requests a copy and executes Lender's standard confidentiality and
waiver of liability letter; (iv) Grantor will accept custody of and arrange for
lawful disposal of any Hazardous Materials required to be disposed of as a
result of the tests; (v) Lender will not have liability to Grantor with respect
to the results of the assessment; and (vi) Lender will not be responsible for
any damage to the Property resulting from the tests described in this subsection
and Grantor will look solely to the consultants to reimburse Grantor for any
such damage. The consultant's assessment and reports will be at Grantor's
expense (i) if the reports disclose any material adverse change in the
environmental condition of the Property from that disclosed in the Environmental
Report; (ii) if Lender engaged the consultant when Lender had reasonable cause
to believe Grantor was not in compliance with the terms of this Article and,
after written notice from Lender, Grantor failed to provide promptly reasonable
evidence that Grantor is in compliance; or (iii) if Lender engaged the
consultant or after the occurrence of an Event of Default.
(f) If Lender has reasonable cause to believe that there is Environmental
Activity at the Property, Lender may elect in its sole discretion to direct the
Trustees to Reconvey any portion of the Property affected by the Environmental
Activity and Grantor will accept the reconveyance.
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ARTICLE X
FINANCIAL REPORTING
SECTION 10.1. FINANCIAL REPORTING.
(a) Grantor will deliver to Lender within 90 days after the close of each
Fiscal Year an annual financial statement (the "ANNUAL FINANCIAL STATEMENT") for
the Property and for Corporate Office Properties Trust, upon request of Lender,
for the Fiscal Year, which will include a comparative balance sheet, a cash flow
statement, an income and expense statement, a detailed breakdown of all receipts
and expenses and all supporting schedules. The Annual Financial Statement will
be:
(i) unaudited, but certified by the Chief Financial Officer of Corporate
Office Properties Trust, on a GAAP basis;
(ii) accompanied by an opinion of such Chief Financial Officer that, in
all material respects, the Annual Financial Statement fairly presents the
financial position of the Property; and
(iii) separate and distinct from any consolidated statement or report for
Grantor, Borrower or any other entity or any other property.
(b) Grantor will keep full and accurate Financial Books and Records for
each Fiscal Year. Grantor will permit Lender or Lender's accountants or auditors
to inspect or audit the Financial Books and Records from time to time and
without notice. Grantor will maintain the Financial Books and Records for each
Fiscal Year for not less than 3 years after the date Grantor delivers to Lender
the Annual Financial Statement and the other financial certificates, statements
and information to be delivered to Lender for the Fiscal Year. Financial Books
and Records will be maintained at Grantor's (as applicable) address set forth in
the section entitled "NOTICES" or at any other location as may be approved by
Lender.
ARTICLE XI
EXPENSES AND DUTY TO DEFEND
SECTION 11.1. PAYMENT OF EXPENSES.
(a) Grantor is obligated to pay all fees and expenses (the "EXPENSES")
incurred by Lender, Trustees or that are otherwise payable in connection with
the Loan, the Property or Grantor, including attorneys' fees and expenses and
any fees and expenses relating to (i) the preparation, execution,
acknowledgment, delivery and recording or filing of the Loan Documents; (ii) any
Proceeding or other claim asserted against Lender; (iii) any inspection,
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assessment, survey and test permitted under the Financing Documents; (iv) any
Destruction Event; (v) the preservation of Trustees' title, Lender's security
and the exercise of any rights or remedies available at Law, in equity or
otherwise; and (vi) the Leases and the Property Documents.
(b) Grantor will pay the Expenses immediately on demand, together with any
applicable interest, premiums or penalties. If Lender pays any of the Expenses,
Grantor will reimburse Lender the amount paid by Lender immediately upon demand,
together with interest on such amount at the Default Interest Rate from the date
Lender paid the Expenses through and including the date Grantor reimburses
Lender. The Expenses together with any applicable interest, premiums or
penalties constitute a portion of the Obligations secured by this Deed of Trust.
SECTION 11.2. DUTY TO DEFEND. If Lender or any of its trustees, officers,
participants, employees or affiliates is a party in any Proceeding relating to
the Property, Grantor, Borrower or the Loan, Grantor will indemnify and hold
harmless the party and will defend the party with attorneys and other
professionals retained by Grantor and approved by Lender. Lender may elect to
engage its own attorneys and other professionals, at Grantor's expense, to
defend or to assist in the defense of the party. In all events, case strategy
will be determined by Lender if Lender so elects and no Proceeding will be
settled without Lender's prior approval which may be withheld in its sole
discretion.
SECTION 11.3. FUTURE ADVANCES. Lender may make future advances to Grantor
or to Borrower under the Loan guaranteed by Grantor, and all such future
advances and readvances shall be fully secured by the lien and security interest
of this Deed of Trust.
ARTICLE XII
TRANSFERS LIENS AND ENCUMBRANCES
SECTION 12.1. PROHIBITIONS ON TRANSFERS, LIENS AND ENCUMBRANCES.
(a) Grantor acknowledges that in making the Loan, Lender is relying to a
material extent on the business expertise and net worth of Grantor and its
general partners, members or principals and on the continuing interest that it
has, directly or indirectly, in the Property. Accordingly, except as
specifically set forth in this Deed of Trust, Grantor (i) will not, and will not
permit its partners or members to, effect a Transfer without Lender's prior
approval, which may be withheld in Lender's sole discretion and (ii) will keep
the Property free from all liens and encumbrances other than the lien of this
Deed of Trust and the Permitted Exceptions. A "TRANSFER" is defined as any sale,
grant, lease (other than bona fide third-party space leases with tenants),
conveyance, assignment or other transfer of, or any encumbrance or pledge
against, the Property, any interest in the Property, any interest of Grantor's
partners, members or principals in the Property, or any change in Grantor's
composition, in each instance whether voluntary or involuntary, direct or
indirect, by operation of law or otherwise and including the grant of an option
or the execution of an agreement relating to any of the foregoing matters.
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(b) Grantor represents, warrants and covenants that:
(i) Each entity constituting Grantor is a Maryland limited liability
company whose managing member is the Borrower, a Delaware limited
partnership owning 100% of the of the interests in Grantor.
(ii) If Grantor's member is in turn a partnership, corporation or limited
liability company, the general partner, principal or member thereof and
the percentage of partnership interest, stock or membership interest held
by each (and so on at each level) are as follows: the sole general partner
of the Borrower is COPT (defined below); the percentage of interest in the
Borrower currently held by COPT varies because its shares are traded due
to its "upreit" structure.
SECTION 12.2. PERMITTED TRANSFERS.
(a) Notwithstanding the prohibitions regarding Transfers, transfer of
shares in Corporate Office Properties Trust ("COPT"), an affiliate of Grantor
and the Borrower, and transfers of limited partnership interests and pledges of
both general and limited partnership interests in the Borrower, (each, a
"Permitted Transfer") may occur without Lender's prior consent, PROVIDED that
the following conditions are met:
(i) at all times COPT remains the sole general partner in the Borrower and
Borrower delivers to Lender on a quarterly basis notices of changes in the
ownership interests of limited partners owning one percent (1%) or more of
the Borrower; and
(ii) a Permitted Transfer does not permit a disposition in a single
transfer or a series of related transfers of all or substantially all of
the shares of COPT or of all of the limited partnership interests in the
Borrower and does not permit a merger of COPT with one or more entities
without Lender's prior written consent unless COPT is the surviving and
controlling entity or unless such successor is a real estate company
having the same standards of professional expertise and net worth as that
of COPT as of the date of this Deed of Trust or as of the date immediately
prior to the Transfer, whichever is greater;
(iii) at least 30 days prior to the proposed Permitted Transfer (other
than transfers of shares of COPT on the open market or of any limited
partnership interests in the Borrower), Grantor or Borrower delivers to
Lender a notice that is sufficiently detailed to enable Lender to
determine that the proposed Permitted Transfer complies with the terms of
this Section;
(iv) there is no default under the Financing Documents either when Lender
receives the notice or when the proposed Permitted Transfer occurs;
(v) the proposed Permitted Transfer (other than transfers of shares of
COPT on the open market or of any limited partnership interests in the
Borrower) will not result in a violation of any of the covenants contained
in the Section entitled, "ERISA
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COMPLIANCE" and Grantor or Borrower will deliver to Lender such
documentation of compliance as Lender requests in its sole discretion;
(vi) other than in instances of transfers of shares in COPT or of
transfers of any limited partnership interests in the Borrower, when
Lender receives the notice and when the proposed Permitted Transfer
occurs, the transferee (other than a transferee that is a publicly traded
entity) has never been an adverse party to Lender in any litigation to
which Lender was a party; the transferee has never defaulted on a loan
from Lender or on any contract or other agreement with Lender; and the
transferee has never threatened litigation against Lender (for purposes of
this subsection "transferee" includes the transferee's constituent
entities at all levels and "Lender" includes Lender's subsidiaries);
(vii) Grantor or Borrower pays all of Lender's expenses relating to the
Transfer including Lender's attorneys' fees; and
(viii) Lender is satisfied that the Property will continue to be managed
by a manager satisfactory to Lender.
SECTION 12.3. RIGHT TO CONTEST LIENS. Grantor, at its own expense, may
contest the amount, validity or application, in whole or in part, of any
mechanic's, materialmen's or environmental liens in which event Lender will
refrain from exercising any of the Remedies, PROVIDED that the following
conditions are met:
(i) Grantor delivers to Lender notice of the proposed contest not more
than 30 days after the lien is filed;
(ii) the contest is by a Proceeding promptly initiated and conducted in
good faith and with due diligence;
(iii) there is no Event of Default other than the Event of Default arising
from the filing of the lien;
(iv) the Proceeding suspends enforcement of collection of the lien,
imposition of criminal or civil penalties and sale or forfeiture of the
Property and Lender will not be subject to any civil suit;
(v) the Proceeding is permitted under and is conducted in accordance with
the Leases and the Property Document;
(vi) Grantor furnishes a bond or other security satisfactory to Lender, in
either case in an amount sufficient to pay the claim giving rise to the
lien, together with all interest and penalties, and secures an endorsement
to Lender's policy of title insurance insuring against sale of the
Property by the lienor to collect its lien, or Grantor pays the contested
lien under protest; and
(vii) with respect to an environmental lien, Grantor is using best efforts
to mitigate or
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prevent any deterioration of the Property resulting from the alleged
violation of any Environmental Laws or the alleged Environmental Activity.
