<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 0-18694
December 31, 1998
CATELLUS DEVELOPMENT
CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-2953477
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
201 Mission Street
San Francisco, California 94105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(415) 974-4500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par value per share New York, Pacific, Chicago Stock
Exchanges
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K.
---
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $1.549 billion on March 1, 1999.
As of March 1, 1999, there were 106,852,493 issued and outstanding
shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1999 Annual
Meeting of Stockholders are incorporated by reference in Part III.
================================================================================
<PAGE>
Part I
Item 1. Business
Catellus Development Corporation ("the Company") is a diversified
real estate operating company with a large portfolio of rental properties and
developable land. The operations consist of three principal business activities:
rental properties, development, and fee services. The Company has 20.9 million
square feet of rental properties; engages in a broad range of development
activities including commercial, residential, and major mixed-use projects; and
has one of the largest portfolios of developable land in the western United
States. Management believes its developable land is capable of supporting up
to an estimated: 26.3 million square feet of industrial space; 11.6 million
square feet of R&D, biotech and office space; 8.8 million square feet of
Central Business District (CBD) office space; 2.0 million square feet of
retail/entertainment space; and 18,000 residential units. Approximately 78% of
the total commercial development potential and 60% of the residential
lots/units are entitled. Approximately 76% of the rental properties and 66% of
the total commercial development potential by square footage is located in
seven sub-markets in California: Silicon Valley, San Francisco, San Francisco
East Bay Area, Los Angeles, Orange County, Inland Empire, and San Diego.
Approximately 98% of the residential units are located in California with
approximately 67% in Northern California and 31% in Southern California.
Management believes that the Company's diversification among real estate
business activities, product types, and capabilities, and between rental
properties and developable land assets differentiates it from other public real
estate companies. Moreover, we are a traditional corporation rather than a real
estate investment trust ("REIT"); thus, we can reinvest our earnings without any
minimum dividend requirements, have greater flexibility to pursue new
opportunities without the need to raise additional equity capital as frequently
as a REIT, and may engage in a much broader range of business activities.
The Company was originally formed to conduct the non-railroad real
estate activities of the Santa Fe Pacific Corporation and was spun off to
stockholders in 1990. Our railroad heritage has given us a diverse base of
developable properties located near transportation corridors in major urban
areas. Over time, these properties have proven suitable for a variety of
product types (industrial, retail, office, and residential), with the larger
land sites most suitable for large-scale mixed-use projects.
Starting in the third quarter of 1994, the Company began assembling a
new, entrepreneurial and experienced management team focused on developing a
new strategic plan for the Company. We have built a well-rounded team of real
estate professionals with a wide-ranging set of core competencies in
development, including entitlement experience, land-use planning, design,
construction, leasing, real estate finance, and asset management. We believe
that our diverse capabilities and ability to reinvest cash flows provide us
with a competitive advantage in identifying and acquiring additional
development opportunities.
The new strategic plan implemented in 1995 was designed to: (1)
improve the Company's financial flexibility; (2) optimize the value of the
portfolio and increase existing revenue streams; and (3) capitalize on core
competencies by expanding activities outside of the existing asset base. In
implementing this strategy, we:
* Improved operating results, by increasing EBDDT (earnings before
depreciation and deferred taxes) from $14.7 million in 1994 to $18.3
million in 1995, $25.9 million in 1996, $62.8 million in 1997, and $103.4
million in 1998.
* Sold $259 million of non-strategic assets from January 1, 1995 through
December 31, 1998, using the proceeds to pay down a portion of existing
debt and fund new development.
* Increased development activity with commercial construction starts of 0.4
million square feet in 1994, 0.9 million square feet in 1995, 3.3 million
square feet in 1996, 3.9 million square feet in 1997, and 4.9 million
square feet in 1998.
* Acquired in 1996 The Akins Companies (now Catellus Residential Group,
"CRG"), an established residential developer located in Southern
California. Pre-tax earnings have increased from $2.2 million in 1996 to
$6.7 million in 1997 and $21.7 million in 1998.
* Increased new property acquisitions, either directly or through joint
ventures, from $1.2 million in 1994, to $9.3 million in 1995, $28.5
million in 1996, $90.8 million in 1997, and $117.4 million in 1998.
* Completed in 1997 a series of redemption calls for all outstanding
preferred shares, eliminating approximately $24 million in annual
preferred stock dividend payments. A total of $25.8 million of preferred
stock was redeemed and $296.7 million was converted into common equity.
* Obtained, in 1998, $526.5 million of new debt at a combined effective
interest rate of 6.66%, and paid off $263.3 million of existing mortgages
which had interest rates between 8.65% and 9.5%.
2
<PAGE>
The Company's principal office is located at 201 Mission Street, San
Francisco, California 94105; its telephone number at that location is
(415) 974-4500.
Operations
The Company's operations consist of three principal business activities:
rental properties, development (including commercial, mixed-use, and
residential), and fee services. The Company's residential development activities
are conducted through Catellus Residential Group, a subsidiary. The Company has
formed two new subsidiaries: Catellus Commercial Group, LLC, which is
responsible for rental properties, commercial developments, and fee services;
and Catellus Mixed Use Group, LLC, which is responsible for mixed-use
development. In addition, the Company owns approximately 782,000 acres of desert
land in California. The Company believes that the combination of rental property
and development activities allows it to benefit from the more stable cash flow
of its rental properties and, at the same time, to pursue higher-yielding, yet
more volatile, development activities. The Company believes that it mitigates
development risk by increasing the geographic diversity of development
activities and substantial pre-leasing or pre-sales of its properties under
construction.
Rental Properties
The following table provides information on the Company's rental
properties:
<TABLE>
<CAPTION>
Number of Buildings Square Feet Owned Property Operating Income (1)
------------------------------- ------------------------------ -------------------------------
December 31, December 31, Year Ended December 31,
------------------------------- ------------------------------ -------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
-------- --------- --------- -------- --------- --------- --------- -------- ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial buildings ......... 187 176 172 17,010 14,326 12,606 $ 62,432 $ 52,657 $ 41,851
Office buildings ............. 26 25 34 1,719 1,620 1,683 18,365 16,960 15,746
Retail buildings ............. 24 24 24 928 928 928 9,126 9,341 8,839
Land development (2) ......... 23 23 23 1,220 1,220 1,231 4,278 4,296 3,337
Land and other leases ........ -- -- -- -- -- -- 12,968 7,029 6,705
Equity in earnings of
operating joint ventures ... -- -- -- -- -- -- 9,368 7,436 5,993
----- ----- ----- ------- ------- ------- -------- -------- --------
Total ........................ 260 248 253 20,877 18,094 16,448 $116,537 $ 97,719 $ 82,471
===== ===== ===== ======= ======= ======= ======== ======== ========
</TABLE>
(1) Property operating income represents rental revenue less property operating
costs.
(2) This category represents interim rental uses of properties intended for
mixed-use development.
3
<PAGE>
Leasing. The following tables summarize leasing statistics for the
Company's rental properties:
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------
1998 1997 1996
------- -------- ---------
(square feet in thousands)
<S> <C> <C> <C>
Industrial Buildings
Square feet owned ..................... 17,010 14,326 12,606
Square feet leased .................... 16,200 14,061 12,345
Percent leased ........................ 95.2% 98.2% 97.9%
Office Buildings ........................
Square feet owned ..................... 1,719 1,620 1,683
Square feet leased .................... 1,624 1,547 1,460
Percent leased ........................ 94.5% 95.5% 86.7%
Retail Buildings ........................
Square feet owned ..................... 928 928 928
Square feet leased .................... 836 870 874
Percent leased ........................ 90.1% 93.8% 94.2%
Land Development(1) .....................
Square feet owned ..................... 1,220 1,220 1,231
Square feet leased .................... 1,081 981 1,129
Percent leased ........................ 88.6% 80.4% 91.7%
Total(2) ................................
Square feet owned ..................... 20,877 18,094 16,448
Square feet leased .................... 19,741 17,459 15,808
Percent leased ........................ 94.6% 96.5% 96.1%
</TABLE>
(1) This category represents interim rental uses of properties intended for
mixed-use development.
(2) Excludes properties owned by joint ventures.
Lease Expirations. The following table summarizes the lease expirations in
the total portfolio as of December 31, 1998:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004 2005 2006 2007 Thereafter
---- ---- ---- ----- ----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent ............... 17.2% 10.0% 14.1% 14.0% 12.1% 6.0% 5.3% 3.5% 4.1% 13.7%
Square feet
(in thousands) (1) ... 3,395 1,980 2,774 2,761 2,393 1,176 1,055 699 807 2,701
</TABLE>
(1) Excludes properties owned by joint ventures.
Approximately 917,000 square feet of month-to-month leases are shown as
expiring in 1999.
4
<PAGE>
Industrial Building Portfolio
At December 31, 1998, the Company's industrial rental property
portfolio included 187 buildings aggregating 17.0 million square feet that were
95.2% leased. At December 31, 1998, the Company also had 5.0 million square feet
under construction, of which approximately 3.5 million square feet is expected
to be added to the Company's portfolio.
The following table summarizes the Company's industrial buildings by
region as of or for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Property Property
Number of Operating Operating
Buildings Square Feet Revenues Costs Income
--------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
(in thousands, except for number of buildings)
Arizona ............................ 12 1,195 $ 4,924 $ 2,019 $ 2,905
Northern California ................ 29 4,081 16,912 3,402 13,510
Southern California ................ 130 9,157 47,129 8,672 38,457
Illinois ........................... 6 1,190 4,694 1,213 3,481
Oklahoma and Kansas ................ 4 406 1,126 218 908
Texas .............................. 6 981 4,133 962 3,171
--------- ----------- ---------- --------- ---------
Total .................... 187 17,010 $ 78,918 $16,486 $62,432
========= =========== ========== ========= =========
</TABLE>
The following table summarizes the lease expirations in the industrial
portfolio as of December 31, 1998:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004 2005 2006 2007 Thereafter
----- ----- ----- ----- ----- ----- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent......................... 15.8% 9.6% 14.5% 13.7% 12.9% 6.3% 5.9% 3.9% 4.2% 13.2%
Square feet (in thousands)...... 2,553 1,555 2,343 2,214 2,094 1,025 956 634 677 2,149
</TABLE>
Of the 2,553,000 square feet of leased space that is scheduled to
expire in 1999, 58% is located in Southern California, 35% in Northern
California, and the balance spread throughout the other regions. Approximately
465,000 square feet of month-to-month leases are shown as expiring in 1999.
In 1998, 2.7 million square feet of industrial buildings were added to
the portfolio. Of this total, 1.9 million square feet were constructed and
completed by the Company, 0.9 million square feet were added via acquisitions,
and a 100,000 square foot building was sold.
Office Building Portfolio
At December 31, 1998, the Company's office rental property portfolio
included 26 buildings aggregating approximately 1.7 million square feet. At
December 31, 1998, this portfolio was 94.5% leased. The Company's most
significant office projects are the South Bay Center in San Jose, California
(428,000 square feet) and the Railway Exchange Building in Chicago, Illinois
(369,000 square feet).
The following table summarizes the Company's office buildings by region
as of or for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Property Property
Number of Operating Operating
Buildings Square Feet Revenues Costs Income
--------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
(in thousands, except for number of buildings)
Northern California.................... 10 526 $ 10,717 $ 3,751 $ 6,966
Southern California.................... 12 573 9,637 3,361 6,276
Illinois............................... 2 466 10,660 5,915 4,745
Oregon................................. 1 57 707 371 336
Texas.................................. 1 97 44 2 42
--------- ----------- ---------- --------- ---------
Totals 26 1,719 $ 31,765 $ 13,400 $ 18,365
========= =========== ========== ========= =========
</TABLE>
5
<PAGE>
The following table summarizes the lease expirations in the office
portfolio as of December 31, 1998:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Percent.......................... 12.8% 8.4% 15.0% 25.4% 13.4% 3.6%
Square feet (in thousands)....... 208 136 243 412 218 58
2005 2006 2007 Thereafter
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Percent.......................... 0.0% 2.1% 7.8% 11.5%
Square feet (in thousands)....... 0 35 127 187
</TABLE>
Of the 208,000 square feet of leased space that is scheduled to expire
in 1999, 68% is located in Southern California, 20% in Northern California, and
the balance spread throughout the other regions. Approximately 83,000 square
feet of month-to-month leases are shown as expiring in 1999.
Retail Building Portfolio
At December 31, 1998, the Company's retail rental property portfolio
included 24 buildings aggregating 928,000 square feet. At December 31, 1998, the
retail portfolio was 90.1% leased. The Company's retail properties are located
primarily in Northern and Southern California, with additional complexes in
Colorado and Oregon. The largest retail project, East Baybridge Center, is
located on 40 acres near San Francisco in the cities of Emeryville and Oakland.
The 269,000-square-foot Phase I of this project opened in mid-1994 and was
pre-leased to such national retailers as Home Depot, Sportmart, OfficeMax,
Safeway's Pak 'n Save, and CompUSA. A 117,000-square-foot building for Kmart was
added to the center in 1995.
The following table summarizes the Company's retail portfolio by region
as of or for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Property Property
Number of Operating Operating
Buildings Square Feet Revenues Costs Income
--------- ----------- -------- --------- ---------
(in thousands, except for number of buildings)
<S> <C> <C> <C> <C> <C>
Northern California.................... 9 460 $ 7,552 $ 2,294 $ 5,258
Southern California.................... 12 330 4,192 1,101 3,091
Colorado............................... 1 100 995 500 495
Oregon................................. 2 38 502 220 282
--------- ----------- -------- --------- ---------
Totals....................... 24 928 $ 13,241 $ 4,115 $ 9,126
========= =========== ======== ========= =========
</TABLE>
The following table summarizes the lease expirations in the retail
portfolio as of December 31, 1998:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Percent.......................... 10.2% 9.3% 11.7% 3.2% 5.7% 11.1%
Square feet (in thousands)....... 85 78 98 27 48 93
2005 2006 2007 Thereafter
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Percent.......................... 1.4% 3.6% 0.0% 43.8%
Square feet (in thousands)....... 12 30 0 365
</TABLE>
Of the 85,000 square feet of leased space that is scheduled to expire
in 1999, 51% is located in Southern California, 22% in Colorado, and the balance
spread throughout the other regions. Approximately 49,000 square feet of
month-to-month leases are shown as expiring in 1999.
<PAGE>
Land Development Portfolio
As of December 31, 1998, the Company's land development portfolio included
23 buildings aggregating approximately 1,220,000 square feet. At December 31,
1998, the land development portfolio was 88.6% leased. This portfolio represents
interim rental uses of properties intended for mixed-use development. It is
expected that the level of income generated from this category of properties
will decline as development of the mixed-use projects commences over the next
several years.
The following table summarizes the Company's land development portfolio
by region as of or for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Property Property
Number of Operating Operating
Buildings Square Feet Revenues Costs Income
--------- ----------- -------- --------- ---------
(in thousands, except for number of buildings)
<S> <C> <C> <C> <C> <C>
Northern California...................... 17 1,087 $ 6,471 $ 3,839 $ 2,632
Southern California...................... 6 133 5,222 3,576 1,646
--------- ----------- -------- --------- ---------
Totals 23 1,220 $ 11,693 $ 7,415 $ 4,278
========= =========== ======== ========= =========
</TABLE>
The following table summarizes the lease expirations in the land
development portfolio as of December 31, 1998:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Percent.......................... 50.8% 19.5% 8.3% 10.0% 3.1% 0.0%
Square feet (in thousands)....... 549 211 90 108 33 0
2005 2006 2007 Thereafter
---- ---- ---- -----
<S> <C> <C> <C> <C>
Percent.......................... 8.0% 0.0% 0.3% 0.0%
Square feet (in thousands)....... 87 0 3 0
</TABLE>
Of the 549,000 square feet of leased space that is scheduled to expire in
1999, 95% is located in Northern California and 5% in Southern California.
Approximately 320,000 square feet of month-to-month leases are shown as expiring
in 1999.
Land and Other Leases Portfolio
The following table summarizes the Company's land lease portfolio by region
for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Property Property
Operating Operating
Revenue Costs Income
------- --------- ----------
<S> <C> <C> <C>
(in thousands)
California...................................... $ 8,771 $ 674 $ 8,097
Texas........................................... 2,646 108 2,538
Other states.................................... 2,333 -- 2,333
------- --------- ----------
Totals $13,750 $ 782 $12,968
======= ========= ==========
</TABLE>
In 1998, the Company invested a total of $50.5 million ($40.1 million of
which was seller-financed) in the acquisition of land and other leases. The
Company intends to sell the majority of these assets.
<PAGE>
Operating Joint Venture Portfolio
The Company has direct or indirect equity interests in five joint
ventures that own rental properties. These joint ventures provided cash
distributions to the Company of $9.1 million for the year ended December 31,
1998, and earnings of $9.4 million for the same period. As of December 31, 1998,
the Company owned joint venture interests in the following operating properties
in addition to its joint venture interests in development properties described
under "Development - Development Joint Ventures":
<TABLE>
<CAPTION>
Equity in Earnings
(Losses)
-----------------------------
Year Ended
December 31,
No. of Ownership -----------------------------
Ventures Size Interest 1998 1997 1996
-------- ------------- ----------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Hotel(1).......................... 2 2,000 rooms 25-50% $ 9,072 $ 7,321 $ 6,739
Office............................ 1 205,000 sq. ft. 67% 137 73 (568)
Apartments(2)..................... 1 387 units 50% 159 42 (178)
Design Center..................... 1 1,200,000 sq. ft. 74% -- -- --
----- ------- ------- -------
Total........................ 5 $ 9,368 $ 7,436 $ 5,993
==== ======= ======= =======
</TABLE>
(1) Excludes a hotel parking lot joint venture.
(2) Sold in February 1999.
Development
Development Land Inventory
The existing developable land portfolio, once entitled and approved,
can support an estimated 48.7 million square feet of new development
(approximately 37.8 million square feet of which is entitled and approved) and
an estimated 18,000 residential units. In 1999, the Company expects to increase
its commercial and residential activity further and to expand office, R&D and
urban entertainment development in connection with its major mixed-use projects.
The chart below summarizes the estimated development potential of the Company's
current land holdings as of December 31, 1998:
Potential Development Land Inventory
<TABLE>
<CAPTION>
Industrial/ R&D
Commercial Biotech & Retail/Enter-
Land Office CBD Office tainment Residential
---------- ----------- ------------- ----------- ------------
(in square feet) (lots or units)
<S> <C> <C> <C> <C> <C>
Industrial Land (1)................................. 26,344,000 -- -- -- --
Residential Land (2)................................ -- -- -- -- 13,474
Mixed-Use Projects .................................
Mission Bay (San Francisco, California)........... -- 5,000,000 -- 730,000 4,555
Pacific Commons (Fremont, California) (3)......... -- 6,624,000 -- 250,000 --
Union Station (Los Angeles, California)........... -- -- 5,750,000 750,000 --
Santa Fe Depot (San Diego, California)............. -- -- 3,000,000 300,000 --
----------- ---------- ---------- --------- -------
Total................................................ 26,344,000 11,624,000 8,750,000 2,030,000 18,029 (4)
=========== ========== ========== ========= =======
Entitled (5)......................................... 22,275,000 5,000,000 8,750,000 1,780,000 10,860
Entitlements/Approvals In Progress................... 4,069,000 6,624,000 -- 250,000 7,169
</TABLE>
(1) Industrial/commercial land amounts are estimates.
(2) Some of these potential lots/units are not yet owned by the Company or a
joint venture of the Company but are pending acquisitions or subject to
options. See "Development -- Residential" for detail.
(3) Although entitled, certain additional approvals need to be obtained. See
"Mixed-Use Projects--Pacific Commons, Fremont, CA."
(4) Approximately 8,230 of these lots/units are owned in joint ventures and
1,760 are controlled because they are under option or contract but are not
owned. See detail of residential units on Page 12.
(5) Entitled means having the necessary discretionary local government
approvals to proceed with development.
8
<PAGE>
The following table shows by net book value the Company's developable
properties:
<TABLE>
<CAPTION>
Catellus Net Book Value
December 31,
---------- ------------- ---------
1998 1997 1996
<S> <C> <C> <C>
(in thousands)
Commercial/Industrial Development...................... $ 269,506 $ 118,535 $ 93,783
Major Mixed-Use Projects............................... 283,485 331,360 323,134
Residential Properties................................. 106,763 73,480 44,939
Retail and Office Development and Other Land........... 20,284 37,186 61,902
--------- ----------- ---------
Total............................................. $ 680,038 $ 560,561 $ 523,758
========= =========== =========
</TABLE>
Commercial Development
The Company's commercial development activities include (1) the
construction of buildings, on owned land, for pre-arranged sale to users
(build-to-sell), (2) the construction of pre-leased buildings (build-to-suit)/
and speculative buildings to be added to the Company's rental portfolio, (3) the
construction of buildings for pre-arranged sales to investors (pre-sale), and
(4) the sale of land parcels to third parties for their own development. In
certain instances, we provide construction management services to third-party
purchasers of land.
In 1998, the Company commenced construction on 4.9 million square feet
of new commercial development and completed approximately 3.7 million square
feet of commercial construction. Of the completed development, 2.0 million
square feet were added to the Company's rental property portfolio and the
remainder were sold.
The following table summarizes the Company's commercial development
activities during the periods presented:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1998 1997 1996
--------------- -------------- ---------------
<S> <C> <C> <C>
(in square feet)
Under construction, beginning of period.............. 3,774,000 2,286,961 641,128
Construction starts.................................. 4,927,500 3,885,000 3,259,308
Completed - Retained in portfolio.................... (1,989,000) (2,089,200) (1,269,525)
Completed - Sold..................................... (1,676,000) (308,761) (343,950)
--------------- -------------- ---------------
Under construction, end of period.................... 5,036,500(1) 3,774,000 2,286,961
=============== ============== ===============
</TABLE>
(1) Includes 1,177,000 square feet of development that will be sold on
completion and 258,000 square feet of "design-build" development for third
party owners, and 3,601,500 square feet that will be added to the company's
portfolio upon completion.
The following table summarizes the Company's sales of commercial
development property in the periods presented:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
--------------- --------------- --------------
(in thousands)
<S> <C> <C> <C>
Sales.................. $ 86,975 $ 39,587 $ 40,525
Cost of Sales.......... 68,102 31,717 26,709
-------- -------- --------
Gain................... $ 18,873 $ 7,870 $ 13,816
======== ======== ========
</TABLE>
<PAGE>
In 1998, the Company invested approximately $38.6 million in the
acquisition of commercial development (this excludes the acquisition of $13.5
million of rental property). These acquisitions added approximately 6.4 million
square feet of potential industrial development which included a 280-acre
entitled land site in Portland, Oregon, a 69.9-acre land site in Woodridge,
Illinois, and a 56.3-acre land site in Stockton, California.
The following table summarizes the commercial development land
inventory activity by location as of and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Potential Transfers Potential
Development and Development
City Space 12/31/97 Adjustments(1) Acquisitions Land Sales Development Space 12/31/98
- ----------------------------------------------------------------------------------------------------------------------------------
(square feet in thousands)
<S> <C> <C> <C> <C> <C> <C>
Southern California
City of Industry.................... 196 179 -- (55) (287) 33
La Mirada (held in joint venture)... 358 272 -- (215) (369) 46
Los Angeles......................... -- 250 -- -- -- 250
Rancho Cucamonga.................... 635 1,727 -- -- -- 2,362
Mira Loma........................... 963 -- -- -- -- 963
Ontario............................. 3,353 239 -- (239) -- 3,353
Santa Fe Springs.................... 39 -- -- -- -- 39
------ ------ ------ ------ ------ ------
Subtotal Southern California......... 5,544 2,667 -- (509) (656) 7,046
------ ------ ------ ------ ------ ------
Northern California
Richmond............................ 704 (35) -- -- -- 669
San Jose............................ 271 -- -- -- (271) --
Fremont(2).......................... 1,012 -- -- -- (61) 951
Union City.......................... -- 481 -- -- -- 481
Stockton............................ -- -- 1,050 -- (500) 550
Oakland............................. 275 -- -- -- -- 275
------ ------ ------ ------ ------ ------
Subtotal Northern California......... 2,262 446 1,050 -- (832) 2,926
------ ------ ------ ------ ------ ------
Total in California.................. 7,806 3,113 1,050 (509) (1,488) 9,972
------ ------ ------ ------ ------ ------
Illinois
Woodridge........................... 4,716 -- 1,362 (593) (1,458) 4,027
Romeoville.......................... 2,004 -- -- -- (532) 1,472
Texas
Coppell............................. 2,984 63 -- (672) (250) 2,125
Garland............................. 948 -- -- -- -- 948
Houston............................. -- 514 -- -- -- 514
Denver, Colorado.................... 3,396 -- -- (146) (454) 2,796
Phoenix, Arizona.................... 3,553 (3,553) -- -- -- --
Oklahoma City, Oklahoma............. 1,235 -- -- -- -- 1,235
Portland, Oregon.................... -- -- 4,000 -- (745) 3,255
------ ------ ------ ------ ------ ------
Total Outside of California......... 18,836 (2,976) 5,362 (1,411) (3,439) 16,372
------ ------ ------ ------ ------ ------
Total............................... 26,642 137 6,412 (1,920) (4,927) 26,344(3)
====== ====== ====== ====== ====== ======
</TABLE>
(1) Includes revisions to estimates of potential development or building size,
or transfers of property between commercial development and other
categories of property.
(2) The square feet at Fremont represent the estimated industrial development
at the Company's 840-acre mixed-use project, Pacific Commons in Fremont.
The remainder of the developable acreage at Pacific Commons will be
research and development facilities, flex-tech, office, and retail.
(3) Includes 4.1 million square feet for which entitlements are in progress
(2,362,000 square feet in Rancho Cucamonga, 1,269,000 square feet in
Ontario, and 438,000 square feet in Fremont). The remainder is entitled.
Because entitlement depends on discretionary government decisions as
well as the results of a variety of predevelopment studies undertaken at various
points in the planning of a project, the potential square feet of entitlements
may not be received, or if received, may not permit timely development in
light of market conditions.
<PAGE>
Development Joint Ventures. The Company participates in certain
development opportunities through joint ventures. These joint ventures include
both commercial and residential development partnerships. The following table
sets forth the investment account balance and the Company's share of income
(loss) from these joint ventures in the periods presented.
<TABLE>
<CAPTION>
Investment Account Balance Company's Share of Income (Loss)
------------------------------------ ----------------------------------
December 31, Year Ended December 31,
------------------------------------ ----------------------------------
1998 1997 1996 1998 1997 1996
--------- -------- --------- ------- -------- -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial Development..... $ 1,956 $ 4,067 $ 4,423 $ 1,295 $ 908 $ (39)
Residential Development.... 60,247 17,982 583 5,332 1,215 797
-------- -------- ------- ------- ------- -----
Total.................... $ 62,203 $ 22,049 $ 5,006 $ 6,627 $ 2,123 $ 758
======== ======== ======= ======= ======= =====
</TABLE>
Residential Development
In March 1996, the Company acquired The Akins Companies, a residential
real estate company consisting of a diversified group of entities involved in
home-building, community development, and project management activities. That
company is now called Catellus Residential Group ("CRG"). CRG has three
operating divisions:
* Community Development, which identifies and develops large-scale
residential communities in prime housing markets;
* Merchant Housing, which designs, builds, and markets a variety of for-sale
products, from entry-level to estate homes; and,
* Public and Private Ventures, which develops and markets affordable rental
and for-sale housing, primarily within high-density urban areas, as well as
institutional housing such as faculty and student housing for universities.
Additionally, the group is pursuing federal government contracts to provide
military housing.
During 1998, the Company invested approximately $54.9 million in the
acquisition of residential property directly or through joint ventures. These
acquisitions will support up to 4,518 homes, and included the following
acquisitions:
* a two-thirds interest in a 3,500-acre, 4,000-lot masterplanned community
(Serrano) in El Dorado Hills, California.
* a 20-acre, 99-lot site (Brittany Hills) in Martinez, California.
* a 38-acre, 119-lot site (The Citrus) in La Quinta, California.
* a 28-acre, 110-lot site (Reimal) in Gilroy, California.
Entitlements and approvals for these lots have been received, and
construction or development began in 1998.