SECTION 12.4. SUBSTITUTE COLLATERAL.
Upon request from Grantor, and at Grantor's expense, Trustees shall
release from the lien of this Deed of Trust any one or more of the parcels
constituting the Property, upon conveyance by Grantor and/or its affiliates of
substitute collateral property (the "Substitute Collateral") from time to time,
but not more than one time for each parcel, and not more than four times during
the duration the lien of this Deed of Trust, upon the following terms and
subject to the following conditions:
(i) the quality of the Substitute Collateral shall be comparable to
or greater than that of the parcel of Property for which the Substitute
Collateral is replacing the current-to-be-released Property;
(ii) No Event of Default shall exist under this Deed of Trust or any
other Loan Document;
(iii) The appraised value of the Substitute Collateral shall be
equal to or greater than the greater of (A) the appraised value of
current-to-be-released Property, as determined at the time of the closing of the
substitution of collateral, or (B) the appraised value of the current-to-be
released Property at the time of such substitution;
(iv) the Debt Service Coverage Ratio (as defined below) for the
aggregate Property (inclusive of the Substitute Collateral) shall be greater
than or equal to the actual Debt Service Coverage Ratio for the aggregate
Property (inclusive of the current-to-be released Property), for the one year
prior to the substitution, and Grantor shall execute and deliver appropriate
amendments to this Deed of Trust and Loan Documents making the Substitute
Collateral part of the security for the Guaranty, and Lender shall have received
such title assurances and endorsements to its then-existing policies confirming
the priority of its lien under this Deed of Trust on the Substitute Collateral,
consenting to the release of the released Property, and otherwise confirming no
adverse changes in title coverage or the amount thereof.
(v) the Substitute Collateral shall satisfy each of the covenants
and conditions to closing set forth in the commitment letter with the Lender for
the Loan guaranteed under the Guaranty, that would have been applicable had such
Substitute Collateral been an original parcel of the Property;
(vi) the Substitute Collateral shall conform in all respects to such
other underwriting standards and criteria of the Lender and criteria such as
other appraisal, legal, business, environmental, engineering, diversification,
leasing or title requirements, all as Lender may determine in its sole
discretion.
As used herein, the following defined term shall apply:
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"DEBT SERVICE COVERAGE RATIO" means the Net Operating Income of the Property
divided by the amount of scheduled annual payments of Debt Service on the Loan
guaranteed by the Guaranty.
"NET OPERATING INCOME" means the total gross rental income received in the most
recent twelve month period, plus other income received during the most recent
twelve month period, less actual operating expenses for the most recent twelve
month period.
ARTICLE XIII
ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 13.1. FURTHER ASSURANCES.
(a) Grantor will execute, acknowledge and deliver to Lender or to any
other entity Lender designates any additional or replacement documents and
perform any additional actions that Lender determines are reasonably necessary
to evidence, perfect or protect Lender's first lien on and prior security
interest in the Property or to carry out the intent or facilitate the
performance of the provisions of the Financing Documents and the Note.
(b) Grantor appoints Lender as Grantor's attorney-in-fact to perform, at
Lender's election, any actions and to execute and record any of the additional
or replacement documents referred to in this Section, in each instance only at
Lender's election and only to the extent Grantor or Borrower has failed to
comply with the terms of this Section.
(c) Grantor shall pay upon demand of Lender all costs of, and incidental
to, the recording of this Deed of Trust and any such documents described above,
whether now or hereafter due and payable, including, without limitation, the
Maryland recordation tax and any other tax required to be paid at any time with
respect to such recording. The Grantor hereby agrees to indemnify and hold the
Trustees and Lender harmless from and against any liability or loss incurred by
the Trustees or Lender resulting from the failure of the Grantor to pay when due
and payable any such amounts. The foregoing indemnity will survive the payment
of the Obligations and the Guaranty and the release of this Deed of Trust. The
obligations of the Grantor pursuant to such indemnity will bear interest payable
upon demand of Lender from the date due until paid in full at the Default
Interest Rate and such obligations with interest thereon as aforesaid shall be a
part of the Obligations secured hereby.
Section 13.2. ESTOPPEL CERTIFICATES.
(a) Within 10 days of Lender's request, Grantor will deliver to Lender or
to any entity Lender designates a certificate certifying (i) the original
principal amount of the Note; (ii) the unpaid principal amount of the Note;
(iii) the Fixed Interest Rate; (iv) the amount of the then current Debt Service
Payments; (v) the Maturity Date; (vi) the date a Debt Service Payment was last
made; (vii) that, except as may be disclosed in the statement, there are no
defaults or events which, with the passage of time or the giving of notice,
would constitute an Event of Default; and (viii) there are no offsets or
defenses against any portion of the Obligations except as may be disclosed in
the statement.
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(b) If Lender requests, Grantor promptly will deliver to Lender or to any
entity Lender designates a certificate from each party to any Property Document,
certifying that the Property Document is in full force and effect with no
defaults or events which, with the passage of time or the giving of notice,
would constitute an event of default under the Property Document and that there
are no defenses or offsets against the performance of its obligations under the
Property Document.
(c) If Lender requests, Grantor promptly will use its commercially
reasonable efforts to obtain and deliver to Lender, or to any entity Lender
designates, a certificate from each tenant under a Lease then affecting the
Property, certifying to any facts regarding the Lease as Lender may require,
including that the Lease is in full force and effect with no defaults or events
which, with the passage of time or the giving of notice, would constitute an
event of default under the Lease by any party, that the rent has not been paid
more than one month in advance and that the tenant claims no defense or offset
against the performance of its obligations under the Lease; provided, that
Lender shall not request such certificates more often than one time in any two
calendar year period except for the purpose of a sale of the Loan.
ARTICLE XIV
DEFAULTS AND REMEDIES
Section 14.1. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" means the
occurrence of any of the following events:
(i) if Grantor fails to pay any amount due, as and when required, under
any Financing Document and the failure continues for a period of 5 days;
(ii) if Grantor makes a general assignment for the benefit of creditors or
generally is not paying, or is unable to pay, or admits in writing its
inability to pay, its debts as they become due; or if Grantor or any other
party commences any Proceeding (A) relating to bankruptcy, insolvency,
reorganization, conservatorship or relief of debtors, in each instance
with respect to Grantor; (B) seeking to have an order for relief entered
with respect to Grantor; (C) seeking attachment, distraint or execution of
a judgment with respect to Grantor; (D) seeking to adjudicate Grantor as
bankrupt or insolvent; (E) seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to Grantor or Grantor's debts; or (F) seeking
appointment of a Receiver, trustee, custodian, conservator or other
similar official for Grantor or for all or any substantial part of
Grantor's assets, PROVIDED that if the Proceeding is commenced by a party
other than Grantor or any of Grantor's general partners or members,
Grantor will have 120 days to have the Proceeding dismissed or discharged
before an Event of Default occurs;
(iii) if Grantor is in default beyond any applicable grace and cure period
under any other
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mortgage, deed of trust, deed to secure debt or other security agreement
encumbering the Property whether junior or senior to the lien of this Deed
of Trust;
(iv) if a Transfer occurs except in accordance with the provisions of this
Deed of Trust;
(v) if Grantor abandons the Property or ceases to conduct its business at
the Property; or
(vi) if Grantor fails to deposit either the letter of credit required
under the letter agreement of even date herewith between Grantor and
Lender, or fails to make the deposits required or otherwise defaults under
the Pledge and Security Agreement of even date among, INTER ALIA, Grantor
and Lender; or
(vii) if there is a default in the performance of any other provision of
any Financing Document or if there is any inaccuracy or falsehood in any
representation or warranty contained in any Financing Document which is
not remedied within 15 days after Grantor receives notice thereof,
PROVIDED that if the default, inaccuracy or falsehood is of a nature that
it cannot be cured within the 15-day period and during that period Grantor
commences to cure, and thereafter diligently continues to cure, the
default, inaccuracy or falsehood, then the 15-day period will be extended
for a reasonable period not to exceed 120 days after the notice to
Grantor.
SECTION 14.2. Remedies.
(a) If an Event of Default occurs, Lender may take any of the following
actions (the "REMEDIES") without notice to Grantor or Borrower:
(i) declare all or any portion of the Obligations immediately due and
payable ("ACCELERATION");
(ii) pay or perform any Obligation;
(iii) institute a Proceeding for the specific performance of any
Obligation;
(iv) apply for the appointment of a Receiver to be vested with the fullest
powers permitted by Law, without bond being required, which appointment
may be made EX PARTE, as a matter of right and without regard to the value
of the Property, the amount of the Debt or the solvency of Grantor or
Borrower or any other person liable for the payment or performance of any
portion of the Obligations;
(v) directly, by its agents or representatives or through a Receiver
appointed by a court of competent jurisdiction, enter on the Land and
Improvements, take possession of the Property, dispossess Grantor and
exercise Grantor's rights with respect to the Property, either in
Grantor's name or otherwise;
(vi) institute a Proceeding for the foreclosure of this Deed of Trust or,
if applicable, sell by power of sale all or any portion of the Property;
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(vii) institute proceedings for the partial foreclosure of this Deed of
Trust for the portion of the Obligations then due and payable, subject to
the continuing lien of this Deed of Trust for the balance of the
Obligations not then due;
(viii) deliver to Trustees a declaration of default and demand for sale
and a notice of default and election to cause Grantor's interest in the
Property or any portion of the Property to be sold, which notice Trustees
or Lender will file in the official records of the county in which the
Property is located or any parcel comprising the same is located;
(ix) exercise any and all rights and remedies granted to a secured party
under the Uniform Commercial Code; and
(x) pursue any other right or remedy available to Lender at Law, in equity
or otherwise.