11
<PAGE>
The following table summarizes the Company's residential development
land inventory activity in 1998:
<TABLE>
<CAPTION>
Total Lots/ Bulk Sale Land
Homes 1/1/98 Controlled Acq. Home Closing Lot Closings Closing
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RESIDENTIAL PROPERTIES
- -----------------------------------------
Community Development
Northern California
Tracy....................................... 2,400 - - - - -
Hercules (1)................................ 1,000 - - - - -
Serrano - Sacramento........................ - - 4,000 - 205 -
Union City Phase II - Union City............ - - - - 17 -
Stockton.................................... 800 - - - - 800
Southern California
Lakeside -- Buena Park...................... 66 - - - 28 -
Talega -- San Clemente...................... 4,965 - - - 605 -
Chino Hills (1)............................ 215 - - - - -
Texas
Oakcliff.................................... 285 - - - - -
Clodine..................................... 2,100 - - - - 2,100
------------------------------------------------------------------------------------------
Subtotal Community Development..... 11,831 - 4,000 - 855 2,900
------------------------------------------------------------------------------------------
Merchant Housing
Northern California
Rosewalk -- Union City...................... 100 - - 38 - -
Brittany Hills - Martinez................... - - 99 - - -
Shriners -- San Francisco (1)............... 84 - - - - -
Reimal Site -- Gilroy....................... - - 110 - - -
Southern California
Ridgemoor -- Rowland Heights................ 116 - - 87 - -
Vidorra -- Tustin........................... 105 - - 98 - -
Cypress -- Irvine........................... 104 (104) 104 31 - -
Regatta -- Long Beach....................... 47 - - 32 - -
Cantamar -- Carlsbad........................ 96 - - - - -
Westbluffs -- Playa del Rey................. 121 - - - - -
Windsong -- Buena Park...................... 108 - - 14 - -
Citrus-Tesoro -- La Quinta.................. - - 63 - - -
Citrus- Mandarina -- La Quinta.............. - - 56 - - -
Meadowlark -- Huntington Beach (1).......... 345 - - - - -
Talega PA12 -- San Clemente................. - 68 - - - -
Talega PA19 -- San Clemente................. - 80 - - - -
Kentwood Collection -- Westchester.......... - - - - - -
Vista Ladera -- Stevenson Ranch............. 23 - - 23 - -
Signature Collection -- Newport Beach....... 8 - - 8 - -
------------------------------------------------------------------------------------------
Subtotal Merchant Housing.......... 1,257 44 432 331 - -
------------------------------------------------------------------------------------------
Public / Private Ventures
Southern California
Miraflores, La Quinta....................... 86 (86) 86 - - -
Other
Northern California
Mission Bay North, San Francisco............ 2,655 - - - - -
Mission Bay South, San Francisco............ 1,900 - - - - -
------------------------------------------------------------------------------------------
Subtotal Public/Private Ventures
and Other........................ 4,641 (86) 86 - - -
------------------------------------------------------------------------------------------
Total Residential Properties....... 17,729 (42) 4,518 331 855 2,900
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Plotting Total Lots/
Changes Homes 12/31/98
- ---------------------------------------------------------------------
<S> <C> <C>
RESIDENTIAL PROPERTIES
- -----------------------------------------
Community Development
Northern California
Tracy........................................ - 2,400
Hercules (1)................................. - 1,000
Serrano - Sacramento........................ (70) 3,725
Union City Phase II -- Union City............ 17 -
Stockton..................................... - -
Southern California
Lakeside -- Buena Park....................... - 38
Talega -- San Clemente....................... - 4,360
Chino Hills (1)............................. - 215
Texas
Oakcliff..................................... - 285
Clodine...................................... - -
------------------------
Subtotal Community Development.... (53) 12,023
------------------------
Merchant Housing
Northern California
Rosewalk -- Union City....................... - 62
Brittany Hills -- Martinez................... - 99
Shriners -- San Francisco (1)................ (2) 82
Reimal Site -- Gilroy........................ - 110
Southern California
Ridgemoor -- Rowland Heights................. - 29
Vidorra -- Tustin............................ - 7
Cypress -- Irvine............................ - 73
Regatta -- Long Beach........................ - 15
Cantamar -- Carlsbad......................... - 96
Westbluffs -- Playa del Rey.................. (3) 118
Windsong -- Buena Park....................... - 94
Citrus-Tesoro -- La Quinta................... - 63
Citrus- Mandarina -- La Quinta............... - 56
Meadowlark -- Huntington Beach (1)........... (32) 313
Talega PA12 -- San Clemente.................. - 68
Talega PA19 -- San Clemente.................. - 80
Kentwood Collection -- Westchester........... - -
Vista Ladera -- Stevenson Ranch.............. - -
Signature Collection -- Newport Beach........ - -
------------------------
Subtotal Merchant Housing......... (37) 1,365
------------------------
Public / Private Ventures
Northern California
Mission Bay North, San Francisco............. - 2,655
Mission Bay South, San Francisco............. - 1,900
Southern California
Miraflores, La Quinta........................ - 86
------------------------
Subtotal Public/Private Ventures
and Other....................... - 4,641
------------------------
Total Residential Properties...... (90) 18,029
========================
</TABLE>
(1) Represents properties which the Company does not currently own but for
which it has entered into contractual relationships to acquire, such as
letters of intent, purchase agreements with customary conditions precedent,
option agreements, and other similar arrangements. There can be no
assurance the Company will actually acquire these properties.
(2) Currently owned by Catellus Development Corporation.
<PAGE>
Sales. The following table summarizes the Company's sales of
residential development property, which include lots and housing units, for
the periods presented:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1998 1997 1996
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Sales .................. $106,656 $ 82,632 $ 21,945
Cost of Sales .......... 91,673 77,305 20,138
-------- -------- --------
Gain ................. $ 14,983 $ 5,327 $ 1,807
======== ======== ========
</TABLE>
Mixed-Use Development
The Company's land portfolio includes four major mixed-use development
sites, which include development for residential, office, retail and
entertainment purposes. The Company is currently in negotiation for the
development of two additional sites.
Mission Bay, San Francisco, CA. The Company owns 166.9 acres of property in
San Francisco adjacent to downtown, which is part of an approximately 300-acre
mixed-use development project known as Mission Bay. The balance of the project
is primarily owned by the City and the Port of San Francisco. The current
proposed development for Mission Bay includes up to:
<TABLE>
<CAPTION>
Company Owned by
Owned Others Total
------------- ------------- -------
<S> <C> <C> <C>
Residential Units:
Market Rate .............................. 4,300 -- 4,300
Affordable ............................... 255 1,445 1,700
---------- ---------- ----------
Total Residential ...................... 4,555 1,445 6,000
========== ========== ==========
Commercial (square feet):
R&D, Biotech, & Office ................... 5,000,000 -- 5,000,000
Retail and Entertainment ................. 730,000 -- 730,000
UCSF Campus .............................. -- 2,650,000 2,650,000
---------- ---------- ----------
Total Commercial ....................... 5,730,000 2,650,000 8,380,000
========== ========== ==========
Hotel:
Rooms .................................. 500 -- 500
========== ========== ==========
</TABLE>
In October 1998, the San Francisco Board of Supervisors unanimously
approved redevelopment plans and related entitlements for development of both
the approximately 65-acre Mission Bay North and the 238-acre Mission Bay South.
In November 1998, the Mayor of San Francisco and the Executive Director of the
Redevelopment Agency executed various agreements implementing the Mission Bay
San Francisco approvals. Under those agreements, approximately sixty percent of
the incremental property taxes generated by the project will be available to
finance public infrastructure improvements, provided various conditions are met.
There can be no assurances that these conditions will be satisfied.
A subdivision map for a major phase ("Major Phase") of the project,
describing the Company's initial development plan for approximately 250 dwelling
units and 80,000 square feet of commercial space in Mission Bay North was filed
in early February 1999. Other actions now being pursued in implementing the
Mission Bay Project include implementation of land transfer agreements among the
Company, the City of San Francisco, the Port of San Francisco, and the
California State Lands Commission; approval by various parties and regulatory
agencies of risk management plans, for environmental issues, and, as to certain
water-side phases of the project, approvals by the Army Corps of Engineers and
the Bay Conservation and Development Commission. Initial development of the
first Major Phase is targeted for the fourth quarter of 1999 or the first
quarter of 2000. Because this process requires participation of a number of
parties and agencies, schedules are subject to change, and there can be no
assurance that development of the first Major Phase will be possible or will
occur by the first quarter of 2000.
13
<PAGE>
Mission Bay South will be developed around the new 2.65 million square-
foot biotech/research expansion campus for the University of California at San
Francisco ("UCSF"), which will be implemented by developers (which may include
the Company) selected by UCSF, in accordance with agreements among the
Company, The Regents of the University of California ("The Regents"), and the
City of San Francisco to locate the UCSF expansion campus on a portion of
Mission Bay South (29.3 acres of which would be donated by the Company and
13.3 acres of which would be contributed by the City of San Francisco). The
obligations of The Regents, the City, and the Company under the agreements to
transfer land for the UCSF expansion campus are subject to a number of
conditions. The failure to meet these conditions could delay or prevent the
Company's development of this project.
The Mission Bay development will provide new residential units (both
condominiums and rentals), office space, and a major retail center for the
City of San Francisco. In a report generated by the Sedway Group, a real
estate and urban economic consultant group, the average vacancy rate for
quality rental apartments in San Francisco as of the end of 1998, was 1.9%. As
for the San Francisco central business district office market, CB Richard Ellis
reports that vacancy rates are 3.2% for the total market with Class A buildings
approaching 2.5%.
Currently, the 166.9-acre portion of the project owned by the Company
contains approximately 1.1 million square feet of rental buildings and
approximately twenty land leases. The buildings, as of December 31, 1998, were
90.7% occupied. These operating assets are interim uses of the property and
are not expected to be part of any final project. Rental revenue from these
leases at Mission Bay was $6.4 million during 1998, resulting in property
operating income of $4.5 million.
Pacific Commons, Fremont, CA. Pacific Commons, which is one of the
largest planned business parks in Silicon Valley, consists of 840 acres, of
which approximately 350 are planned for development, adjacent to I-880 sixteen
miles north of San Jose. Demand for industrial, warehouse, flex-tech, R&D, and
campus office space in the Silicon Valley area has resulted in a vacancy rate
for all product types of 5.8% as of January 1, 1999, according to Colliers
International, an international real estate brokerage firm.
In late 1996, the Company received the necessary entitlements from the
City of Fremont for 8.5 million square feet of development, including 8.25
million square feet of R&D, light industrial, warehouse/distribution, and
corporate campus space, as well as 250,000 square feet of retail space. In
1997, the Company completed the 376,000-square-foot Office Depot distribution
facility. In 1997, the Company received habitat mitigation approvals necessary
to proceed with approximately 1.2 million square feet of development on a 78-
acre portion of the project, which is the site of three buildings and can
support approximately 574,000 square feet of additional development. In 1998,
the Company completed 238,000 square feet of speculative R&D and light
industrial space and started construction on 60,000 square feet of pre-leased
R&D space. Permits are in place for an additional 240,000 square feet of light
industrial space which is planned for 1999 construction.
The Company, with the City of Fremont as co-applicant, is currently
working with various federal and state agencies to address the impact of the
rest of the proposed Pacific Commons development on wetlands and special
status species. Based on the results of the predevelopment species and wetland
surveys, the Company and the City of Fremont filed, during the third quarter
of 1998, all remaining documentation to apply for a permit to undertake the
proposed development activities, including a detailed mitigation design
proposal for the project. As part of the permitting, an agreement with the
California Department of Fish and Game has been concluded. The Army Corps of
Engineers, as the lead permitting agency, has also concluded its public notice
and public hearing process and is preparing a response to the project permit
application. Discussions with federal and state agencies concerning the
mitigation measures necessary for the site are continuing, and the amount of
additional area that will ultimately be available for development will be
identified as these discussions proceed in coming months. It is possible that
the necessary government approvals may not be obtained for the development of
the remainder of the park, or that the timing of approvals, if obtained, may
not meet market needs.
Union Station, Los Angeles, CA. We currently own approximately 43 acres
surrounding and including the historic Los Angeles Union Station. Located in
downtown Los Angeles, Union Station is a transport hub, with Amtrak rail
service, commuter rail lines serving the surrounding five-county region
(Metrolink), and Los Angeles' growing subway and surface light rail systems.
In 1996, the City of Los Angeles awarded us an entitlement package
permitting seven million square feet of office development with the
flexibility to substitute other uses such as office, hotel, sports and
entertainment facilities, and housing. As part of this development, in 1996,
the Company sold a 4.2-acre portion to the Los Angeles Metropolitan Water
District and entered into a design-build contract to build its new
headquarters facility. The sale generated proceeds of $13.2 million, a gain of
$5.0 million and a fee commission to build the facility. The Company completed
construction of the 500,000-square-foot, 12-story headquarters facility in
1998, with occupancy to occur in 1999.
14
<PAGE>
Santa Fe Depot, San Diego, CA. The Company owns approximately 15 acres
near the waterfront in downtown San Diego, California, including Santa Fe
Depot. The site is served daily by Amtrak, a commuter rail line (Coaster), and
San Diego's expanding trolley system. The site is currently entitled for a
mixture of office, hotel, retail, and housing development. Management is re-
evaluating the approved specific plan in light of current and projected market
conditions, and is cooperating with the U.S. Navy, the Port Commission of San
Diego, and San Diego City and County agencies on a master plan for the entire
North Embarcadero portion of the waterfront.
Fleet Industrial Supply Center, Alameda Annex and Alameda Naval Air
Station, East Housing, Alameda, CA. In February 1998, the Company was selected
by the City Council of Alameda as the Master Developer for the now closed
145-acre U.S. Navy Fleet Industrial Supply Center, Alameda Annex (FISC) in
Alameda, California. In July 1998, The City of Alameda added the adjacent
70-acre portion of the former Naval Air Station Alameda (NAS Alameda) known as
East Housing. The Company is negotiating the acquisition and development of the
two sites through an Exclusive Negotiating Agreement which expires December 31,
1999, but can be extended by the City of Alameda to June 30, 2000, if
circumstances warrant.
The site is located off of Highway 880 on an island in San Francisco
Bay adjacent to downtown Oakland. The combined 215-acre FISC/East Housing
development project represents the first phase of redevelopment of the 1,734
acres of dry land at the closed NAS Alameda and FISC. The entire area has been
designated as a redevelopment area. A Community Re-use Plan for conversion of
the base over the next 20 to 30 years was approved by the City Council in
January 1996.
The current Company proposal is generally consistent with the Community
Re-use Plan and includes residential and business park uses for the FISC/East
Housing site. The residential development proposes approximately 500 single
family homes. The City of Alameda Housing Authority plans to build 39
multi-family units on 2.5 acres. Fifteen percent of the 539 residential units
will be affordable housing units in accordance with California Redevelopment
Law. The business park development proposal includes up to 1.3 million square
feet of office and research and development space. Additional uses include an
elementary school, public parks, and waterfront open spaces.
The FISC site is being transferred under special legislation to the
City of Alameda by the Navy for one dollar. The NAS Alameda transfer is subject
to the successful negotiation of an Economic Development Conveyance between the
City and the Navy. Environmental remediation on the site is expected to be
handled by the Navy. Transfer of the remediated portions of the land to the City
of Alameda is expected by the first quarter of 2000 subject to certification of
a basewide environmental impact statement by the Navy and a basewide
environmental impact report by the City. During the exclusive negotiating
period, the Company and the Alameda Community Improvement Commission will
attempt to negotiate a Disposition and Development Agreement ("DDA"). To be in
effect, the DDA requires the certification of a project environmental impact
report. These documents and other approvals from the City and other agencies
will be required before development can commence. It is possible that these
negotiations may not culminate in an agreement with the City of Alameda, that
the conditions for the transfer of the property by the Navy may not be
satisfied, or that the conditions for other necessary approvals may not be
satisfied.
Development and Management Fee Services
The diverse capabilities of its management team provide the Company
with an opportunity to export skills to third parties. Management believes that
its development and management fee service business allows it to facilitate
development of its own assets through sales to end-users (design-build
contracts), as well as provide services to landowners, which can result in
future development opportunities.
The Company has generated Development and Management fees from the
following sources:
* Management and disposition services provided by a wholly-owned subsidiary,
Catellus Management Corporation, to clients for their non-core real estate
assets
* Design-build services provided to the purchasers of commercial land
* Construction management services provided to the purchasers of land and the
subsequent build-out of industrial buildings and a high-rise office
building
* Development management of our residential joint venture projects and
independent, third party projects
* Property management of industrial buildings owned by an investor for
buildings recently completed and sold by the Company
15
<PAGE>
Non-Strategic Land Portfolio
Resources Portfolio
The Company owns approximately 782,000 acres of land in the Southern
California desert regions of Los Angeles, Kern, San Bernardino, Riverside, and
Imperial counties. The ownership of these desert properties is the result of
historical land grants to the railroad predecessors of the Company. Because of
its location, lack of contiguity among parcels, and other factors, this land is
not currently suitable for traditional development activities. The Company
therefore undertook to explore the potential for agricultural, mineral, water,
telecommunication, energy, and waste management uses for this property. During
1997, the Company completed its assessment of the portfolio. This evaluation
included an analysis of the portfolio's water, mineral, land, sales,
agricultural, and development potential. The Company has concluded from this
assessment that the land, although valuable, is non-strategic.
In February 1999, the Company signed an agreement with a non-profit
conservation group to sell and donate up to 437,000 acres of desert holdings and
20,000 acres of severed mineral rights for a total cash consideration of up to
$54.6 million. This sale will generate a significant non-strategic gain when
completed; however, the sale and the potential gain are contingent upon the
completion of due diligence by the appropriate parties and funding by both the
conservation group and the federal government. The timing of funding is not
presently determinable. In addition, the Company plans to exchange other
portions of its desert land for land of equal value managed by the U.S. Bureau
of Land Management in order to consolidate the Company's desert land holdings.
The Company will continue to pursue additional sale opportunities involving
public and private buyers, as well as other arrangements to maximize the value
of this land. These exchanges and arrangements are complicated and therefore may
take a significant amount of time to complete.
Other Land Holdings
In addition to the Resources portfolio, the Company has other
properties which are considered non-strategic and are for sale. The number of
properties in the portfolio has declined substantially since 1995 as a result of
sales activity. Because of a diminishing portfolio, future sales are expected to
be substantially lower than the levels of the past three years.
The table below shows (by acres and in book value) the Company's
resources and for-sale land:
<TABLE>
<CAPTION>
Acres Net Book Value
--------------------------------------- --------------------------------------
December 31, December 31,
--------------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996
----------- ------------- ----------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands) (in thousands)
Resources Portfolio......... 781,865 782,361 789,899 $ 5,728 $ 4,260 $ 2,299
Properties Held for Sale.... 13,382 19,008 41,323 9,151 28,129 37,223
----------- ------------- ----------- ---------- -------------- ------------
Total....................... 795,247 801,369 831,222 $14,879 $32,389 $39,522
=========== ============= =========== ========== ============== ============
</TABLE>
RVL, Inc.
In 1997, the Company formed a wholly owned subsidiary, RVL, Inc.
("RVL"), to make investments in companies formed for the purpose of acquiring
properties requiring environmental remediated, performing the necessary
remediation, and reselling the remediation properties. RVL expects to make
these investments only after investigation designed to characterize the
environmental problems and quantify the costs of remediation, and after
obtaining insurance, if appropriate, for overruns in the remediation budget.
Between formation and December 31, 1998, the Company contributed $13.6 million
in cash and property with a book value of approximately $1.0 million to RVL.
In September 1997, Hercules, LLC, a subsidiary of a limited liability
company in which RVL owns an interest, acquired the Pacific Refinery at
Hercules, California. The Company has entered into an agreement to provide
entitlement services to Hercules, LLC, in return for an option to buy the
property once defined remediation work is completed. Among the factors that
could impact the success of this project are (1) the ability of the managing
member of the limited liability company to manage the business successfully; (2)
the accurate characterization of environmental problems; and (3) the
availability of insurance adequate to cover remediation budget overruns.
<PAGE>
Environmental Matters
Many of the Company's properties are in urban and industrial areas
and may have been leased to or previously owned by commercial and industrial
companies that may have discharged hazardous materials. The Company incurs on-
going environmental remediation costs, and legal costs relating to clean-up,
defense of litigation, and the pursuit of responsible third parties. Costs
incurred in connection with operating properties and with properties
previously sold are expensed. As of December 31, 1998, management has provided
a reserve of $10.8 million for such costs. These costs are expected to be
incurred over an estimated ten-year period, with a substantial portion
incurred over the next few years (see Note 16 of the accompanying consolidated
financial statements for further discussions).
Costs incurred for properties to be sold are deferred and will be
charged to cost of sales when the properties are sold. Costs relating to
undeveloped properties are capitalized as part of development costs. At
December 31, 1998, the Company's estimate of its potential liability for
identified environmental costs relating to properties to be developed or sold
ranged from $11.4 million to $30.4 million. These costs generally will be
capitalized as they are incurred over the course of the estimated development
period of approximately 20 years. Environmental costs capitalized during 1998
totaled $3.6 million.
Although the Company or outside consultants have evaluated the
environmental liabilities associated with most of the properties currently
owned by the Company, any evaluation necessarily is based upon then-prevailing
law, identified site conditions, and the use of sampling methodologies. Also,
the Company does not generally have access to properties sold in the past
which could create environmental liabilities. The Company monitors its
exposure to environmental costs on a regular basis. Although an unexpected
event could have a material impact on the results of operations for any
period, the Company does not believe that such costs for identified
liabilities will have a material adverse effect on its financial position,
results of operations or cash flows.
Competition
The real estate industry is generally fragmented and characterized by
significant competition. Numerous developers, owners of industrial, office and
retail properties and managers compete with the Company in seeking properties
for acquisition, development and management opportunities, tenants, and
purchasers for homes and for non-strategic assets. There are competitors in
each area in which the Company operates which have greater capital resources
than the Company. There can be no assurance that the existence of such
competition will not have a material adverse effect on the Company's business,
operations and cash flow.
Employees, Contractors, and Consultants
At December 31, 1998, the Company had 430 employees, including 56
employees of Catellus Management Corporation and 155 employees of Catellus
Residential Group. We engage third parties to manage multi-tenant properties
and properties in locations which are not in close proximity to our regional
or field offices. In addition, we engage outside consultants such as
architects and design firms in connection with our pre-development activities.
We also employ third-party contractors on development projects for
infrastructure and building construction and retain consultants to assist us
in a variety of areas at the project level and at the corporate level.
Forward-Looking Information and Risk Factors
For information about forward-looking statements in this report and
about important factors that could cause actual results to differ materially
from those anticipated in the forward looking statements, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Form 10-K.
17
<PAGE>
Item 2. Properties
Our real estate projects are generally described in Item 1 above, which
descriptions are incorporated in this Item by reference. Our principal executive
office is located in San Francisco, California, and we have regional or field
offices in eleven other locations in the United States. We believe that our
property and equipment are generally well maintained, in good condition, and
adequate for our present needs.
Item 3. Legal Proceedings
The Company, its subsidiaries and other related companies are named
defendants in many lawsuits arising from normal business activities, are named
parties in certain governmental proceedings (including environmental actions)
and are the subject of various environmental remediation orders of local
governmental agencies arising in the ordinary course of business. While the
outcome of these lawsuits or other proceedings against us and the cost of
compliance with any governmental order cannot be predicted with certainty,
management does not expect any of these matters to have a material adverse
effect on our business, financial condition or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1998.
Executive Officers of the Company
The executive officers of the Company are listed below. There were no
family relationships among any executive officers and directors of the Company.
All officers serve at the pleasure of the Board of Directors of the Company,
subject to compliance with various employment agreements to which the Company
and the officers are parties.
Executive Officers
<TABLE>
<CAPTION>
Name Age Position
- ---- --- ---------
<S> <C> <C>
Nelson C. Rising.............. 57 President, Chief Executive Officer, and Director
Stephen P. Wallace............ 44 Executive Vice President, Chief Operating Officer, and Chief Financial Officer
Kathleen Smalley.............. 41 Senior Vice President, Corporate Operations, and General Counsel
Paul A. Lockie................ 40 Vice President and Controller
Jaime Gertmenian.............. 32 Vice President, Human Resources and Administration
</TABLE>
Additional information concerning the business background of each
executive officer of the Company is set forth below:
MR. RISING has served as President and Chief Executive Officer and a
Director of the Company since September 1994. For more than five years prior to
joining the Company, Mr. Rising was a Senior Partner with Maguire Thomas
Partners, a Los Angeles-based commercial developer.
MR. WALLACE was elected as Executive Vice President, Chief Operating
Officer and Chief Financial Officer in May 1998. Since that election, Mr.
Wallace served as Chief Financial Officer from May to October 1998 and acting
Chief Financial Officer from February 1999 to the present. Previously, Mr.
Wallace had served as Senior Vice President and Chief Financial Officer since
July 1995. Mr. Wallace was previously the Senior Vice President and Chief
Financial Officer at Castle & Cooke Homes, Inc. from May 1993.
18
<PAGE>
MS. SMALLEY was elected Senior Vice President, Corporate Operations,
and General Counsel in May 1998. Before this appointment, Ms. Smalley had served
as Senior Vice President, General Counsel and Secretary since January 1997. For
more than five years before joining the Company, Ms. Smalley was General Counsel
and Investment Manager of Crow Family Holdings ("CFH"), an investment management
company that manages assets, including real estate and related businesses,
throughout the United States and abroad. During 1996 and 1997, Ms. Smalley held
an appointment to Harvard Law School where she lectured in real estate
transactions.
CFH, during Ms. Smalley's employment, managed investments in thousands
of entities holding real estate. In connection with her duties as General
Counsel and Investment Manager for CFH, Ms. Smalley managed both legal functions
and a number of special assignments. Among those special assignments was the
management of the bankruptcy of approximately 55 affiliated entities in two
jointly administered proceedings. Ms. Smalley was not involved in the ownership
or management (other than as described below) of the properties owned by the
affected debtors before the debt restructuring negotiations and related filing
of bankruptcy petitions. In addition, there were approximately 35 other entities
affiliated with CFH that filed for protection under federal bankruptcy laws. In
connection with her employment by CFH, Ms. Smalley served as an officer of the
direct or indirect general partner of some of these entities.
MR. LOCKIE joined the Company as Vice President and Controller in
February 1996. Before joining the Company, Mr. Lockie served as the Chief
Financial Officer for Kimball Small Properties, Inc. ("KSP"), a San Jose,
California real estate development and management company, since 1987.
Mr. Lockie, in connection with his duties as Chief Financial Officer
for KSP, also served as Chief Financial Officer of several companies affiliated
with KSP, including Techmart Properties, Inc., the indirect general partner of a
real estate partnership that filed for protection under federal bankruptcy laws
in September, 1992. In September 1995, a final decree was entered closing the
case.
MS. GERTMENIAN has been with the Company since October 1995, and
currently serves as Vice President of Human Resources and Administration. For
four years prior to joining the Company, Ms Gertmenian worked in human resources
and administration at CB Commercial Real Estate Group, a national real estate
services firm.
19
<PAGE>
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters
The Company's Common Stock commenced trading on December 5, 1990, and
is listed on the New York Stock Exchange, the Pacific Stock Exchange and the
Chicago Stock Exchange under the symbol "CDX." The following table sets forth
for the periods indicated the high and low sale prices of the Company's Common
Stock as reported by Bloomberg Financial Markets:
<TABLE>
<CAPTION>
Common Stock Price
--------------------
High Low
-------- ---------
<S> <C> <C>
Year ended December 31, 1997
First Quarter . 16 5/8 11 1/8
Second Quarter . 18 3/8 13 5/8
Third Quarter . 21 7/16 18 3/16
Fourth Quarter . 22 16 5/16
Year ended December 31, 1998
First Quarter . 20 1/4 17 3/8
Second Quarter . 19 17 1/16
Third Quarter . 18 1/8 11 15/16
Fourth Quarter . 14 13/16 10 1/2
</TABLE>
The Company has never declared or paid any cash dividends on its Common
Stock. The Company intends to retain any earnings to support operations and to
finance development projects and does not intend to pay cash dividends on the
Common Stock in the foreseeable future.
On March 1, 1999, there were approximately 29,110 holders of record of the
Company's Common Stock.
20
<PAGE>
Item 6. Selected Financial Data
The following income statement and selected balance sheet data with
respect to each of the years in the five-year period ended December 31, 1998
have been derived from the annual Consolidated Financial Statements. The
operating data have been derived from the Company's underlying financial and
management records and are unaudited. This information should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of results of operations for 1998, 1997,
and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Statement of Operations Data:
Income-producing properties
Rental revenue............................................ $ 149,367 $ 128,953 $ 115,886 $ 102,828 $ 99,183
Property operating costs.................................. (42,198) (38,670) (39,408) (30,650) (29,609)
Equity in earnings of operating joint ventures, net....... 9,368 7,436 5,993 5,826 4,240
------------ ----------- ---------- ---------- ----------
116,537 97,719 82,471 78,004 73,814
------------ ----------- ---------- ---------- ----------
Other property activities and fee services
Gain on property sales.................................... 37,254 13,197 15,623 953 --
Development and management fee income, net................ 7,366 6,449 3,432 1,924 2,151
Equity in earnings of development joint ventures, net..... 6,627 2,123 758 1,209 3,742
Land holding costs, net................................... (2,151) (1,241) (3,724) (3,871) (4,891)
------------ ----------- ---------- ---------- ----------
49,096 20,528 16,089 215 1,002
------------ ----------- ---------- ---------- ----------
Interest expense.......................................... (37,384) (39,988) (42,521) (25,757) (24,671)
Depreciation and amortization............................. (34,054) (31,245) (30,561) (27,990) (28,577)
General and administrative expense........................ (14,215) (10,897) (8,019) (10,924) (14,818)
Gain on non-strategic asset sales......................... 18,929 5,029 24,405 32,789 13,307
Adjustment to carrying value of property (1).............. -- -- -- (102,400) (24,100)
Litigation, environmental and restructuring costs......... -- 2,551 1,093 (961) (2,854)
Other, net................................................ 1,394 (1,113) (19) 2,504 3,091
------------ ----------- ---------- ---------- ----------
Income (loss) before income taxes and extraordinary
expense................................................. 100,303 42,584 42,938 (54,520) (3,806)
Income tax (expense) benefit.............................. (40,400) (17,343) (17,537) 21,518 1,359
------------ ----------- ---------- ---------- ----------
Net income (loss) before extraordinary expense............ 59,903 25,241 25,401 (33,002) (2,447)
Extraordinary expense related to early retirement of
debt, net of income tax benefit (2)..................... (25,165) -- -- -- --
------------ ----------- ---------- ---------- ----------
Net income (loss)......................................... 34,738 25,241 25,401 (33,002) (2,447)
Preferred stock dividends................................. -- (1,353) (22,173) (23,813) (23,813)
Premium on redemption of preferred stock.................. -- -- (1,334) -- --
------------ ----------- ---------- ---------- ----------
Net income (loss) applicable to common stockholders....... $ 34,738 $ 23,888 $ 1,894 $(56,815) $(26,260)
============ =========== ========== ========== ==========
Net income (loss) per share of common stock - assuming
dilution:
Before extraordinary expense.............................. $ 0.55 $ 0.24 $ 0.03 $ (0.78) $ (0.36)
Extraordinary expense (2)................................. (0.23) -- -- -- --
------------ ----------- ---------- ---------- ----------
Net income (loss) per share after extraordinary expense
- assuming dilution..................................... $ 0.32 $ 0.24 $ 0.03 $ (0.78) $ (0.36)
============ =========== ========== ========== ==========
Average number of common shares outstanding - assuming
dilution................................................ 109,420 100,768 75,835 72,967 72,967
============ =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended or As Of December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
(in thousands, except percentages and ratios)
Other Operating Data:
EBDDT (3)........................................ $ 103,394 $ 62,771 $ 25,852 $ 18,254 $ 14,665
EBITDA (4)....................................... $ 177,806 $ 117,163 $ 117,152 $ 101,781 $ 75,543
Buildings owned (square feet) (5)................ 20,877 18,094 16,448 14,168 13,609
Leased percentage................................ 94.6% 96.5% 96.1% 95.1% 95.0%
Annual fixed charges (6)......................... $ 65,432 $ 55,672 $ 73,282 $ 80,656 $ 77,218
Debt and preferred stock to total
market capitalization (7)...................... 36.36% 21.00% 46.81% 65.63% 66.56%
Capital investments (8).......................... $ 464,838 $ 251,769 $ 115,338 $ 68,523 $ 73,900
Fixed charge coverage ratio (9).................. 2.72 2.10 1.60 1.26 0.98
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ----------- ------------ ------------ -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total properties, net(10) ................ $1,395,477 $1,122,975 $1,024,102 $1,007,451 $1,087,119
Total assets ............................. $1,625,540 $1,241,019 $1,123,118 $1,097,604 $1,207,363
Mortgage and other debt .................. $ 873,207 $ 568,699 $ 496,742 $ 496,180 $ 530,641
Preferred stock .......................... $ -- $ -- $ 274,428 $ 322,500 $ 322,500
Total stockholders' equity ............... $ 490,229 $ 451,899 $ 422,453 $ 442,874 $ 499,689
Other Data:
Total market capitalization (11) ......... $2,402,000 $2,699,000 $1,647,000 $ 1,247,000 $1,282,000
</TABLE>
(1) The Company took charges of $102.4 million in 1995 and $24.1 million in
1994 to adjust the carrying value of certain properties. The 1995 charge
included $84.8 million resulting from the Company's decision to terminate
the 1991 Development Agreement for its Mission Bay Project in San
Francisco.