(b) If an Event of Default occurs, the license granted to Grantor in the
Financing Documents to collect Rents will terminate automatically without any
action required of Lender.
SECTION 14.3. GENERAL PROVISIONS PERTAINING TO REMEDIES.
(a) The Remedies are cumulative and may be pursued by Lender or Trustees
concurrently or otherwise, at such time and in such order as Lender or Trustees
may determine in their sole discretion and without presentment, demand, protest
or further notice of any kind, all of which are expressly waived by Grantor.
(b) The enumeration in the Financing Documents of specific rights or
powers will not be construed to limit any general rights or powers or impair
Lender's or Trustees' rights with respect to the Remedies.
(c) If Lender or Trustees exercise any of the Remedies, Lender will not be
deemed a mortgagee-in-possession unless Lender has elected affirmatively to be a
mortgagee-in-possession.
(d) Lender and Trustees will not be liable for any act or omission of
Lender or Trustee in connection with the exercise of the Remedies.
(e) Lender's and Trustees' right to exercise any Remedy will not be
impaired by any delay in exercising or failure to exercise the Remedy and the
delay or failure will not be construed as extending any cure period or
constitute a waiver of the default or Event of Default.
(f) If an Event of Default occurs, Lender's payment or performance or
acceptance of payment or performance will not be deemed a waiver or cure of the
Event of Default.
(g) Lender's acceptance of partial payment or receipt of Rents will not
extend or affect any grace period or constitute a waiver of a default or Event
of Default or constitute a recision of Acceleration.
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SECTION 14.4. FORECLOSURE; ASSENT TO DECREE AND POWER OF SALE.
In the event the Trustee or Lender elects to institute foreclosure
proceedings upon the occurrence of an Event of Default, the Grantor and
Acquisition Grantors each assent to the passage of a decree for the sale of the
Property and any or all of the parcels comprising the same and further
authorizes the Trustee to sell the Property. Any sale of the Property or any of
the parcels so being sold, whether by way of the assent to decree or power of
sale, shall be made in accordance with the provisions of Section 7-105, REAL
PROPERTY ARTICLE, ANNOTATED CODE OF MARYLAND, as amended, and Section 14-200 ET
SEQ. of the MARYLAND RULES OF PROCEDURE, as amended, or other applicable Laws.
The terms of the sale may be cash upon settlement of the sale or upon such other
and additional terms as the Trustee deems necessary, proper or convenient,
except as specifically limited by applicable law or court rule. Such sale may be
of the entire Property as a unit or of such parts or parcels of the entire
Property as the Trustee, in its sole and absolute discretion, deems necessary,
proper, or convenient.
(a) APPLICATION OF PROCEEDS. Upon the sale of the Property, the proceeds
shall be applied as follows:
(i) To the payment of all expenses incident to the sale, including
reasonable and necessary counsel fees and expenses; and a commission to the
Trustee equal to the commission allowed the Trustee for making sales of property
by virtue of a decree of a court of equity in the State of Maryland. As used
herein, expenses of sale shall specifically include auctioneer's fees at the
auctioneer's customary rate, which shall be in addition to the Trustee's
commission, and the costs of a preforeclosure appraisal;
(ii) To the payment of the Obligations other than those owed with
respect to the Guaranty and then to the payment of those Obligations owed with
respect to the Guaranty, if such Obligations have matured and are due under the
terms of the Guaranty, and including without limitation the payment of any
Evasion Premium, or if not, to be held in a demand account as a pledged fund
(which shall be interest bearing for the benefit of the Grantor) up to the
maximum sum, as determined by Lender, which could be due under the Guaranty by
the Grantor as security for the Obligations owed with respect to the Guaranty,
and to be applied to the Obligations owed with respect to the Guaranty after a
default under the Guaranty;
(iii) And the balance remaining, if any, shall be paid to the
Grantor, or to whomsoever shall be judicially determined to be entitled to the
same.
(b) PAYMENT BEFORE SALE. In the event the Obligations shall be paid after
the filing of a foreclosure proceeding, but before sale of the Property, the
Grantor shall also be required to pay all of the expenses of any advertisement
or notice, all court costs, and all other expenses incident to or resulting from
the foreclosure proceedings under this Deed of Trust, and a commission on the
total amount of the indebtedness owed with respect to the Loan, both principal
and interest, remaining unpaid, equal to one-half (1/2) of the percentage
allowed as commission to trustees making a sale under a decree of a court of
equity in Maryland and such reasonable and necessary counsel fees and expenses
as the Trustee or Lender may have incurred; provided, however, that the sale may
be proceeded with unless, prior to the date on which the sale is scheduled,
payment is made by Grantor of the Obligations then due (including payment of all
costs, expenses, commissions and fees, as provided herein).
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(c) LENDER MAY BID. Upon any sale made under this Section 14, whether made
under the power of sale or by virtue of judicial proceedings or a judgment of
foreclosure, Lender may bid for and acquire the Property. If the Obligations
owed with respect to the Guaranty are then due, in lieu of paying cash therefor
the Lender may make settlement for the purchase price by crediting the
Obligations of Grantor secured by this Deed of Trust against the net sales
price, after deducting the expenses and costs of the sale and any other sums
which Lender is authorized to deduct under this Deed of Trust.
(d) LEASES. In the event of a sale of the Property under either the power
of sale or assent to decree, such sale may be made, at the option of Lender,
subject to one or more of the tenancies entered into subsequent to the recording
of this Deed of Trust, in accordance with the provisions of Section 7-105(f)(2),
REAL PROPERTY ARTICLE, ANNOTATED CODE OF MARYLAND, as amended.
(e) RIGHT TO MAINTAIN SEPARATE ACTION. In the event Grantor shall fail to
pay the Obligations, Trustee and Lender shall be empowered to institute
Proceedings as may be advised by its counsel for the collection of the sums so
due and unpaid, and may prosecute any Proceedings to judgment or final decree,
and may enforce any judgments or final decree against Grantor and collect, out
of the Property in any manner provided by law, monies adjudged to be payable.
Lender shall be entitled to recover judgment before, after, or during the
pendency of any Proceedings, or the foreclosure of the lien of this Deed of
Trust. In the event of a sale of all or any parcel of the Property, and of the
application of the proceeds of sale as provided in this Deed of Trust to the
payment of the Obligations, Lender and the Trustee shall be entitled to enforce
payment of and to receive all amounts then remaining due upon the Obligations,
and shall be entitled to recover judgment for any portion of the Obligations
remaining unpaid, with interest as provided in the Guaranty. The recovery of any
judgment by Lender, and the levy of an execution under any judgment upon all or
any parcel of the Property, shall not affect in any manner the lien of this Deed
of Trust upon the Property, or any Remedies of the Trustee or of the Lender, and
the Remedies shall continue unimpaired. Any monies collected by the Trustee or
Lender under this Section 14.4(e) shall be applied in accordance with the
provisions of Section 14.4(a).
(f) WAIVERS OF STAY, EXEMPTIONS. Grantor shall not claim or take any
advantage of any stay or extension or moratorium law, or any exemption from
execution of sale of all or any parcels of the Property, wherever enacted, which
may affect the covenants of this Deed of Trust, nor claim or insist upon any
advantage of any Law providing for the valuation or appraisal of all or any
parcels of the Property prior to any sale or pursuant to the order of any court;
nor after any sale, claim or any right under any Law to redeem the property so
sold. Grantor expressly waives all benefit or advantage of any such Law and
covenants not to impede the execution of any power herein granted or delegated
to the Trustee, but to suffer the execution of every power as though no Law had
been enacted.
SECTION 14.5. GENERAL PROVISIONS PERTAINING TO MORTGAGEE-IN-POSSESSION OR
RECEIVER.
(a) If an Event of Default occurs, any court of competent jurisdiction
will, upon application by Lender, appoint a Receiver as designated in the
application and issue an injunction prohibiting Grantor from interfering with
the Receiver, collecting Rents, disposing of any Rents or all of or any parcel
of the Property, committing waste or doing any other act that will tend to
affect the preservation of the Leases, the Rents and the Property and Grantor
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approves the appointment of the designated Receiver or any other Receiver
appointed by the court. Grantor agrees that the appointment may be made EX PARTE
and as a matter of right to Lender or Trustees, either before or after sale of
all or any parcels of the Property, without further notice, and without regard
to the solvency or insolvency, at the time of application for the Receiver, of
the person or persons, if any, liable for the payment of any portion of the
Obligations and the performance of any portion of the Obligations and without
regard to the value of the Property or whether the Property is occupied as a
homestead and without bond being required of the applicant.
(b) The Receiver will be vested with the fullest powers permitted by Law
including all powers necessary or usual in similar cases for the protection,
possession and operation of all or any parcels of the Property and all the
powers and duties of Lender as a mortgagee-in-possession as provided in this
Deed of Trust and may continue to exercise all the usual powers and duties until
the Receiver is discharged by the court.
(c) In addition to the Remedies and all other available rights, Lender or
the Receiver may take any of the following actions:
(i) take exclusive possession, custody and control of all or any parcels
of the Property and manage the same so as to prevent waste;
(ii) require Grantor to deliver to Lender or the Receiver all keys,
security deposits, operating accounts, prepaid Rents, past due Rents, the
Books and Records and all original counterparts of the Leases and the
Property Documents;
(iii) collect, sue for and give receipts for the Rents and, after paying
all expenses of collection, including reasonable receiver's, broker's and
attorney's fees, apply the net collections to any portion of the
Obligations selected by Lender in its sole discretion,
(iv) enter into, modify, extend, enforce, terminate, renew or accept
surrender of Leases and evict tenants except that in the case of a
Receiver, such actions may be taken only with the written consent of
Lender as provided in this Deed of Trust and in the Assignment;
(v) enter into, modify, extend, enforce, terminate or renew Property
Documents except that in the case of a Receiver, such actions may be taken
only with the written consent of Lender as provided in this Deed of Trust
and in the Assignment;
(vi) appear in and defend any Proceeding brought in connection with the
Property and bring any Proceeding to protect all or any parcels of the
Property as well as Grantor's and Lender's respective interests in all or
any parcels of the Property (unless any such Proceeding has been assigned
previously to Lender in the Assignment, or if so assigned, Lender has not
expressly assigned such Proceeding to the Receiver and consented to such
appearance or defense by Receiver); and
(vii) perform any act in the place of Grantor that Lender or the Receiver
deems necessary
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(A) to preserve the value, marketability or rentability of all or any
parcels of the Property; (B) upon consent by Lender, to increase the gross
receipts from all or any parcels of the Property; or (C) otherwise to
protect Grantor's and Lender's respective interests in all or any parcels
of the Property.