(2) Net income in 1998 reflects extraordinary expense of $25.2 million, net of
income tax benefit, relating to yield maintenance payments and a write-off
of unamortized loan issuance costs associated with certain refinancings in
1998.
(3) The Company uses a supplemental performance measure called Earnings Before
Depreciation and Deferred Taxes (EBDDT), along with net income (loss), to
report its operating results. EBDDT is not a measure of operating results
or cash flows from operating activities as defined by generally accepted
accounting principles. Additionally, EBDDT is not necessarily indicative of
cash available to fund cash needs and should not be considered as an
alternative to cash flows as a measure of liquidity. However, the Company
believes that EBDDT provides relevant information about its operations and
is useful, along with net income (loss), for an understanding of its
operating results.
EBDDT is calculated by making various adjustments to net income (loss).
Depreciation, amortization and deferred income taxes are excluded from
EBDDT as they represent non-cash charges. In addition, gains on the sale of
non-strategic assets, adjustments to the carrying value of property,
premium on the redemption of preferred stock, restructuring costs, and
extraordinary items, including their current tax effect, represent unusual
and/or non-recurring items and are excluded from the EBDDT calculation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations' Earnings Before Depreciation and Deferred Taxes."
(4) Represents earnings before interest, taxes, depreciation and amortization,
adjustments to the carrying value of property, capitalized interest in cost
of sales, extraordinary items, preferred stock dividends, and premium on
the redemption of preferred stock.
(5) Prior to 1996, square feet owned excluded approximately 1.1 million square
feet of existing buildings, primarily at Mission Bay.
(6) Represents total interest incurred, less non-cash interest incurred (See
Note 3 to the Company's Consolidated Financial Statements), principal
amortization, and preferred stock dividends.
(7) Represents the ratio of total debt plus the face value of preferred stock
to equity market capitalization (based on the number of common shares
outstanding at the end of the period indicated and the closing stock price
for each respective period) plus total debt and preferred stock.
(8) Represents expenditures for commercial and residential development for
projects to be developed and sold or held for rental. The 1998 amount
includes $40.1 million seller-financed portion of certain acquisitions,
$34.2 million invested in residential joint ventures, and $6.3 million of
first generation lease commissions. The 1997 amount includes $16.2 million
invested in residential joint ventures.
(9) Represents the ratio of EBITDA to fixed charges.
(10) Total properties, net reflects the historical value of the Properties at
acquisition plus subsequent capital expenditures. When the Company was
formed to conduct the non-railroad real estate activities of Santa Fe
Pacific Corporation ("Santa Fe") through spin-off to its stockholders in
1990 (the "Spin Off"), the historical cost of land and income-producing
properties previously owned by Santa Fe was not increased from historical
cost. Management believes that a significant portion of the Company's real
estate value resides in land and rental properties owned by Santa Fe prior
to the Spin Off. Therefore, management believes that the reported value of
Properties is not a representative measure of the liquidation value or
financing capacity of the Company.
(11) Represents the number of common shares outstanding multiplied by the
closing stock price at the end of the period indicated plus preferred stock
and total debt.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of the years ended December 31, 1998 to 1997
Income-Producing Properties
- ---------------------------
Rental revenue and property operating costs for the Company's income-
producing properties are summarized below:
<TABLE>
<CAPTION>
RENTAL REVENUE PROPERTY OPERATING COSTS
------------------------------------ ----------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 DIFFERENCE 1998 1997 DIFFERENCE
--------- --------- -------------- --------- ---------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Industrial buildings ................ $ 78,918 $ 67,186 $ 11,732 $ 16,486 $ 14,529 $ 1,957
Office buildings .................... 31,765 29,713 2,052 13,400 12,753 647
Retail buildings .................... 13,241 13,273 (32) 4,115 3,932 183
Land development/(1)/ ............... 11,693 10,853 840 7,415 6,557 858
Land leases ......................... 13,750 7,928 5,822 782 899 (117)
-------- -------- -------- -------- -------- --------
$149,367 $128,953 $ 20,414 $ 42,198 $ 38,670 $ 3,528
======== ======== ======== ======== ======== ========
</TABLE>
/(1)/ This category represents interim income-producing uses of properties
intended for mixed-use development.
Data presented in chart form:
Rental revenue and equity in earnings of operating joint ventures, less
property operating costs (in millions):
1998: $116.5; 1997: $97.7; 1996: $82.5
Portfolio occupancy:
1998: 94.6%; 1997: 96.5%; 1996: 96.1%
Building square footage owned, square footage leased, and occupancy
percentages are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
(In thousands, except percentages)
OCCUPANCY OCCUPANCY
OWNED LEASED % OWNED LEASED %
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Industrial buildings ....... 17,010 16,200 95.2% 14,326 14,061 98.2%
Office buildings ........... 1,719 1,624 94.5% 1,620 1,547 95.5%
Retail buildings ........... 928 836 90.1% 928 870 93.8%
Land development /(1)/ ..... 1,220 1,081 88.6% 1,220 981 80.4%
-------- -------- -------- --------
20,877 19,741 94.6% 18,094 17,459 96.5%
======== ======== ======== ========
</TABLE>
/(1)/ This category represents interim income-producing uses of properties
intended for mixed-use development.
The increase in revenue from industrial buildings is primarily
attributable to the net addition of eleven new buildings (eight newly
constructed, four purchased and one sold), totaling approximately 2.7 million
square feet that were added to the portfolio in 1998, and a full year of
operations from ten buildings totaling approximately 2.1 million square feet
that were added to the portfolio in 1997. Approximately $11.4 million of the
increase was attributable to base rents and tenant pass-through for the 1998 and
1997 new properties, and an increase of $2.5 million in revenues was
attributable to base rents and higher tenant pass-through charges from
properties which were owned and operated for all of 1998 and 1997 ("Same
Space"), offset by a decrease of $2.2 million in revenues attributable to
properties sold during 1998 and 1997.
23
<PAGE>
Rental revenue for the Company's office portfolio increased by $2.1
million primarily because of higher rental rates and average occupancy.
Operating costs for office buildings increased by $0.6 million, primarily as a
result of higher repairs and maintenance.
The $0.8 million increase in rental revenue from the land development
portfolio resulted from higher occupancies, percentage rent and expense
recoveries during the year. The increase in operating costs for land development
properties was primarily because of higher property taxes, maintenance and
operating expenses.
The $5.8 million increase in revenues from land leases was primarily
attributable to the 1998 acquisitions of land, land leases and other leases. The
majority of the increase attributable to these acquisitions is not of a long-
term nature, as the Company intends to sell a large portion of these assets to
qualified buyers (see Other Sales in Other Property Activities and Fee Services
below).
In total, property operating costs were higher because of property
taxes associated with the new buildings and higher operating and maintenance
costs attributable to Same Space.
Equity in earnings of operating joint ventures net, increased by $1.9
million primarily because of higher occupancies and room rates in hotel joint
ventures and higher occupancy and lower expenses for an office building joint
venture.
Other Property Activities and Fee Services
- ------------------------------------------
Gain on property sales increased to $37.3 million in 1998 from $13.2
million in 1997, summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 DIFFERENCE
------------ -------------- ------------
(In thousands)
<S> <C> <C> <C>
COMMERCIAL SALES:
Sales .......................................... $ 86,975 $ 39,587 $ 47,388
Cost of Sales .................................. 68,102 31,717 36,385
----------- ----------- -----------
Gain ......................................... 18,873 7,870 11,003
----------- ----------- -----------
RESIDENTIAL SALES:
Sales .......................................... 106,656 82,632 24,024
Cost of Sales .................................. 91,673 77,305 14,368
----------- ----------- -----------
Gain ......................................... 14,983 5,327 9,656
----------- ----------- -----------
OTHER SALES:
Sales .......................................... 11,636 -- 11,636
Cost of Sales .................................. 8,238 -- 8,238
----------- ----------- -----------
Gain ......................................... 3,398 -- 3,398
----------- ----------- -----------
Total gain on property sales ........................ $ 37,254 $ 13,197 $ 24,057
=========== =========== ===========
</TABLE>
Data presented in chart form:
Total gain on property sales (in millions):
1998: $37.3; 1997: $13.2; 1996: $15.6
The 1998 results from commercial sales include the closing of 1.3
million square feet of building space and 176.0 acres of land capable of
supporting 3.2 million square feet of commercial development, as compared to the
closing of 0.6 million square feet of building space and 34.7 acres of land
capable of supporting 0.7 million square feet of commercial development in 1997.
In addition, residential sales include the closing of 331 homes and 855 lots in
1998 as compared to 221 homes and 176 lots in 1997.
The 1998 results from other sales represent the sales of land and
related land leases associated with the acquisitions in the land lease portfolio
during 1998, as noted above (see Cash flows from investing activities section
for further discussions on acquisitions). The Company anticipates continued
gains from these types of sales in 1999.
The Company expects there will be significant variability in income
generated from its other property activities (see Variability in Results section
below).
24
<PAGE>
Following is a summary of property sales under contract but not
closed:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Commercial.......................... $ 83,456 $ 7,091
------------ ------------
Residential
Owned Projects
Units.......................... $ 21,077 $ 20,355
Lots........................... 8,348 --
----------- ----------
$ 29,425 $ 20,355
=========== ==========
Joint venture projects/(1)/.... $ 12,064 $ 3,636
=========== ==========
</TABLE>
/(1)/ The amounts shown are 100% of the gross sales price; the Company is
entitled to receive 25% of the net profits from these joint ventures.
Data presented in chart form:
Development and management fee income (in millions):
1998: $7.4; 1997: $6.5; 1996: $3.4
Development and management fee income, net, increased by $0.9 million
primarily because of a one-time entitlement fee received for services provided
to a joint venture owned by the Company. Over the previous two years, a major
source of fee income was from a contract to manage and sell the non-railroad
real estate assets of a major railroad company. As anticipated, the inventory of
managed assets is now depleted and it is expected that future management fees
will decrease.
Equity in earnings of development joint ventures, net, increased by
$4.5 million primarily because of the commencement of lot sales at a major
residential joint venture project in San Clemente, California.
The $0.9 million increase in land holding costs, net, is primarily
because land holding costs in 1997 were offset by interim ground lease income,
some of which were terminated in late 1997.
Other Items on the Statement of Operations
- ------------------------------------------
Interest expense decreased approximately $2.6 million in 1998;
however, total interest incurred increased $11.9 million. Increased interest
expense attributable to additions to the portfolio was offset by the increase in
capitalized interest related to higher development activity and lower interest
rates resulting from a major refinancing (see Cash balances, available
borrowings and capital resources section for further discussion). During 1998,
the average square feet of commercial development under construction was 4.4
million as compared to 3.0 million in 1997; additionally, the Company started
construction on 334 residential units in 1998 as compared to 106 units in 1997
from its owned and consolidated joint venture projects.
Following is a summary of interest incurred:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 DIFFERENCE
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Total interest incurred ..................... $ 58,630 $ 46,684 $ 11,946
Interest capitalized ........................ (21,246) (6,696) (14,550)
----------- ----------- -----------
Interest expensed ........................... $ 37,384 $ 39,988 $ (2,604)
=========== =========== ===========
</TABLE>
General and administrative expense increased by $3.3 million in 1998
primarily because of the increase in the Company's overall activities.
25
<PAGE>
The increase in gain on non-strategic asset sales in 1998 is
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 DIFFERENCE
----------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Sales ........................... $ 80,041 $ 31,122 $ 48,919
Cost of Sales ................... 61,112 26,093 35,019
----------- ----------- -----------
Gain ....................... $ 18,929 $ 5,029 $ 13,900
=========== =========== ===========
</TABLE>
Sales in 1998 include two major transactions which closed in the
fourth quarter totaling $61.2 million.
In 1995, the Company began an accelerated program of selling non-
strategic assets, with the proceeds intended to pay down a portion of existing
debt and fund new development. From 1995 through 1998, the Company sold $259
million of non-strategic assets. During 1998, 1997, and 1996, the Company
recorded a write-down of $9.0 million, $8.6 million, and $9.9 million,
respectively, to cost of sales related to non-strategic assets. The most
significant remaining non-strategic asset of the Company is its approximately
782,000-acre desert and agricultural portfolio. In February of 1999, the Company
signed an agreement with a non-profit conservation group to sell and donate up
to 437,000 acres of desert holdings and 20,000 acres of severed mineral rights
to the conservation group or the federal government for a total cash
consideration of up to $54.6 million. This sale will generate a significant gain
when completed; however, the sale and its potential gain are contingent upon the
completion of due diligence by the appropriate parties and funding by both the
conservation group and the federal government. The timing of funding is not
presently determinable. In addition, the Company plans to exchange up to 65,000
acres of its land for land of equal value managed by the U.S. Bureau of Land
Management in order to consolidate the Company's desert land holdings.
Additional non-strategic sales are expected to be substantially lower than the
levels of the past three years.
Litigation and environmental costs, net, changed by $2.6 million as
the Company received environmental recoveries of $2.6 million in 1997. There
were no such recoveries in 1998.
Other, net, changed by $2.5 million in 1998 primarily because of the
$1.0 million in costs associated with the filing of a registration statement
with the Securities and Exchange Commission in accordance with a Registration
Rights Agreement between the Company and the California Public Employees
Retirement System in 1997, and $0.9 million due to higher interest income in
1998.
Extraordinary Expense
- ---------------------
During 1998, the Company closed a major refinancing of its existing
debt. (See Cash balances, available borrowings and capital resources section for
further discussion.) The refinancing resulted in recognition of a $25.2 million
extraordinary charge, net of tax benefit of $16.8 million, related to yield
maintenance payments and a write-off of unamortized loan issuance costs.
26
<PAGE>
Comparison of the Years Ended December 31, 1997 to 1996
Income-Producing Properties
- ---------------------------
Rental revenue and property operating costs for the Company's income-
producing properties are summarized below:
<TABLE>
<CAPTION>
RENTAL REVENUE PROPERTY OPERATING COSTS
------------------------------------------ -----------------------------------------
1997 1996 DIFFERENCE 1997 1996 DIFFERENCE
-------------- ------------- ------------- ------------- ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Industrial buildings ........ $ 67,186 $ 55,865 $ 11,321 $ 14,529 $ 14,014 $ 515
Office buildings ............ 29,713 28,407 1,306 12,753 12,661 92
Retail buildings ............ 13,273 13,215 58 3,932 4,376 $ (444)
Land development/(1)/ ....... 10,853 10,589 264 6,557 7,252 $ (695)
Land leases ................. 7,928 7,810 118 899 1,105 $ (206)
------------ ------------ ----------- ----------- ----------- ----------
$ 128,953 $ 115,886 $ 13,067 $ 38,670 $ 39,408 $ (738)
============ ============ =========== =========== =========== ==========
</TABLE>
/(1)/ This category represents interim income-producing uses of properties
intended for mixed-use development.
The increase in revenue from industrial buildings is primarily
attributable to ten newly constructed buildings totaling approximately 2.1
million square feet that were added to the portfolio in 1997 and a full year of
operations from eight buildings totaling approximately 1.3 million square feet
that were completed and added to the portfolio in 1996. Approximately $8.2
million of the increase was attributable to base rents for the new buildings
completed in 1997 and 1996, approximately $1.6 million was attributable to
higher tenant pass-through charges and other income associated with this new
construction and approximately $1.5 million was a result of increases in rental
rates and tenant pass-through charges under existing leases. Operating costs for
the industrial portfolio increased by $0.5 million primarily because of property
taxes and other operating expenses related to the new construction.
Rental revenue for the Company's office portfolio increased by $1.3
million primarily because of higher rental rates and occupancy. Operating costs
for office buildings increased by $0.1 million, primarily as a result of higher
utility costs and property taxes.
The $0.4 million decrease in property operating costs for the retail
buildings was primarily due to a reduction in property taxes.
The $0.3 million increase in rental revenue from the land development
portfolio resulted from higher occupancies during the year and expense
recoveries. The decrease in operating costs for land development properties was
primarily because of lower property taxes as a result of refunds and sales of
properties.
The increase in revenue from land leases was primarily because of
increased rent from new tenant leases and higher percentage rents. The decreased
expenses from land leases were primarily attributable to a reduction in property
taxes as a result of the sale of a land lease in mid-1996.
In total, property operating costs were lower because of lower
property operating overhead costs and lower insurance premiums, partially offset
by higher property taxes.
Equity in earnings of operating joint ventures, net, increased by $1.4
million primarily because of higher occupancies and room rates in a hotel
joint venture and higher occupancy and lower interest expense for an office
building joint venture.
27
<PAGE>
Other Property Activities and Fee Services
- ------------------------------------------
Gain on property sales decreased to $13.2 million in 1997 from $15.6
million in 1996, summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 DIFFERENCE
----------- ------------- ------------
(In thousands)
<S> <C> <C> <C>
COMMERCIAL SALES:
Sales ......................... $ 39,587 $ 40,525 $ (938)
Cost of Sales ................. 31,717 26,709 5,008
----------- ----------- ---------
Gain ........................ 7,870 13,816 (5,946)
----------- ----------- ---------
RESIDENTIAL SALES:
Sales ......................... 82,632 21,945 60,687
Cost of sales ................. 77,305 20,138 57,167
----------- ----------- ---------
Gain ........................ 5,327 1,807 3,520
----------- ----------- ---------
Total gain on property of sales .... $ 13,197 $ 15,623 $ (2,426)
=========== =========== =========
</TABLE>
The 1996 commercial sales include an approximately $5.0 million gain
from the sale of a 4.2-acre site to the Metropolitan Water District at Los
Angeles Union Station. The 1997 commercial sales include a $2.2 million gain
from the sale of a 279,000-square-foot industrial building in La Mirada,
California. Residential sales in 1997 include a full year of activity from the
Company's residential group which was acquired in March 1996.
Development and management fee income, net, increased by $3.0 million
primarily because of an increase in management fees from management contracts
signed in 1996 and higher development fees from a construction project at Los
Angeles Union Station that began in June 1996.
Other Items on the Statement of Operations
- ------------------------------------------
Total interest incurred was $1.3 million higher in 1997 compared to
1996 primarily because of an increase in borrowing. However, during 1997, the
Company capitalized $6.7 million of interest compared to $2.9 million in 1996
because of increased development activities. As a result, interest expense
decreased $2.5 million.
General and administrative expense increased by $2.9 million in 1997
primarily because of the increase in the Company's overall activities.
In 1995, the Company began an accelerated program of selling non-
strategic assets, with the proceeds intended to pay down a portion of existing
debt and fund new development. In connection with this program, the Company
completed sales totaling $31.1 million resulting in gains of $5.0 million in
1997, compared to completed sales of $85.7 million and gains of $24.4 million in
1996.
In prior years the Company accrued estimates of its environmental
liability (see Note 11 to the Company's Consolidated Financial Statements).
During 1997 and 1996, the Company received recoveries in excess of settlements
paid. These settlements and recoveries resulted in increases to net income of
$2.6 million in 1997 and $1.1 million in 1996.
Other, net, decreased by $1.1 million in 1997 primarily because of the
$1.0 million in costs associated with the filing of a registration statement
with the Securities and Exchange Commission in accordance with a Registration
Rights Agreement between the Company and the California Public Employees
Retirement System.
28
<PAGE>
Preferred Stock Dividends
- -------------------------
Preferred stock dividends declined by $1.4 million in 1998 compared to
1997 and $20.8 million in 1997 compared to 1996 as a result of preferred stock
calls. With the completion of the preferred stock calls in June 1997, the
Company has no remaining outstanding preferred stock. As a result of these
calls, during 1996, a total of 453,326 shares of $3.75 Series A Cumulative
Convertible Preferred Stock ("Series A preferred stock") were converted into
2,501,783 common shares and 508,113 shares of Series A preferred stock were
redeemed at a cost of approximately $26.7 million. In 1997, a total of 2,480,671
shares of Series A preferred stock and all of the $3.625 Series B Cumulative
Convertible Exchangeable Preferred Stock were converted into 29,001,469 shares
of common stock, with 7,889 shares of Series A preferred stock redeemed at a
cost of approximately $440,000.
Variability in Results
- ----------------------
Although the Company has a large portfolio of income-producing
properties that provides relatively constant operating results, the Company's
earnings from period to period will be affected by the nature and timing of
acquisitions and sales of property and sales of non-strategic assets. Many of
the Company's projects require a lengthy process to complete the development
cycle before they are sold. Additionally, sales of non-strategic assets are
difficult to predict and are generally subject to lengthy negotiations and
contingencies that need to be resolved prior to closing. These factors tend to
"bunch" income in particular periods rather than producing a more even
pattern throughout the year. In addition, gross margins may vary significantly
as the mix of property varies. The cost basis of the properties sold varies
because (i) a number of properties have been owned for many decades; (ii) some
properties were acquired within the last ten to fifteen years; (iii) properties
are owned in various geographical locations; and, (iv) development projects have
varying infrastructure costs and build-out periods.
Earnings Before Depreciation and Deferred Taxes ("EBDDT")
The Company uses a supplemental performance measure, EBDDT, along with
net income, to report its operating results. EBDDT is not a measure of operating
results or cash flows from operating activities as defined by generally accepted
accounting principles. Additionally, EBDDT is not necessarily indicative of cash
available to fund cash needs and should not be considered as an alternative to
cash flows as a measure of liquidity. However, the Company believes that EBDDT
provides relevant information about its operations and is useful, along with net
income, for an understanding of its operating results.
EBDDT is calculated by making various adjustments to net income.
Depreciation, amortization and deferred income taxes are excluded from EBDDT as
they represent non-cash charges. In addition, gains on the sale of non-strategic
assets and extraordinary items, including their current tax effect, represent
unusual and/or non-recurring items and are excluded from the EBDDT calculation.
Net income is reconciled to EBDDT as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
----------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Net income applicable to common stockholders ............ $ 34,738 $ 23,888 $ 1,894
Depreciation and amortization ........................... 34,054 31,245 30,561
Deferred income taxes ................................... 28,366 12,667 16,468
Gain on non-strategic asset sales ....................... (18,929) (5,029) (24,405)
Extraordinary expense, net .............................. 25,165 -- --
Premium on redemption of preferred stock ................ -- -- 1,334
----------- ----------- ----------
Earnings before depreciation and deferred taxes .... $ 103,394 $ 62,771 $ 25,852
=========== =========== ==========
Average number of shares outstanding - basic ............ 106,689 97,601 74,947
=========== =========== ==========
Average number of common shares outstanding - assuming
dilution ................................................ 109,420 100,768 75,835
=========== =========== ==========
</TABLE>
Data presented in chart form:
EBDDT (in millions): 1998: $103.4; 1997: $62.8; 1996: $25.9
The $40.6 million increase in EBDDT in 1998 compared to 1997 was
primarily because of improved results from income-producing assets and higher
gains on property sales, offset by higher current taxes.
The $36.9 million increase in EBDDT in 1997 compared to 1996 was
primarily because of a reduction in preferred stock dividends and improved
results from income-producing assets.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities
Cash provided by operating activities reflected in the statement of
cash flows for the years ended December 31, 1998 and 1997 was $120.7 million and
$84.2 million, respectively. The change is primarily attributable to sales of
development and other properties of $ 205.3 million and $122.2 million for the
years ended December 31, 1998 and 1997, respectively. Sales of non-strategic
assets were $80.0 million and $31.1 million for the years ended December 31,
1998 and 1997, respectively. These increases are offset by an increase in
capital expenditures which are included in the schedule of capital expenditures
in the following discussion of Cash flows from investing activities. Cash
generated from income-producing properties increased principally because of the
addition of new buildings.
The $26.9 million decrease in cash from operating activities from 1996
to 1997 is primarily because of $52.4 million increase in 1997 expenditures for
development of property for sale and residential acquisitions, a decrease in
cash generated from sales of non-strategic assets, and an increase in notes and
accounts receivable related to development and sales activity offset by improved
earnings from income-producing properties.
Cash flows from investing activities
Net cash used in investing activities reflected in the statement of
cash flows for the years ended December 31, 1998, 1997 and 1996 was $275.3
million, $156.5 million and $64.4 million, respectively. The increase between
1998 and 1997 is primarily because of a $61.7 million increase in capital
expenditures and $22.0 million increase in property acquisitions. Additionally,
the increase is also due to a $49.3 million increase in short-term investments
and restricted cash; included in the amount is $8.8 million of proceeds from
property sales that is being held in separate accounts at a trust company in
order to preserve the Company's options of reinvesting the proceeds on a tax-
deferred basis. The increase between 1997 and 1996 is primarily because of a
$47.9 million increase in capital expenditures, a $17.9 million increase in
commercial property acquisitions and an $18.0 million increase in joint venture
contributions.
30
<PAGE>
Capital expenditures reflected in the statement of cash flows include
the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
CAPITAL EXPENDITURES INCLUDED IN CASH FLOWS FROM OPERATING ACTIVITIES/(1)/
Capital expenditures for residential and industrial development properties ..... $117,731 $ 47,139 $ 24,678
Residential property acquisition/(2)/ .......................................... 24,061 44,500 16,300
Capitalized interest and property tax .......................................... 9,213 2,732 1,000
-------- -------- --------
151,005 94,371 41,978
Other property acquisitions/(3)/ ............................................... 10,394 -- --
-------- -------- --------
161,399 94,371 41,978
-------- -------- --------
CAPITAL EXPENDITURES INCLUDED IN CASH FLOWS FROM INVESTING ACTIVITIES/(4)/
Construction and building improvements /(5)/.................................... 121,060 68,199 32,813
Predevelopment ................................................................. 17,063 17,410 11,100
Infrastructure and other ....................................................... 16,912 15,516 11,411
Capitalized interest and property tax .......................................... 12,070 4,271 2,193
-------- -------- --------
167,105 105,396 57,517
Commercial property acquisitions ............................................... 52,110 30,105 12,230
Tenant improvements ............................................................ 3,624 5,697 3,613
-------- -------- --------
222,839 141,198 73,360
-------- -------- --------
Total Capital Expenditures ..................................................... $384,238 $235,569 $115,338
======== ======== ========
</TABLE>
(1) This category includes capital expenditures for properties the Company
intends to build to sell.
(2) Excludes $34.2 million in 1998 and $16.2 million in 1997 invested in
residential joint ventures.
(3) Excludes $40.1 million seller-financed portion of the acquisition in 1998.
(4) This category includes capital expenditures for properties the Company
intends to hold for its own account.
(5) Excludes $6.3 million of first generation leasing commissions in 1998.
Data presented in chart form:
Total capital investments (in millions):
1998: $464.8; 1997: $251.8; 1996: $115.3
Capital expenditures for residential and industrial development
properties-- relates to the development of residential and industrial for-sale
development properties. The increase from 1997 to 1998 is primarily because of
the increase in both residential and industrial for-sale development activity.
For the year ended December 31, 1998, the Company started construction
on 334 residential units and completed 247 units compared to 106 starts and 125
completions during 1997 from its owned and consolidated joint venture projects.