(d) Grantor appoints Lender as Grantor's attorney-in-fact, at Lender's
election, to perform any actions and to execute and record any instruments
necessary to effectuate the actions described in this Section, in each instance
only at Lender's election and only to the extent Grantor has failed to comply
with the provisions of this Section.
SECTION 14.6. GENERAL PROVISIONS PERTAINING TO FORECLOSURES AND THE POWER
OF SALE. The following provisions will apply to any Proceeding to foreclose and
to any sale of the Property by power of sale or pursuant to a judgment of
foreclosure and sale:
(i) Lender's or Trustees' right to institute a Proceeding to foreclose or
to sell by power of sale will not be exhausted by a Proceeding or a sale
that is defective or not completed;
(ii) a sale pursuant to a judgment of foreclosure and sale may be held at
such time or times and such place or places and upon such terms and
conditions or after such previous public announcement as required by Law
and as Trustees may deem appropriate;
(iii) with respect to sale pursuant to a judgment of foreclosure and sale,
the Property may be sold as an entirety or in parcels, at one or more
sales, at the time and place, on terms and in the order that Trustees deem
expedient in its sole discretion with such postponement of any such sale
as Trustees may deem appropriate without regard to any right of Grantor or
any other person to the marshalling of assets and Grantor hereby waives
all right to have the Property marshalled upon any foreclosure under this
Deed of Trust;
(iv) if a portion of the Property is sold pursuant to this Article, the
Financing Documents will remain in full force and effect with respect to
any portion of the Obligations and this Deed of Trust will continue as a
valid and enforceable first lien on and security interest in the remaining
portion of the Property, subject only to the Permitted Exceptions, without
loss of priority and without impairment of any of Lender's or Trustees'
rights and remedies with respect to the unmatured portion of the
Obligations;
(v) Lender may bid and become the purchaser at any such sale, and will,
upon presentation of the Guaranty or a true copy thereof at such sale, be
credited for the unpaid balance due under the Guaranty and any interest
accrued and unpaid thereon, or such potion of such unpaid balance or
interest as Lender may specify, against any price bid by Lender at such
sale. The terms of sale being complied with, Trustees will convey to and
at the cost of the purchaser at such sale Grantor's interest in, so much
of the Property as is so sold, free of and discharged from all estate,
right, title or interest of Grantor at law or in equity. Lender's receipt
of the proceeds of a sale will be sufficient consideration for the portion
of the Property sold and Lender will apply the proceeds set forth in the
Deed of Trust; and
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(vi) Upon any sale of Grantor's interest in any or all of the Property,
whether under the assent to a decree or power of sale herein granted, or
by other foreclosure or judicial proceedings, Trustees will apply the
proceeds of such sale, together with any other sum then held as security
hereunder or due under any of the provisions of the Financing Documents as
part of the Property (after paying all expenses of sale, including
reasonable attorneys' fees and a commission to the party making the sale
equal to the commission allowed to trustees for making sales of property
under orders or decrees of a court having competent jurisdiction, and all
Impositions which either Trustees or Lender deem it advisable or expedient
to pay and all sums advanced, with interest thereon, as herein provided)
to the payment of the aggregate Obligations and interest thereon to the
date of payment and prepayment fees, if any, paying over the surplus, if
any, less the expense, if any, of obtaining possession, to Grantor or any
person entitled thereto upon the surrender and delivery to the purchaser
of possession of the Property.
SECTION 14.7. UNIFORM COMMERCIAL CODE. Lender, or the Trustee acting on
behalf of Lender, may exercise all rights and remedies of a secured creditor
under the MARYLAND UNIFORM COMMERCIAL CODE, as amended, with respect to any part
of the Property constituting personal property and subject to the security
interest created by this Deed of Trust. These rights include the right to take
possession of the personal property without the use of judicial process (Grantor
hereby waiving all right to prior notice and a judicial hearing) and the right
to require Grantor to assemble the same at the Property or such other place as
Lender or Trustee may notify the Grantor. Any disposition of the personal
property shall be considered commercially reasonable if made pursuant to a
public sale which is advertised at least twice in a newspaper of local
circulation in Anne Arundel County, Maryland. Any notice required by Section
9-504 of the MARYLAND UNIFORM COMMERCIAL CODE to be given to Grantor shall be
considered reasonable and properly given if given in the manner and at the
address provided in the notice provisions of this Deed of Trust at least five
(5) business days prior to the date of any scheduled public sale.
SECTION 14.8. POWER OF ATTORNEY. Grantor appoints Lender as Grantor's
attorney-in-fact to perform any actions necessary and incidental to exercising
the Remedies.
SECTION 14.9. TENANT AT SUFFERANCE. If Lender, Trustees, or a Receiver
enters the Property in the exercise of the Remedies and Grantor is allowed to
remain in occupancy of the Property, Grantor will pay to Lender, Trustees, or
the Receiver, as the case may be, in advance, a reasonable rent for the Property
occupied by Grantor. If Grantor fails to pay the rent, Grantor may be
dispossessed by the usual Proceedings available against defaulting tenants.
ARTICLE XV
LIMITATION OF LIABILITY
SECTION 15.1. LIMITATION OF LIABILITY.
(a) Notwithstanding any provision in the Financing Documents to the
contrary, except as
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set forth in subsections (b) and (e), if Lender seeks to enforce the collection
of the Obligations, Lender will foreclose this Deed of Trust instead of
instituting suit on the Guaranty. If following a foreclosure and sale of all
parcels comprising the Property under this Deed of Trust a lesser sum is
realized therefrom than that due under the Obligations, Lender will not
institute any Proceeding against Grantor or Grantor's general partners, if any,
for or on account of the deficiency, and Lender shall not have recourse against
any entity constituting Grantor for any portion of the Obligations, except in
each instance as set forth in subsections (b) through (e).
(b) The limitation of liability in subsection (a) will not affect or
impair (i) the lien of this Deed of Trust or Lender's other rights and Remedies
under the Financing Documents, including Lender's right as mortgagee or secured
party to commence an action to foreclose any lien or security interest Lender
has under the Financing Documents against any parcel remaining encumbered by
this Deed of Trust and against any additional collateral held; (ii) the validity
of the Financing Documents or the Obligations; or (iii) Lender's right to
present and collect on any letter of credit or other credit enhancement document
held by Lender in connection with the Obligations.
(c) The following are excluded and excepted from the limitation of
liability in subsection (a) and Lender may recover personally against Grantor
for the following:
(i) all losses suffered and liabilities and expenses incurred by Lender
relating to any fraud or intentional misrepresentation or omission by
Grantor or Borrower or any of their partners, members, officers,
directors, shareholders or principals in connection with (A) the
performance of any of the conditions to Lender making the Loan; (B) any
inducements to Lender to make the Loan; (C) the execution and delivery of
the Financing Documents; (D) any certificates, representations or
warranties given in connection with the Loan; or (E) Grantor's performance
of the Obligations;
(ii) all Rents derived from the Property after a default under the
Financing Documents which default is a basis of a Proceeding by Lender to
enforce collection of the Obligations and all moneys that, on the date
such a default occurs, are on deposit in one or more accounts used by or
on behalf of Grantor relating to the operation of the Property, except to
the extent properly applied to payment of Debt Service Payments,
Impositions, Insurance Premiums and any reasonable and customary expenses
incurred by Grantor in the operation, maintenance and leasing of the
Property or delivered to Lender;
(iii) the cost of remediation of any Environmental Activity affecting the
Property and any other losses suffered and liabilities and expenses
incurred by Lender relating to a default under the Article entitled
"ENVIRONMENTAL";
(iv) all security deposits collected by Grantor or any of Grantor's
predecessors and not refunded to Tenants in accordance with their
respective Leases, applied in accordance with the Leases or Law or
delivered to Lender, and all advance rents (more than thirty (30) days in
advance) collected by Grantor or any of Grantor's predecessors and not
applied in accordance with the Leases or delivered to Lender;
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(v) the replacement cost of any Fixtures or Personal Property removed from
the Property after a default occurs;
(vi) all losses suffered and liabilities and expenses incurred by Lender
relating to any acts or omissions by Grantor that result in waste
(including economic and non-physical waste) on the Property;
(vii) all protective advances and other payments made by Lender pursuant
to express provisions of the Financing Documents to protect Lender's
security interest in the Property or to protect the assignment of the
property described in and effected by the Assignment, but only to the
extent that the Rents would have been sufficient to permit Grantor to make
the payment and Grantor failed to do so;
(viii) all mechanics' or similar liens relating to work performed on or
materials delivered to the Property prior to Lender exercising its
Remedies, but only to the extent Lender had advanced funds to pay for the
work or materials;
(ix) all Proceeds that are not applied in accordance with this Deed of
Trust or not paid to Lender as required under this Deed of Trust; and
(x) all losses suffered and liabilities and expenses incurred by Lender or
Trustees in connection with the imposition or collection by any Government
or any person, at any time, of any recordation tax, transfer tax or any
other charge relating to or on account of the recordation of this Deed of
Trust or Lender's lien hereunder.
(d) Nothing under subparagraph (a) above will be deemed to be a waiver of
any right which Lender may have under Section 506(a), 506(b), 1111(b) or any
other provisions of the Bankruptcy Code or under any other Law relating to
bankruptcy or insolvency to file a claim for the full amount of the Obligations
or to require that all collateral will continue to secure all of the Obligations
in accordance with the Financing Documents.