Construction and building improvements -- relates primarily to
development of new commercial properties held for lease and improvements to
existing buildings. This activity is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996
-------------- ------------ --------------
(Square feet)
<S> <C> <C> <C>
Under construction, beginning of period .................. 3,774,000 2,286,961 641,128
Construction starts ...................................... 4,927,500 3,885,000 3,259,308
Completed - retained in portfolio ........................ (1,989,000) (2,089,200) (1,269,525)
Completed - design/build or sold ......................... (1,676,000) (308,761) (343,950)
-------------- ------------ ------------
Under construction, end of period ....................... 5,036,500/(1)/ 3,774,000 2,286,961
============== ============ ============
</TABLE>
(1) This includes 1,177,000 square feet of development that will be sold upon
completion, 258,000 square feet of "design build" development for third
party owners, and 3,601,500 square feet that will be added to the Company's
portfolio upon completion.
Data presented in chart form (as of December 31):
Square feet under construction (in millions):
1998: 5.0; 1997: $3.8; 1996: $2.3
31
<PAGE>
Property Acquisitions--The Company invested approximately $117.4
million in 1998 and $90.8 million in 1997 in the acquisition of new property
directly or through joint ventures.
. Residential Acquisitions-- In 1998, the Company invested approximately
$54.9 million in the acquisition of residential development property
directly or through joint ventures. These acquisitions will support up
to 4,518 homes and included the following significant acquisitions:
(1) a two-thirds interest in a 3,500-acre, 4,000-lot masterplanned
community (Serrano) in El Dorado Hills, California, (2) a 20-acre, 99-
lot site (Brittany Hills) in Martinez, California, and (3) a 38-acre,
119-lot site (The Citrus) in La Quinta, California. Entitlements and
approvals for these lots have been received, and construction or
development of these sites has commenced in 1998.
. Commercial Acquisitions-- In 1998, the Company invested approximately
$52.1 million in the acquisition of commercial development and income-
producing property. These acquisitions added approximately 6.4 million
square feet of potential industrial development which included a 280-
acre entitled land site in Portland, Oregon, a 69.9-acre land site in
Woodridge, Illinois, a 56.3-acre land site in Stockton, California,
and 0.7 million square feet of occupied income-producing property.
Also included in the acquisitions are land leases which will be held
in the Company's portfolio.
. Other property acquisitions-- In 1998, the Company invested a total of
$50.5 million ($40.1 million of which was seller-financed) acquiring
land and other leases. The Company intends to sell these assets.
Predevelopment--relates to amounts incurred in obtaining entitlements
for the Company's major mixed-use projects, primarily the Mission Bay project in
San Francisco, California, and the Pacific Commons project in Fremont,
California.
Infrastructure and other--primarily represents infrastructure costs
incurred in connection with the Company's major mixed-use and development
projects. The increase in 1998 compared to 1997 primarily relates to the
Woodridge, Illinois; Denver, Colorado; and Portland, Oregon projects.
Capitalized interest and property taxes--represents interest and
property taxes capitalized to the Company's development projects. The increase
in 1998 compared to 1997, as well as the increase in 1997 from 1996, is because
of the significant increase in construction activity, as noted above.
Cash flows from financing activities
Net cash provided by financing activities reflected in the statement
of cash flows increased by $124.2 million in 1998 compared to 1997. This
increase is primarily because of a $181.5 million increase in net borrowings
used to finance development projects offset by a $36.1 million redemption
premium on early retirement of debt and $26.1 million in financing costs.
Net cash provided by financing activities increased by $116.9 million
in 1997 compared to 1996. The increase is primarily because of a $76.6 million
increase in net borrowings used to finance development projects, a $17.1 million
decrease in preferred stock dividends paid and a $26.3 million decrease in
preferred stock redemptions.
Capital commitments
As of December 31, 1998, the Company had outstanding standby letters
of credit and surety bonds in the amount of $104.5 million in favor of local
municipalities or financial institutions to guarantee performance on real
property improvements or financial obligations.
As of December 31, 1998, the Company had approximately $56.6 million
in total commitments for capital expenditures. These commitments are primarily
to fund the construction of industrial development projects, predevelopment
costs and re-leasing costs.
32
<PAGE>
Cash balances, available borrowings and capital resources
As of December 31, 1998, the Company had $53.0 million in cash and
cash equivalents. In addition, the Company had available $22.4 million under its
secured revolving credit facility and $4.1 million under its residential
construction facilities.
The Company's short- and long-term liquidity and capital resources
requirements will essentially be provided from three sources: (1) ongoing
operating income from rental properties, (2) proceeds from development, other
and non-strategic asset sales, and (3) additional debt. As noted above, a
secured revolving line of credit and residential construction loan facilities
are available to the Company for meeting liquidity requirements. The ability of
the Company to meet its mid- and long-term capital requirements is dependent
upon the ability to obtain additional financing for new construction,
acquisitions and currently unencumbered properties. There is no assurance that
this financing can be obtained at this time.
In October 1998, the Company modified and extended the maturity of its
$265 million secured revolving credit line for two years to November 1, 2000.
Borrowing capacity at December 31, 1998, was $215.9 million. Additional capacity
up to $265 million is available, provided that additional lender participation
is obtained.
During 1998, the Company also substantially completed a major debt
refinancing, which accomplished the following:
. Obtained a new mortgage loan in the amount of $373.0 million with
an effective rate of 6.6%.
. Obtained a new mortgage loan totaling $153.5 million with an
effective interest rate of 6.82%.
. Obtained, for its subsidiary, an unsecured line of credit of
$60.0 million at a variable interest rate of LIBOR + 1.5%.
. Paid off existing mortgages totaling $263.3 million which had
interest rates between 8.65% to 9.5%.
Debt covenants-Certain loan agreements contain restrictive financial
covenants, the most restrictive of which require the Company's debt coverage
ratio to be at least 1.30:1, require stockholders' equity to be no less than
$409 million, and require that the Company maintain certain other specified
financial ratios. The Company was in compliance with all such covenants at
December 31, 1998.
Income taxes. At December 31, 1998, the Company's deferred tax
liability consisted of deferred tax assets totaling $112.4 million and deferred
tax liabilities of $250.9 million. Deferred tax assets included $6.0 million
relating to net operating loss carryforwards ("NOLs") of $17.1 million. The
Company has NOLs of $10.1 million, $6.5 million, $0.3 million and $0.2 million
which expire in 2007, 2008, 2009 and 2011 (none of the Company's NOLs expires in
2010). The Company's other deferred tax assets of $106.4 million relate
primarily to differences between book and tax basis of properties. These
deferred tax assets are not subject to expiration and will likely be realized at
the time of taxable dispositions of the properties. Deferred tax liabilities in
excess of deferred tax assets are often associated with the same property, with
the result that the deferred tax asset will likely be realized in a taxable
disposition, without regard to other taxable income. The Company believes it is
more likely than not that it will realize the benefit of its deferred tax
assets, and that no valuation allowance is required. In making this
determination, the Company considered: the nature of its deferred tax assets
(and liabilities); the amounts and expiration dates of its NOLs; the historical
levels of taxable income; the significant unrealized appreciation of its
properties, including properties likely to be sold during the NOL carryforward
periods; and its ability in many cases to control the timing of property sales
in order to assure that deferred tax assets will be offset by deferred tax
liabilities or realized appreciation.
A significant portion of the Company's NOLs was used to reduce tax
payments for 1998, and the Company believes it will use the balance of its NOLs
to reduce tax payments for 1999. The ultimate amount of federal tax payments, if
any, would depend on the Company's taxable income.
33
<PAGE>
ENVIRONMENTAL MATTERS
Many of the Company's properties are in urban and industrial areas and
may have been leased to or previously owned by commercial and industrial
companies that may have discharged hazardous materials. The Company incurs on-
going environmental remediation costs, and legal costs relating to clean-up,
defense of litigation and the pursuit of responsible third parties. Costs
incurred in connection with operating properties and with properties previously
sold are expensed. As of December 31, 1998, management has provided a reserve of
$10.8 million for such costs. These costs are expected to be incurred over an
estimated ten-year period, with a substantial portion incurred over the next few
years (see Note 16 of the accompanying consolidated financial statements for
further discussions).
Costs incurred for properties to be sold are deferred and will be
charged to cost of sales when the properties are sold. Costs relating to
undeveloped properties are capitalized as part of development costs. At December
31, 1998, the Company's estimate of its potential liability for identified
environmental costs relating to properties to be developed or sold ranged from
$11.4 million to $30.4 million. These costs generally will be capitalized as
they are incurred over the course of the estimated development period of
approximately 20 years. Environmental costs capitalized during 1998 totaled $3.6
million.
While the Company or outside consultants have evaluated the environmental
liabilities associated with most of the properties currently owned by the
Company, any evaluation necessarily is based upon then-prevailing law,
identified site conditions and the use of sampling methodologies. Also, the
Company does not generally have access to properties sold in the past which
could create environmental liabilities. The Company monitors its exposure to
environmental costs on a regular basis. Although an unexpected event could have
a material impact on the results of operations for any period, the Company does
not believe that such costs for identified liabilities will have a material
adverse effect on its financial position, results of operations or cash flows.
YEAR 2000 READINESS
Overview. To address the potential effects of the Year 2000 problem
(the inability of some hardware and software to distinguish the year 2000 from
the year 1900), the Company has adopted a program (the "Program") that examines
three areas:
. The Company's information systems, including hardware and
software ("I.S.");
. The Company's non-I.S. systems that use date-sensitive technology
("Embedded Technology"); and
. Third parties with whom the Company does business ("Third
Parties").
For each area, the Program has three phases:
. Phase 1, Inventory: Develop a list of potentially affected
functions;
. Phase II, Assessment and planning: Assess the nature and severity
of the problem and determine necessary corrective action; and
. Phase III, Remediation and testing: Implement any necessary
corrective action and test the results.
Information Systems. A failure of systems such as the Company's
telephones or computer network could materially impair the Company's ability to
perform essential business functions, such as the collection of revenue, payment
of debts, and communications generally.
The Company has substantially completed Phases I and II of the Program
for I.S., and Phase III is currently underway. Since January 1997, the Company
has ensured that all regularly scheduled I.S. replacements and upgrades are Year
2000 compliant. From January 1, 1997, through December 31, 1998, the Company
spent approximately $984,000 on I.S. improvements, upgrades and replacements.
For the period from January 1, 1997, to December 31, 1999, the Company may spend
up to approximately $3.0 million on I.S. improvements, upgrades and
replacements. Substantially all of these expenditures are primarily for business
purposes other than addressing Year 2000 issues and a significant portions of
these expenditures will be financed through capital leases. In 1999, the Company
expects to spend approximately $175,000 on testing and upgrades specifically
related to the Year 2000 issue. No planned I.S. projects have been deferred
because of the Program.
34
<PAGE>
The Company believes that, with these improvements, upgrades and
replacements, the Year 2000 problem will not significantly affect its I.S. If
planned improvements, upgrades and replacements are not timely completed (for
example, because of a scarcity of Year 2000 compliant products), the Year 2000
problem could have a material impact on the Company. Nonetheless, the Company
believes that its plans for resolving the Year 2000 problem with respect to I.S.
are adequate and that it will not need to develop contingency plans.
Embedded Technology. Electronic monitoring and control systems may
have date-sensitive coding embedded within their circuitry that is susceptible
to failure if it is not Year 2000 compliant. Year 2000 noncompliance could
affect the functioning of elevators and escalators, heating, ventilation and air
conditioning systems, security systems, fire-life safety systems, and other
automated building systems, which could affect use and access to buildings and
emergency response capabilities.
In December 1998, the Company completed an inventory of Embedded
Technology in those systems for which the Company is responsible in its
approximately 250 buildings. Phase II is currently underway and Phase III will
be performed as affected systems are identified. The Company has solicited bids
from engineering and consulting firms for assistance in performing Phases II and
III, and the Company is currently discussing terms of engagement with a firm
that can provide these services on a nationwide basis. While the Company is
currently unable to estimate the costs it will incur in Phases II and III, the
Company expects that these costs will not exceed $1,000,000. The Company expects
to complete this work in the second quarter of 1999. If necessary, contingency
planning is scheduled for the second and third quarters of 1999. Meanwhile, the
Company has incorporated Year 2000 compliance in its due diligence for any
acquisition of property.
Third Parties. The Company depends on a wide variety of Third Parties.
To the extent that Third Parties are unable to perform because of their own Year
2000 problems, the Company may be adversely affected. Because of the speculative
nature of these risks, it is not possible to estimate their financial impact on
the Company. Third Parties on whom the Company depends include:
. Customers, such as tenants and buyers of properties;
. Suppliers of goods, services or capital; and
. Regulatory bodies, such as government agencies from whom the
Company must obtain permits in order to proceed with its
projects.
In the third quarter of 1998, the Company began identifying and
prioritizing Third Parties and communicating with them about their approach to
the Year 2000 problem. This phase is expected to be substantially complete by
second quarter of 1999. The Company has initiated more detailed evaluations of
the most critical Third Parties. If necessary, these evaluations will be
followed, where possible, by the development of contingency plans, scheduled for
second quarter of 1999. In most cases, the Company must rely primarily on
statements from Third Parties as to their Year 2000 readiness and will not
attempt any independent verification. Because the systems of Third Parties are
outside the Company's control, the remediation and testing phase of the Program
is not applicable to Third Parties.
This area of the Program is being undertaken by the Company's
employees and is not expected to involve significant additional expenditures or
to delay any other work of the Company significantly.
Summary. The Program schedule is subject to change depending on future
developments, including delays by Third Parties. A failure to correct
significant Year 2000 problems could impair the Company's ability to conduct its
business and could affect its financial performance. Because of the general
uncertainty inherent in the Year 2000 problem and the uncertainty about the Year
2000 readiness of Third Parties, the Company cannot determine whether there will
be a material impact on its results of operations, liquidity, or financial
condition. The Company believes that the Program will significantly reduce the
risk of interruption of the Company's business operations.
FORWARD-LOOKING INFORMATION AND RISK FACTORS
Except for historical matters, the matters discussed in this annual
report are forward-looking statements that involve risks and uncertainties. We
have tried, wherever practical, to identify these forward-looking statements by
using words like "anticipate," "believe," "estimate," "project," "expect," and
similar expressions. Forward-looking statements include, but are not limited to,
statements about plans; opportunities; markets and economic conditions;
development, construction and sales activities; availability of financing; and
property values.
35
<PAGE>
We caution that these forward-looking statements reflect our current
beliefs and are based on information currently available to us. Accordingly,
these statements are subject to risks and uncertainties that could cause our
actual results, performance or achievements to differ materially from those
expressed in or implied by these statements. In particular, among the factors
that could cause actual results to differ materially are:
. Changes in the real estate market or in general economic
conditions in the areas in which we own property
. Competition in the real estate industry
. Changes in tax laws and other circumstances that affect our
ability to control the timing and recognition of deferred tax
liability
. Availability of financing to meet our capital needs, the
variability of interest rates, and our ability to use our
collateral to secure loans
. Delay in receipt of or denial of government approvals and
entitlements for development projects, and other political and
discretionary government decisions affecting the use of or access
to land
. Exposure of our assets to damage from natural occurrences such as
earthquakes, and weather conditions that affect the progress of
construction
. Liability for environmental remediation at properties owned or
formerly owned by us or our predecessors
. Changes in the cost of land and building materials
. Our ability to recruit and retain or replace key personnel
. Limitations on or challenges to title to our properties
. Risks related to the performance, interests and financial
strength of our joint venture projects
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial position is exposed to fluctuation in the variable
interest rates for its debt. At December 31, 1998, the Company did not have any
outstanding interest-protection contracts. The majority of the Company's
financial instruments are not considered market risk sensitive instruments, as
they are not subject to foreign currency exchange rate risk, commodity price
risk; the only instruments considered market risk sensitive are its loans with
variable interest rates.