(e) Notwithstanding the foregoing, it is expressly understood and agreed
that the aforesaid limitation of liability shall in no way affect or apply to
Grantor, and Grantor shall be liable for the entire indebtedness evidenced
hereby (including all principal, interest, prepayment charges and other
charges), if Grantor, or any of its general partners, members or officers, as
the case may be, or any person, seeks to set aside the Guaranty as a preference
in any bankruptcy or similar proceeding.
ARTICLE XVI
WAIVERS
SECTION 16.1. WAIVER OF STATUTE OF LIMITATIONS. GRANTOR WAIVES THE RIGHT
TO CLAIM ANY STATUTE OF LIMITATIONS AS A DEFENSE
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TO GRANTOR'S PAYMENT AND PERFORMANCE OF THE OBLIGATIONS.
SECTION 16.2. WAIVER OF NOTICE. GRANTOR WAIVES THE RIGHT TO RECEIVE ANY
NOTICE FROM LENDER OR TRUSTEES WITH RESPECT TO THE FINANCING DOCUMENTS EXCEPT
FOR THOSE NOTICES THAT LENDER OR TRUSTEES ARE EXPRESSLY REQUIRED TO DELIVER
PURSUANT TO THE FINANCING DOCUMENTS.
SECTION 16.3. WAIVER OF MARSHALLING AND OTHER MATTERS. GRANTOR WAIVES THE
BENEFIT OF ANY RIGHTS OF MARSHALLING OR ANY OTHER RIGHT TO DIRECT THE ORDER IN
WHICH ANY OF THE PROPERTY WILL BE (i) SOLD; OR (ii) MADE AVAILABLE TO ANY ENTITY
IF THE PROPERTY IS SOLD BY POWER OF SALE OR PURSUANT TO A JUDGMENT OF
FORECLOSURE AND SALE. GRANTOR ALSO WAIVES THE BENEFIT OF ANY LAWS RELATING TO
APPRAISEMENT, VALUATION, STAY, EXTENSION, REINSTATEMENT, MORATORIUM, HOMESTEAD
AND EXEMPTION RIGHTS OR A SALE IN INVERSE ORDER OF ALIENATION.
SECTION 16.4. WAIVER OF TRIAL BY JURY. GRANTOR WAIVES TRIAL BY JURY IN ANY
PROCEEDING BROUGHT BY, OR AGAINST, OR COUNTERCLAIM OR CROSS-COMPLAINT ASSERTED
BY OR AGAINST, LENDER OR TRUSTEES RELATING TO THE LOAN, THE PROPERTY DOCUMENTS
OR THE LEASES.
SECTION 16.5. [INTENTIONALLY DELETED
SECTION 16.6. WAIVER OF JUDICIAL NOTICE AND HEARING. GRANTOR WAIVES ANY
RIGHT GRANTOR MAY HAVE UNDER LAW TO NOTICE OR TO A JUDICIAL HEARING PRIOR TO THE
EXERCISE OF ANY RIGHT OR REMEDY PROVIDED BY THE FINANCING DOCUMENTS TO LENDER
AND GRANTOR WAIVES THE RIGHTS, IF ANY, TO SET ASIDE OR INVALIDATE ANY SALE DULY
CONSUMMATED IN ACCORDANCE WITH THE PROVISIONS OF THE FINANCING DOCUMENTS ON THE
GROUND (IF SUCH BE THE CASE) THAT THE SALE WAS CONSUMMATED WITHOUT A PRIOR
JUDICIAL HEARING.
SECTION 16.7. WAIVER OF SUBROGATION. GRANTOR WAIVES ALL RIGHTS OF
SUBROGATION TO LENDER'S RIGHTS OR CLAIMS RELATED TO OR AFFECTING THE PROPERTY OR
ANY OTHER SECURITY FOR THE LOAN UNTIL THE LOAN IS PAID IN FULL AND ALL FUNDING
OBLIGATIONS UNDER THE FINANCING DOCUMENTS HAVE BEEN TERMINATED.
SECTION 16.8. GENERAL WAIVER. GRANTOR ACKNOWLEDGES THAT (A) GRANTOR AND
GRANTOR'S PARTNERS, MEMBERS OR PRINCIPALS, AS THE CASE MAY BE, ARE KNOWLEDGEABLE
BORROWERS OF COMMERCIAL FUNDS AND EXPERIENCED REAL ESTATE DEVELOPERS OR
INVESTORS WHO
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UNDERSTAND FULLY THE EFFECT OF THE ABOVE PROVISIONS; (B) LENDER WOULD NOT MAKE
THE LOAN WITHOUT THE PROVISIONS OF THIS ARTICLE; (C) THE LOAN IS A COMMERCIAL OR
BUSINESS LOAN UNDER THE LAWS OF THE STATE OR COMMONWEALTH WHERE THE PROPERTY IS
LOCATED NEGOTIATED BY LENDER, GRANTOR AND BORROWER AND THEIR RESPECTIVE
ATTORNEYS AT ARMS LENGTH; AND (D) ALL WAIVERS BY GRANTOR IN THIS ARTICLE HAVE
BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY, AFTER GRANTOR FIRST HAVE
BEEN INFORMED BY COUNSEL OF GRANTOR'S OWN CHOOSING AS TO POSSIBLE ALTERNATIVE
RIGHTS, AND HAVE BEEN MADE AS AN INTENTIONAL RELINQUISHMENT AND ABANDONMENT OF A
KNOWN RIGHT AND PRIVILEGE. THE FOREGOING ACKNOWLEDGMENT IS MADE WITH THE INTENT
THAT LENDER AND ANY SUBSEQUENT HOLDER OF THE GUARANTY WILL RELY ON THE
ACKNOWLEDGMENT.
ARTICLE XVII
NOTICES
SECTION 17.1. NOTICES. All acceptances, approvals, consents, demands,
notices, requests, waivers and other communications (the "NOTICES") required or
permitted to be given under the Financing Documents must be in writing and (a)
delivered personally by a process server providing a sworn declaration
evidencing the date of service, the individual served, and the address where the
service was made; (b) sent by certified mail, return receipt requested; or (c)
delivered by nationally recognized overnight delivery service that provides
evidence of the date of delivery, with all charges prepaid (for next morning
delivery if sent by overnight delivery service), addressed to the appropriate
party at its address listed below:
If to Lender: Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Director Portfolio Management
Mortgage and Real Estate/Northeast
Southern Territory
Application #MD-539
Mortgage #M-000469600
with a courtesy copy to: Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Vice President and Chief
Counsel--Mortgage and Real Estate Law
Application #MD-539
Mortgage #M-000469600
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If to Grantor: Corporate Office Properties Trust
c/o Corporate Office Management, Inc.
8815 Centre Park Drive
Suite 400
Columbia, Maryland 21045
Attn: General Counsel
with a courtesy copy to: John H. Gurley, Esquire
8815 Centre Park Drive
Suite 400
Columbia, Maryland 21045
If to Trustee: William H. Goebel, Esquire
Mr. Matthew T. Murphy
c/o Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Lender and Grantor each may change from time to time the address to which
Notices must be sent, by notice given in accordance with the provisions of this
Section. All Notices given in accordance with the provisions of this Section
will be deemed to have been received on the earliest of (i) actual receipt; (ii)
Grantor's and Borrower's rejection of delivery; or (iii) 3 Business Days after
having been deposited in any mail depository regularly maintained by the United
States postal service, if sent by certified mail, or 1 Business Day after having
been deposited with a nationally recognized overnight delivery service, if sent
by overnight delivery or on the date of personal service, if served by a process
server.
SECTION 17.2. CHANGE IN GRANTOR'S NAME OR PLACE OF BUSINESS. Grantor will
immediately notify Lender in writing of any change in Grantor's name or the
place of business set forth in the beginning of this Deed of Trust.
ARTICLE XVIII
MISCELLANEOUS
SECTION 18.1. APPLICABLE LAW. The Financing Documents are governed by and
will be construed in accordance with the Laws of the State of Maryland.
SECTION 18.2. USURY LIMITATIONS. Grantor and Lender intend to comply with
all Laws with respect to the charging and receiving of interest. Any amounts
charged or received by Lender for the use or forbearance of the Principal to the
extent permitted by Law, will be amortized and spread throughout the Term until
payment in full so that the rate or amount of
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interest charged or received by Lender on account of the Principal does not
exceed the Maximum Interest Rate. If any amount charged or received under the
Financing Documents that is deemed to be interest is determined to be in excess
of the amount permitted to be charged or received at the Maximum Interest Rate,
the excess will be deemed to be a prepayment of Principal when paid, without
premium, and any portion of the excess not capable of being so applied will be
refunded to Grantor. If during the Term the Maximum Interest Rate, if any, is
eliminated, then for purposes of the Loan, there will be no Maximum Interest
Rate.
SECTION 18.3. LENDER'S DISCRETION. Wherever under the Financing Documents
any matter is required to be satisfactory to Lender, Lender has the right to
approve or determine any matter or Lender has an election, Lender's approval,
determination or election will be made in Lender's reasonable discretion unless
expressly provided to the contrary.
SECTION 18.4. UNENFORCEABLE PROVISIONS. If any provision in the Financing
Documents is found to be illegal or unenforceable or would operate to invalidate
any of the Financing Documents, then the provision will be deemed expunged and
the Financing Documents will be construed as though the provision was not
contained in the Financing Documents and the remainder of the Financing
Documents will remain in full force and effect.
SECTION 18.5. SURVIVAL OF GRANTOR'S OBLIGATIONS. Grantor's
representations, warranties and covenants contained in the Financing Documents
will continue in full force and effect and survive (i) satisfaction of the
Obligations; (ii) reconveyance of the lien of this property by Trustees; (iii)
assignment or other transfer of all or any portion of Lender's interest in the
Financing Documents or the Property; (iv) Lender's or Trustees' exercise of any
of the Remedies or any of Lender's or Trustees' other rights under the Financing
Documents; (v) a Transfer; (vi) amendments to the Financing Documents; and (vii)
any other act or omission that might otherwise be construed as a release or
discharge of Grantor.
SECTION 18.6. RELATIONSHIP BETWEEN GRANTOR AND LENDER; NO THIRD PARTY
BENEFICIARIES.
(a) Lender is not a partner of or joint venturer with Grantor or any other
entity as a result of the Loan or Lender's rights under the Financing Documents;
the relationship between Lender and Grantor is strictly that of creditor and
debtor. Each Financing Document and the Note is an agreement between the parties
to that Financing Document or Note for the mutual benefit of the parties and no
entities other than the parties to that Financing Document or Note will be a
third party beneficiary or will have any claim against Lender or Grantor by
virtue of the Financing Document or the Note. As between Lender and Grantor, any
actions taken by Lender under the Financing Documents and the Note will be taken
for Lender's protection only, and Lender has not and will not be deemed to have
assumed any responsibility to Grantor or to any other entity by virtue of
Lender's actions.
(b) All conditions to Lender's performance of its obligations under the
Financing Documents are imposed solely for the benefit of Lender. No entity
other than Lender will have standing to require satisfaction of the conditions
in accordance with their provisions or will be entitled to assume that Lender
will refuse to perform its obligations in the absence of strict compliance with
any of the conditions.
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SECTION 18.7. PARTIAL RECONVEYANCES OR RELEASES, EXTENSIONS, WAIVERS.
Lender may: (i) permit the reconveyance of any part of the Property or release
any entity obligated for the Obligations; (ii) extend the time for payment or
performance of any of the Obligations or otherwise amend the provisions for
payment or performance by agreement with any entity that is obligated for the
Obligations or that has an interest in the Property; (iii) accept additional
security for the payment and performance of the Obligations; and (iv) waive any
entity's performance of an Obligation, release any entity or individual now or
in the future liable for the performance of the Obligation or waive the exercise
of any Remedy or option. Lender may exercise any of the foregoing rights without
notice, without regard to the amount of any consideration given, without
affecting the priority of the Financing Documents, without releasing any entity
not specifically released from its obligations under the Financing Documents,
without releasing any guarantor(s) or surety(ies) of the Obligations, without
effecting a novation of the Financing Documents and, with respect to a waiver,
without waiving future performance of the Obligation or exercise of the Remedy
waived.
SECTION 18.8. SERVICE OF PROCESS. Grantor irrevocably consents to service
of process by registered or certified mail, postage prepaid, return receipt
requested, to Grantor or at address set forth for Grantor in the Article
entitled "NOTICES".
SECTION 18.9. ENTIRE AGREEMENT. Oral agreements or commitments between
Grantor and/or Borrower and Lender to lend money, to extend credit or to forbear
from enforcing repayment of a debt, including promises to extend or renew the
debt, are not enforceable. Any agreements among Grantor, Lender and Trustee
relating to the Loan are contained in the Financing Documents and the Note,
which contain the complete and exclusive statement of the agreements among
Grantor, Lender and Trustee, except as Grantor, Lender and, if applicable,
Trustees may later agree in writing to amend the Loan Documents. The language of
each Financing Document will be construed as a whole according to its fair
meaning and will not be construed against the draftsman.
SECTION 18.10. NO ORAL AMENDMENT. The Financing Documents may not be
amended, waived or terminated orally or by any act or omission made individually
by Grantor, Lender or Trustees but may be amended, waived or terminated only by
a written document signed by the party against which enforcement of the
amendment, waiver or termination is sought.
SECTION 18.11. SEVERABILITY. The invalidity, illegality or
unenforceability of any provision of any of the Financing Documents will not
affect any other provisions of the Financing Documents, which will be construed
as if the invalid, illegal or unenforceable provision never had been included.
SECTION 18.12. COVENANTS RUN WITH THE LAND. Subject to the restrictions on
transfer contained in the Article entitled "TRANSFERS, LIENS AND ENCUMBRANCES",
all of the covenants of this Deed of Trust and the Assignment run with the Land,
will bind all parties hereto and all tenants and subtenants of the Land or the
Improvements and their respective heirs, executors, administrators, successors
and assigns, and all occupants and subsequent owners of the Property, and will
inure to the benefit of Lender and all subsequent holders of the Note and
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this Deed of Trust.
SECTION 18.13. TIME OF THE ESSENCE. Time is of the essence with respect to
Grantor's payment and performance of the Obligations.
SECTION 18.14. SUBROGATION. If the Principal or any other amount advanced
by Lender is used directly or indirectly to pay off, discharge or satisfy all or
any part of an encumbrance affecting the Property, then Lender is subrogated to
the encumbrance and to any security held by the holder of the encumbrance, all
of which will continue in full force and effect in favor of Lender as additional
security for the Obligations.
SECTION 18.15. JOINT AND SEVERAL LIABILITY. If Grantor consists of more
than one person or entity, the obligations and liabilities of each such person
or entity under this Deed of Trust are joint and several.
SECTION 18.16. SUCCESSORS AND ASSIGNS. The Financing Documents bind the
parties to the Financing Documents and their respective successors, assigns,
heirs, administrators, executors, agents and representatives and inure to the
benefit of Lender and its successors, assigns, heirs, administrators, executors,
agents and representatives and to the extent applicable inure to the benefit of
Trustees and their successors, assigns, heirs, administrators, executors, agents
and representatives.
SECTION 18.17. DUPLICATES AND COUNTERPARTS. Duplicate counterparts of any
of the Financing Documents, other than the Note, may be executed and together
will constitute a single original document.
ARTICLE XIX
TRUSTEE PROVISIONS
SECTION 19.1. ACCEPTANCE BY TRUSTEES. Trustees accept this trust when this
Deed of Trust, duly executed and acknowledged, is made a public record as
provided by law.
SECTION 19.2. ACTION IN ACCORDANCE WITH INSTRUCTIONS. Upon receipt by
Trustees of instructions from Lender at any time or from time to time, Trustees
will (a) give any notice or direction or exercise any right, remedy or power
hereunder or in respect of any part or all of the Property as shall be specified
in such instructions and (b) approve as satisfactory all matters required by the
terms hereof to be satisfactory to Trustees or to Lender. Trustees may, but need
not, take any of such actions in the absence of such instructions. The powers
and duties of the Trustees may be executed by either one of them with the same
legal force and effect as though executed by both of them, including the right
and power by either Trustees to execute and deliver a full or partial release of
this Deed of Trust or an amendment or modification of this Deed of Trust. At any
time or from time to time, upon request of Lender, and without affecting the
liability of any person for payment of the Obligations, Trustees will reconvey
all or any part of the Property, consent to the making of any map or plat
thereof, join in granting any easement
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thereon, or join in any extension agreement or any agreement subordinating the
lien and estate hereof.
SECTION 19.3. RESIGNATION. Trustees may resign at any time upon giving not
less than sixty (60) days prior notice to Lender, but shall continue to act as
trustees until a successor or successors shall have been chosen and qualified.
SECTION 19.4. SUCCESSOR TRUSTEES. In the event of the death, removal,
resignation or refusal or inability of either or both of the Trustees to act, or
for any reason, at any time, Lender shall have the irrevocable power, with or
without cause, without prior notice of any kind, and without applying to any
court, to select and appoint a successor trustee. Each such appointment and
substitution shall be made by recording notice of such in each office in which
this Deed of Trust is recorded. Such notice shall be executed and acknowledged
by Lender and shall contain reference to this Deed of Trust and when so recorded
shall be conclusive proof of proper appointment of the successor trustee. Such
successors shall not be required to give bond for the faithful performance of
its duties unless required by Lender.
SECTION 19.5. TRUST IS IRREVOCABLE. The trust created hereby is
irrevocable by Grantor subject to defeasance in accordance with this Deed of
Trust.
SECTION 19.6. GENERAL. Trustees shall be protected by any document
believed by them to be genuine and to have been signed by the party or parties
purporting to sign the same. Trustees shall not be liable for any error of
judgment nor for any act done or step taken or omitted, nor for any mistakes of
law or fact, nor for anything which the Trustees may do or refrain from doing in
good faith. The Trustees make no representations as to the validity, legality or
sufficiency of this Deed of Trust, the Note or any of the other Financing
Documents. Lender shall have the power to remove or substitute the Trustees at
any time and from time to time.
41
<PAGE>
IN WITNESS WHEREOF, Grantor has executed and delivered this Deed of Trust
as of the date first set forth above.
WITNESS/ATTEST: WITNESS/ATTEST:
Airport Square II, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS/ATTEST: Airport Square IV, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS/ATTEST: Airport Square V, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
42
<PAGE>
WITNESS/ATTEST: Airport Square X, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS/ATTEST: Airport Square XI, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS/ATTEST: Airport Square XIII, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
43
<PAGE>
WITNESS/ATTEST: Airport Square XIV, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS/ATTEST: Airport Square XIX, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS/ATTEST: Airport Square XX, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
44
<PAGE>
WITNESS/ATTEST: Airport Square XXI, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS/ATTEST: Tech Park I, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS/ATTEST: Tech Park II, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
45
<PAGE>
WITNESS/ATTEST: Tech Park IV, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
KAREN M. SINGER by: /s/ROGER A. WAESCHE, JR. (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS: TRUSTEE:
(SEAL)
- -------------------- ----------------------------------
WILLIAM H. GOEBEL
WITNESS: TRUSTEE:
(SEAL)
- -------------------- ----------------------------------
MATTHEW T. MURPHY
WITNESS/ATTEST: TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
By: (SEAL)
- -------------------- ----------------------------
Name:
----------------------------
Title:
----------------------------
46
<PAGE>
WITNESS/ATTEST: Tech Park IV, LLC
By: Corporate Office Properties, L.P., its member
by: Corporate Office Properties Trust,
its general partner
by: (SEAL)
- -------------------- ----------------------------
Name: Roger A. Waesche, Jr.
----------------------------
Title: Senior Vice President
----------------------------
WITNESS: TRUSTEE:
/s/MARIA MCHUGH /s/WILLIAM H. GOEBEL (SEAL)
- -------------------- ----------------------------------
Maria McHugh WILLIAM H. GOEBEL
WITNESS: TRUSTEE:
/s/MARIA MCHUGH /s/MATTHEW T. MURPHY (SEAL)
- -------------------- ----------------------------------
Maria McHugh MATTHEW T. MURPHY
WITNESS/ATTEST: TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
/s/MARIA MCHUGH By: /s/HALTON WEST (SEAL)
- -------------------- ----------------------------
Maria McHugh Name: Halton West
----------------------------
Title: Associate Director
----------------------------
46
<PAGE>
ACKNOWLEDGMENTS
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square II, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square IV, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
47
<PAGE>
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square V, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square X, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
48
<PAGE>
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square XI, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square XIII, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
49
<PAGE>
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square XIV, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square XIX, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
50
<PAGE>
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square XX, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Airport Square XXI, LLC, a Maryland
limited liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained in the capacity
described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
51
<PAGE>
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Tech Park I, LLC, a Maryland limited
liability company, known to me (or satisfactorily proven) to be the person whose
name is subscribed to the within instrument, and acknowledged that he executed
the same for the purposes therein contained in the capacity described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Tech Park II, LLC, a Maryland limited
liability company, known to me (or satisfactorily proven) to be the person whose
name is subscribed to the within instrument, and acknowledged that he executed
the same for the purposes therein contained in the capacity described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
52
<PAGE>
STATE OF MARYLAND, COUNTY OF BALTIMORE, TO WIT:
------ ---------
I HEREBY CERTIFY, that on this 30 day of September, 1999, before me, the
undersigned Notary Public of the State of Maryland, personally appeared ROGER A.
WAESCHE, JR., who acknowledged himself to be the Senior Vice President of
Corporate Office Properties Trust, the general partner of Corporate Office
Properties, L.P., which is the member of Tech Park IV, LLC, a Maryland limited
liability company, known to me (or satisfactorily proven) to be the person whose
name is subscribed to the within instrument, and acknowledged that he executed
the same for the purposes therein contained in the capacity described above.
AS WITNESS my hand and Notarial Seal.
ZARAE PITTS /s/ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND --------------------------------------
My Commission Expires November 25, 2002 Notary Public
Commission Expires: ____________________
53
<PAGE>
STATE OF NEW YORK )
----------------------
) To Wit:
CITY/COUNTY OF NEW YORK )
----------------
I HEREBY CERTIFY that on this 24TH day of September, 1999, before me,
the undersigned, a Notary Public of said State aforesaid, personally appeared
WILLIAM H. GOEBEL, as Trustee under this Deed of Trust, and executed the same
for the purposes contained therein by signing his name, as Trustee.
WITNESS my hand and Notarial Seal.
/S/JULIA A. HATHAWAY (SEAL)
----------------------------
Notary Public
My Commission Expires:_____________ JULIA A. HATHAWAY
Notary Public in and for
the State of New York
Commission No. 01HA5075538
My Commission Expires: April 7, 2001
STATE OF NEW YORK )
----------------------
) To Wit:
CITY/COUNTY OF NEW YORK )
----------------
I HEREBY CERTIFY that on this 24TH day of September, 1999, before me, the
undersigned, a Notary Public of said State aforesaid, personally appeared
MATTHEW T. MURPHY, as Trustee under this Deed of Trust, and executed the same
for the purposes contained therein by signing his name, as Trustee.
WITNESS my hand and Notarial Seal.
/S/JULIA A. HATHAWAY (SEAL)
----------------------------
Notary Public
My Commission Expires:_____________ JULIA A. HATHAWAY
Notary Public in and for
the State of New York
Commission No. 01HA5075538
My Commission Expires: April 7, 2001
STATE OF NEW YORK )
----------------------
) To Wit:
CITY/COUNTY OF NEW YORK )
----------------
I HEREBY CERTIFY that on this 24TH day of September, 1999, before me, the
undersigned, a Notary Public of said State aforesaid, personally appeared HALTON
WEST, who acknowledged himself to be the ASSOCIATE DIRECTOR of TEACHERS
INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation, and that
he as ASSOC. DIRECTOR, being authorized so to do, executed the same for the
purposes contained therein in the capacity described above.
WITNESS my hand and Notarial Seal.
/S/JULIA A. HATHAWAY (SEAL)
----------------------------
Notary Public
My Commission Expires:_____________ JULIA A. HATHAWAY
Notary Public in and for
the State of New York
Commission No. 01HA5075538
My Commission Expires: April 7, 2001
54
<PAGE>
ATTORNEY CERTIFICATION
The undersigned, an attorney admitted to practice before the Court of
Appeals of Maryland, hereby certifies that the within instrument was prepared by
me or under my supervision.
/s/THERESA BURIAN SHEA
----------------------------------------
Theresa Burian Shea
55
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
56
<PAGE>
EXHIBIT B
DEFINITIONS
"ACCELERATION" is defined in Section 14.2(a)(i).
"ACCUMULATIONS" is defined in Section 2.1(xii).
"ACCUMULATIONS DEPOSITORY" is defined in Section 6.2(a).
"ADDITIONAL FUNDS" is defined in Section 7.4(v).
"ANNUAL FINANCIAL STATEMENT" is defined in Section 10.1(a).
"ASSESSMENTS" is defined as all assessments now or hereafter levied, assessed or
imposed against the Property.
"ASSIGNMENT" is defined as the Assignment of Leases and Rents dated of even date
with this Deed of Trust made by Grantor for the benefit of Lender.
"BANKRUPTCY CODE" means Title 11 of the United States Code.
"BORROWER" is defined in the Recitals.
"BUDGET" is defined in Section 10.2.
"BUSINESS DAYS" is defined as any day on which commercial banks are not
authorized or required by Law to close in New York, New York.
"CASUALTY" is defined as damage to or destruction of the Property by fire or
other casualty.
"CODE" is defined as the Internal Revenue Code of 1986 and the regulations
promulgated thereunder.
"CONDEMNATION" is defined as the permanent or temporary taking of all or any
portion of the Property, or any interest therein or right accruing thereto, by
the exercise of the right of eminent domain (including any transfer in lieu of
or in anticipation of the exercise of the right), inverse condemnation or any
similar injury or damage to or decrease in the value of the Property, including
severance and change in the grade of any streets
"CONDEMNATION AWARDS" is defined in Section 2.1(viii).
"CONDEMNATION PROCEEDING" is defined as a Proceeding that could result in a
Condemnation.
"CPA" is defined as an independent certified public accountant satisfactory to
Lender.
57
<PAGE>
"DEBT" means the Principal, the Interest, the Late Charges, the prepayment
Premiums, the Expenses, any additional advances made by Lender in connection
with the Loan and all other amounts payable under the Loan Documents.
"DEBT SERVICE PAYMENTS" is defined as the monthly installments of principal and
interest payable by Borrower to Lender as set forth in the Note.
"DEED OF TRUST" is defined as this Indemnity Deed of Trust, Assignment of Leases
and Rents and Security Agreement.
"DESTRUCTION EVENT" is defined in Section 7.4.
"ENVIRONMENTAL ACTIVITY" is defined as any actual, suspected or threatened
abatement, cleanup, disposal, generation, handling, manufacture, possession,
release, remediation, removal, storage, transportation, treatment or use of any
Hazardous Material. The actual, suspected or threatened presence of any
Hazardous Material, or the actual, suspected or threatened noncompliance with
any Environmental Laws, will be deemed Environmental Activity.
"ENVIRONMENTAL INDEMNITY" is defined as the Environmental Indemnity Agreement of
even date with this Deed of Trust by Grantor and Borrower to Lender.
"ENVIRONMENTAL LAWS" is defined as all Laws pertaining to health, safety,
protection of the environment, natural resources, conservation, wildlife, waste
management, Environmental Activities and pollution.
"ENVIRONMENTAL REPORT" is defined as the three reports prepared by ENSR, dated
August 1999, as amended.
"ERISA" is defined in Section 8.3(a).
"EVENT OF DEFAULT" is defined in Section 14.1.
"EXISTING MEMBER" is defined in Section 12.1(b).
"EXPENSES" is defined in Section 11.1(a).
"FINANCIAL BOOKS AND RECORDS" is defined as detailed accounts of the income and
expenses of the Property and of Grantor and all other data, records and
information that either are specifically referred to in the Article entitled
"FINANCIAL REPORTING" or are necessary to the preparation of any of the
statements, reports or certificates required under such Article and includes all
supporting schedules prepared or used by the CPA in auditing the Annual
Financial Statement or in issuing its opinion.
"FINANCING DOCUMENTS" is defined as the Guaranty, this Deed of Trust, the
Assignment and all documents now or hereafter executed by Grantor or held by
Lender or Trustees relating to the
58
<PAGE>
Guaranty, including all amendments.
"FISCAL YEAR" is defined as any calendar year or partial calendar year during
the Term.
"FIXTURES AND PERSONAL PROPERTY" is defined in Section 2.1(iv).
"GOVERNMENT" is defined as any federal, state or municipal governmental or
quasi-governmental authority including executive, legislative or judicial
branch, division and any subdivision or agency of any of them and any entity to
which any of them has delegated authority.
"GRANTOR" is defined in the introductory paragraph.
"GUARANTY" is defined in the introductory paragraph.
"HAZARDOUS MATERIALS" is defined as any by-product, chemical, compound,
contaminant, pollutant, product, substance, waste or other material (i) that is
hazardous or toxic or (ii) the abatement, cleanup, discharge, disposal,
emission, exposure to, generation, handling, manufacture, possession, presence,
release, removal, remediation, storage, transportation, treatment or use of
which is controlled, prohibited or regulated by any Environmental Laws,
including asbestos, petroleum and petroleum products and polychlorinated
biphenyls.
"IMPOSITION PENALTY DATE" is defined in Section 6.1(a).
"IMPOSITIONS" is defined as all Taxes, Assessments, ground rent, if any, water
and sewer rents, fees and charges, levies, permit, inspection and license fees
and other dues, charges or impositions, including all charges and license fees
for the use of vaults, chutes and similar areas adjoining the Land, maintenance
and similar charges and charges for utility services, in each instance whether
now or in the future, directly or indirectly, levied, assessed or imposed on the
Property or Grantor and whether levied, assessed or imposed as excise, privilege
or property taxes.
"IMPROVEMENTS" is defined in Section 2.1(ii).
"INSURANCE PREMIUMS" is defined as all present and future premiums and other
charges due and payable on policies of fire, rental value and other insurance
covering the Property and required pursuant to the provisions of this Deed of
Trust.
"INSURANCE PROCEEDS" is defined in Section 2.1(ix).
"INSURERS" is defined in Section 7.1(c).
"INSTITUTIONAL INVESTOR" is defined as any bank, savings institution, charitable
foundation, insurance company, real estate investment trust, pension fund or
investment advisor registered under the Investment Advisors Act of 1940, as
amended, and acting as trustee or agent.
"LAND" is defined in the Recitals.
59
<PAGE>
"LATE CHARGE" is defined in the Note.
"LAW" is defined as all present and future codes, constitutions, cases,
opinions, rules, manuals, regulations, determinations, laws, orders, ordinances,
requirements and statutes, as amended, of any Government that affect or that may
be interpreted to affect the Property, Grantor or the Loan, including amendments
and all guidance documents and publications promulgated thereunder.
"LEASES" is defined as all present and future leases, subleases, licenses and
other agreements for the use and occupancy of the Land and Improvements, any
related guarantees and including any use and occupancy arrangements created
pursuant to Section 365 (h) of the Bankruptcy Code or otherwise in connection
with the commencement or continuation of any bankruptcy, reorganization,
arrangement, insolvency, dissolution, receivership or similar Proceedings, or
any assignment for the benefit of creditors, in respect of any tenant or other
occupant of the Land and Improvements.
"LENDER" is defined in the introductory paragraph.
"LOAN" is defined in the Recitals.
"LOAN DOCUMENTS" means the Note, the Pledge and Security Agreement, and the
Financing Documents.
"MATERIAL ENVIRONMENTAL CONTAMINATION" is defined as contamination of the
Property with Hazardous Materials (i) that constitutes a violation of one or
more Environmental Laws; (ii) for which there is a significant possibility that
remediation will be required under Environmental Laws; (iii) that results in a
material risk of liability or expense to Lender; or (iv) that diminishes the
value of the Property.
"MATURITY DATE" is defined in the Recitals.
"MAXIMUM INTEREST RATE" is defined as the maximum rate of interest, if any,
permitted by Law as of the date of this Deed of Trust to be charged with respect
to the Loan.
"NOTE" is defined in the Recitals.
"NOTE PAYMENTS" is defined in the Note.
"NOTICES" is defined in Section 17.1.
"OBLIGATIONS" is defined in the Recitals.
"PERMITTED EXCEPTIONS" is defined as the matters shown in Schedule B, Part 1 and
2 of the title insurance policy insuring the lien of this Deed of Trust.
"PERMITTED TRANSFERS" is defined in Section 12.2.
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<PAGE>
"PERMITTED USE" is defined as use as a first-class commercial office building
consistent in character, size and age of similar buildings in the
Baltimore-Washington, D.C. suburban area, and uses incidentally and directly
related to such use.
"PLEDGE AND SECURITY AGREEMENT" is defined in Section 6.2.
"POLICIES" is defined in Section 7.1(b).
"PREPAYMENT PREMIUM" is defined in the Note.
"PRINCIPAL" is defined in the Recitals.
"PROCEEDING" is defined as a pending or threatened action, claim or litigation
before a legal, equitable or administrative tribunal having proper jurisdiction.
"PROCEEDS" is defined in Section 7.2(c).
"PROPERTY" is defined in Section 2.1.
"PROPERTY DOCUMENTS" is defined in Section 2.1(v).
"RECEIVER" is defined as a receiver, custodian, trustee, liquidator or
conservator of the Property.
"REMEDIES" is defined in Section 14.2(a).
"RENTS" is defined as all rents, prepaid rents, percentage, participation or
contingent rents, issues, profits, proceeds, revenues and other consideration
accruing under the Leases or otherwise derived from the use and occupancy of the
Land or the Improvements, including tenant contributions to expenses, security
deposits, royalties and contingent rent, if any, all other fees or payments paid
to or for the benefit of Grantor and any payments received pursuant to Section
502(b) of the Bankruptcy Code or otherwise in connection with the commencement
or continuance of any bankruptcy, reorganization, arrangement, insolvency,
dissolution, receivership or similar proceedings, or any assignment for the
benefit of creditors, in respect of any tenant or other occupant of the Land or
the Improvements and all claims as a creditor in connection with any of the
foregoing.
"RESTORATION" is defined as the restoration of the Property after a Destruction
Event as nearly as possible to its condition immediately prior to the
Destruction Event, in accordance with the plans and specifications, in a
first-class workmanlike manner using materials substantially equivalent in
quality and character to those used for the original improvements, in accordance
with Law and free and clear of all liens, encumbrances or other charges other
than this Deed of Trust and the Permitted Exceptions.
"RESTORATION COMPLETION DATE" is defined in Section 7.4(viii).
"RESTORATION FUNDS" is defined in Section 7.5(b).
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"TAXES" is defined as all present and future real estate taxes levied, assessed
or imposed against the Property.
"TERM" is defined as the scheduled term of this Deed of Trust commencing on the
date Lender makes the first disbursement of the Loan and terminating on the
Maturity Date.
"TRANSFER" is defined in Section 12.1(a).
"UNIFORM COMMERCIAL CODE" is defined as the Uniform Commercial Code in effect in
the jurisdiction where the Land is located.
62
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EXHIBIT C
RULES OF CONSTRUCTION
(a) References in any Financing Document to numbered Articles or Sections
are references to the Articles and Sections of that Financing Document.
References in any Financing Document to lettered Exhibits are references to the
Exhibits attached to that Financing Document, all of which are incorporated in
and constitute a part of that Financing Document. Article, Section and Exhibit
captions used in any Financing Document are for reference only and do not
describe or limit the substance, scope or intent of that Financing Document or
the individual Articles, Sections or Exhibits of that Financing Document.
(b) The terms "include", "including" and similar terms are construed as if
followed by the phrase "without limitation".
(c) The terms "Land", "Improvements", "Fixtures and Personal Property",
"Condemnation Awards", "Insurance Proceeds" and "Property" are construed as if
followed by the phrase "or any part thereof".
(d) Any agreement by or duty imposed on Grantor or Borrower in any
Financing Document to perform any obligation or to refrain from any act or
omission constitutes a covenant running with the ownership or occupancy of the
Land and the Improvements, which will bind all parties hereto and their
respective successors and assigns, and all lessees, subtenants and assigns of
same, and all occupants and subsequent owners of the Property, and will inure to
the benefit of Lender and all subsequent holders of the Note and this Deed of
Trust and includes a covenant by Grantor and Borrower to cause its partners,
members, principals, agents, representatives and employees to perform the
obligation or to refrain from the act or omission in accordance with the
Financing Documents. Any statement or disclosure contained in any Financing
Document about facts or circumstances relating to the Property, Grantor or
Borrower or the Loan constitutes a representation and warranty by Grantor and
Borrower made as of the date of the Financing Document in which the statement or
disclosure is contained.
(e) The term "to Grantor's knowledge" is construed as meaning to the best
of Grantor's knowledge after diligent inquiry.
(f) The singular of any word includes the plural and the plural includes
the singular. The use of any gender includes all genders.
(g) The terms "person", "party" and "entity" include natural persons,
firms, partnerships, limited liability companies and partnerships, corporations
and any other public or private legal entity.
(h) The term "provisions" includes terms, covenants, conditions,
agreements and requirements.
63
<PAGE>
(i) The term "amend" includes modify, supplement, renew, extend, replace
or substitute and the term "amendment" includes modification, supplement,
renewal, extension, replacement and substitution.
(j) Reference to any specific Law or to any document or agreement,
including the Note, this Deed of Trust, any of the other Financing Documents,
the Leases and Property Documents includes any future amendments to the Law,
document or agreement, as the case may be.
(k) No inference in favor of or against a party with respect to any
provision in any Financing Document may be drawn from the fact that the party
drafted the Financing Document.
(l) The term "certificate" means the sworn, notarized statement of the
entity giving the certificate, made by a duly authorized person satisfactory to
Lender affirming the truth and accuracy of every statement in the certificate.
Any document that is "certified" means the document has been appended to a
certificate of the entity certifying the document that affirms the truth and
accuracy of everything in the document being certified. In all instances the
entity issuing a certificate must be satisfactory to Lender.
(m) Any appointment of Lender as Grantor's attorney-in-fact is irrevocable
and coupled with an interest. Lender may appoint a substitute attorney-in-fact.
Grantor ratifies all actions taken by the attorney-in-fact but, nevertheless, if
Lender requests, Grantor will specifically ratify any action taken by the
attorney-in-fact by executing and delivering to the attorney-in-fact or to any
entity designated by the attorney-in-fact all documents necessary to effect the
ratification.
(n) Any document, instrument or agreement to be delivered by Grantor will
be in form and content satisfactory to Lender.
(o) All obligations, rights, remedies and waivers contained in the Note or
the Financing Documents will be construed as being limited only to the extent
required to be enforceable under the Law.
(p) The unmodified word "days" means calendar days.
64
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 957
<SECURITIES> 0
<RECEIVABLES> 1,887
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 592,308
<DEPRECIATION> 14,960
<TOTAL-ASSETS> 633,121
<CURRENT-LIABILITIES> 0
<BONDS> 336,643
0
22
<COMMON> 172
<OTHER-SE> 201,627
<TOTAL-LIABILITY-AND-EQUITY> 633,121
<SALES> 0
<TOTAL-REVENUES> 58,525
<CGS> 0
<TOTAL-COSTS> 25,205
<OTHER-EXPENSES> 2,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,124
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,880
<DISCONTINUED> 0
<EXTRAORDINARY> (838)
<CHANGES> 0
<NET-INCOME> 11,149
<EPS-BASIC> 0.56
<EPS-DILUTED> 0.49
</TABLE>