At December 31, 1998, the Company had mortgage and other debts totaling
$252,948,000 that were subject to variable interest rates; they are summarized
as follows:
. Secured revolving credit line, interest variable (7.44% at
December 31, 1998), due November 1, 2000: $190,135,000.
. Unsecured revolving credit line, interest variable (6.75% at
December 31, 1998), due October 1, 2000: $24,700,000.
. Residential construction loans, interest variable (7.75% to 8.75%
at December 31, 1998), due at various dates through February 26,
2002: $3,975,000.
. Term loan, secured interest variable (7.0% at December 31, 1998),
due August 1, 2002: $12,778,000.
. Secured promissory notes, interest variable (9.0% at 9.75% at
December 31, 1998), due at various dates through October 22,
2003: $21,360,000.
If interest rates increased 100 basis points, the annual effect of such increase
to the Company's financial position and cash flows would be approximately $2.5
million, based on the outstanding balance at December 31, 1998. The fluctuation
of interest rates is not determinable; accordingly, actual results from interest
rate fluctuation could differ from the estimate presented above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules required under Regulation S-X
promulgated under the Securities Act of 1933 are identified in Item 14 and are
incorporated herein by reference.
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Except for the information relating to the executive officers of the
Company set forth in Part I of this Annual Report on Form 10-K, the information
required by the following items in this Part III is hereby incorporated by
reference to the relevant sections contained in the Company's definitive Proxy
Statement ("1999 Proxy Statement") which will be filed with the Securities and
Exchange Commission in connection with the 1999 Annual Meeting of Stockholders.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in the section captioned "Election of Directors" in
the 1999 Proxy Statement is incorporated herein by reference. Information
concerning executive officers required by this Item 10 is located under Part I,
Item 4 and pages 18 and 19 of this Form 10-K.
The information in the section captioned "Section 16(a) Beneficial
Ownership Reporting Compliance" in the 1999 Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information in the sections captioned "Election of Directors --
Directors' Compensation," "Employment Agreements" and "Compensation of Executive
Officers" in the 1999 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the sections captioned "Security Ownership of
Directors and Executive Officers" and "Security Ownership of Certain Beneficial
Owners" in the 1999 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the section captioned "Certain Relationships and
Related Transactions" in the 1999 Proxy Statement is incorporated herein by
reference.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) AND (A)(2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
See Index to Financial Statements and Financial Statement Schedules at
F-1 herein.
All other Schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(A)(3) EXHIBITS
See Index to Exhibits on Pages E1, E2 and E3.
(B) REPORTS ON FORM 8-K
None.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Catellus Development Corporation has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CATELLUS DEVELOPMENT CORPORATION
By /s/ Nelson C. Rising
_______________________________
NELSON C. RISING
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dated: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Catellus
Development Corporation and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Nelson C. Rising
_________________________
NELSON C. RISING President, Chief Executive Officer and March 31, 1999
Director
Principal Executive Officer
/s/ Stephen P. Wallace
_________________________
STEPHEN P. WALLACE Executive Vice President, March 31, 1999
Chief Operating Officer and
Chief Financial Officer
Principal Financial Officer
/s/ Paul A. Lockie
_________________________
PAUL A. LOCKIE Vice President and Controller March 31, 1999
Principal Accounting Officer
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*
_________________________
Joseph F. Alibrandi Director
*
_________________________
Daryl J. Carter Director
*
_________________________
Richard D. Farman Director
*
_________________________
Christine Garvey Director
*
_________________________
William M. Kahane Chairman of the Board, Director
*
_________________________
Leslie D. Michelson Director
*
_________________________
Jacqueline R. Slater Director
*
_________________________
Thomas M. Steinberg Director
*
_________________________
Beverly Benedict Thomas Director
* By /s/ Paul A. Lockie
__________________
</TABLE>
March 31, 1999
Paul A. Lockie
Attorney-in-fact
40
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements Page
<S> <C>
Report of Independent Accountants dated February 2, 1999............................................. F-2
Consolidated Balance Sheet at December 31, 1998 and 1997............................................. F-3
Consolidated Statement of Operations for the years ended December 31, 1998, 1997 and 1996............ F-4
Consolidated Statement of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996.. F-5
Consolidated Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996............ F-6
Notes to Consolidated Financial Statements........................................................... F-7
Summarized Quarterly Results (Unaudited)............................................................. F-24
Index to Exhibits
Exhibits............................................................................................. E-1
Financial Statement Schedules
Report of Independent Accountants dated February 2, 1999............................................. S-1
Schedule II - Valuation and Qualifying Accounts...................................................... S-2
Schedule III - Real Estate and Accumulated Depreciation.............................................. S-3
Attachment A to Schedule III......................................................................... S-4
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Catellus Development Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Catellus
Development Corporation and its subsidiaries at December 31, 1998 and 1997 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
February 2, 1999
F-2
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Assets
Properties...................................... $1,660,554 $1,358,807
Less accumulated depreciation................... (265,077) (235,832)
---------- ----------
1,395,477 1,122,975
Other assets and deferred charges, net.......... 80,240 50,138
Notes receivable, less allowance................ 15,275 30,971
Accounts receivable, less allowance............. 32,289 19,641
Restricted cash and investments................. 49,284 --
Cash and cash equivalents....................... 52,975 17,294
---------- ----------
Total...................................... $1,625,540 $1,241,019
========== ==========
Liabilities and stockholders' equity
Mortgage and other debt......................... $ 873,207 $ 568,699
Accounts payable and accrued expenses........... 81,951 62,681
Deferred credits and other liabilities.......... 41,620 40,035
Deferred income taxes........................... 138,533 117,705
---------- ----------
Total liabilities.......................... 1,135,311 789,120
---------- ----------
Commitments and contingencies (Note 16)
Stockholders' equity
Preferred stock............................... -- --
Common stock, 106,808 and 106,503 shares
outstanding at December 31, 1998 and 1997.... 1,068 1,065
Paid-in capital............................... 479,636 476,047
Accumulated earnings (deficit)................ 9,525 (25,213)
---------- ----------
Total stockholders' equity................. 490,229 451,899
---------- ----------
Total.................................... $1,625,540 $1,241,019
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income producing properties
Rental revenue............................................... $149,367 $128,953 $115,886
Property operating costs..................................... (42,198) (38,670) (39,408)
Equity in earnings of operating joint ventures, net.......... 9,368 7,436 5,993
-------- -------- --------
116,537 97,719 82,471
-------- -------- --------
Other property activities and fee services
Gain on property sales....................................... 37,254 13,197 15,623
Development and management fee income, net................... 7,366 6,449 3,432
Equity in earnings of development joint ventures, net........ 6,627 2,123 758
Land holding costs, net...................................... (2,151) (1,241) (3,724)
-------- -------- --------
49,096 20,528 16,089
-------- -------- --------
Interest expense............................................... (37,384) (39,988) (42,521)
Depreciation and amortization.................................. (34,054) (31,245) (30,561)
General and administrative expense............................. (14,215) (10,897) (8,019)
Gain on non-strategic asset sales.............................. 18,929 5,029 24,405
Litigation and environmental costs, net........................ -- 2,551 1,093
Other, net..................................................... 1,394 (1,113) (19)
-------- -------- --------
Income before income taxes and extraordinary expense......... 100,303 42,584 42,938
-------- -------- --------
Income tax expense
Current...................................................... (12,034) (4,676) (1,069)
Deferred..................................................... (28,366) (12,667) (16,468)
-------- -------- --------
(40,400) (17,343) (17,537)
-------- -------- --------
Income before extraordinary expense.......................... 59,903 25,241 25,401
Extraordinary expense related to early retirement of debt,
net of income tax benefit................................... (25,165) -- --
-------- -------- --------
Net income................................................... 34,738 25,241 25,401
Preferred stock dividends...................................... -- (1,353) (22,173)
Premium on redemption of preferred stock....................... -- -- (1,334)
-------- -------- --------
Net income applicable to common stockholders................. $ 34,738 $ 23,888 $ 1,894
======== ======== ========
Net income per share before extraordinary expense
Basic...................................................... $ 0.56 $ 0.24 $ 0.03
======== ======== ========
Assuming dilution.......................................... $ 0.55 $ 0.24 $ 0.03
======== ======== ========
Net loss per share - extraordinary expense
Basic...................................................... $ (0.23) $ -- $ --
======== ======== ========
Assuming dilution.......................................... $ (0.23) $ -- $ --
======== ======== ========
Net income per share after extraordinary expense
Basic...................................................... $ 0.33 $ 0.24 $ 0.03
======== ======== ========
Assuming dilution.......................................... $ 0.32 $ 0.24 $ 0.03
======== ======== ========
Average number of common shares outstanding - basic.......... 106,689 97,601 74,947
======== ======== ========
Average number of common shares outstanding - diluted........ 109,420 100,768 75,835
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated
---------------------- -------------------- Paid-In Earnings
Shares Amount Shares Amount Capital (Deficit)
---------- ---------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....................... 6,450 $ 322,500 72,967 $ 730 $ 196,525 $ (76,881)
Redemption of Series A preferred stock............ (508) (25,406) -- -- (1,334) --
Conversion of Series A preferred stock............ (453) (22,666) 2,502 25 22,641 --
Series A preferred stock dividends................ -- -- -- -- (11,298) --
Series B preferred stock dividends................ -- -- -- -- (10,875) --
Exercise of stock options and other............... -- -- 1,559 15 2,050 1,026
Net income........................................ -- -- -- -- -- 25,401
---------- ---------- --------- --------- --------- ------------
Balance at December 31, 1996....................... 5,489 274,428 77,028 770 197,709 (50,454)
Redemption of Series A preferred stock............ (8) (395) -- -- (69) --
Conversion of Series A preferred stock............ (2,481) (124,033) 13,696 137 123,896 --
Conversion of Series B preferred stock............ (3,000) (150,000) 15,306 153 149,847 --
Series B preferred stock dividends................ -- -- -- -- (1,353) --
Exercise of stock options and other............... -- -- 473 5 6,017 --
Net income........................................ -- -- -- -- -- 25,241
---------- ---------- --------- --------- --------- ------------
Balance at December 31, 1997....................... -- -- 106,503 1,065 476,047 (25,213)
Exercise of stock options and other............... -- -- 305 3 3,589 --
Net income........................................ -- -- -- -- -- 34,738
---------- ---------- --------- --------- --------- ------------
Balance at December 31, 1998....................... -- $ -- 106,808 $ 1,068 $ 479,636 $ 9,525
========== ========== ========= ========= ========= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................ $ 34,738 $ 25,241 $ 25,401
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary expense related to early retirement of debt, before
income tax benefit.................................................... 41,942 -- --
Depreciation and amortization.......................................... 34,054 31,245 30,561
Deferred income taxes.................................................. 22,075 12,667 16,468
Amortization of deferred loan fees and other costs..................... 2,826 2,959 4,799
Equity in earnings of joint ventures................................... (15,995) (9,559) (6,751)
Operating distributions from joint ventures............................ 16,723 12,129 10,235
Cost of properties and non-strategic assets sold....................... 191,604 111,509 84,276
Expenditures for development properties................................ (151,005) (94,371) (41,978)
Contributions to residential joint ventures............................ (34,167) -- --
Other property acquisitions............................................ (10,394) -- --
Other, net............................................................. (6,246) 1,911 (1,904)
Change in assets and liabilities:
Accounts and notes receivable.......................................... 3,122 (26,713) (9,681)
Other assets and deferred charges...................................... (16,536) (1,110) (13,444)
Accounts payable and accrued expenses.................................. 1,404 15,482 12,341
Other.................................................................. 6,561 2,779 754
--------- --------- --------
Net cash provided by operating activities................................... 120,706 84,169 111,077
--------- --------- --------
Cash flows from investing activities:
Property acquisitions..................................................... (52,110) (30,105) (12,230)
Capital expenditures...................................................... (167,105) (105,396) (57,517)
Tenant improvements....................................................... (3,624) (5,697) (3,613)
Net proceeds from sale of other assets.................................... 4,886 2,623 8,969
Contributions to joint ventures........................................... (8,105) (17,966) --
Short-term investments and restricted cash................................ (49,284) -- --
--------- --------- --------
Net cash used in investing activities....................................... (275,342) (156,541) (64,391)
--------- --------- --------
Cash flows from financing activities:
Borrowings................................................................ 971,121 181,680 222,052
Repayment of borrowings................................................... (715,369) (107,467) (224,470)
Redemption premium on early retirement of debt............................ (36,041) -- --
Payment on settlement of Treasury-lock contracts and financing fees....... (26,080) -- --
Preferred stock dividends paid............................................ -- (5,975) (23,067)
Redemption of preferred stock............................................. -- (471) (26,739)
Distributions to/contributions from minority partners, net................ (5,650) (5,167) 1,201
Proceeds from issuance of common stock.................................... 2,336 3,486 174
--------- --------- --------
Net cash provided by (used in) financing activities......................... 190,317 66,086 (50,849)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents........................ 35,681 (6,286) (4,163)
Cash and cash equivalents at beginning of year.............................. 17,294 23,580 27,743
--------- --------- --------
Cash and cash equivalents at end of year.................................... $ 52,975 $ 17,294 $ 23,580
========= ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)................................... $ 32,625 $ 36,717 $ 39,144
Income taxes........................................................... $ 6,302 $ 1,338 $ 1,009
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business
Catellus Development Corporation, together with its consolidated
subsidiaries, (the Company) is a diversified real estate operating company, with
a large portfolio of income-producing properties and developable land, that
manages and develops real estate for its own account and others. The Company's
development portfolio of industrial, residential, retail, office, and joint
venture projects are primarily located in major markets in California and seven
other states. The Company's income-producing properties consist primarily of
industrial facilities, along with a number of office and retail buildings
located in California, Arizona, Illinois, Texas, Colorado and Oregon. The
Company also has substantial undeveloped land holdings primarily in these same
states.
Note 2. Summary of Significant Accounting Policies
Principles of consolidation--The accompanying consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiaries
and investees over 50% owned which are controlled by the Company. All other
investees are accounted for using the equity method.
Revenue recognition--Rental revenue, in general, is recognized when due
from tenants; however, revenue from leases with rent concessions or fixed
escalations is recognized on a straight-line basis over the initial term of the
lease. Direct costs of negotiating and consummating a lease are deferred and
amortized over the initial term of the related lease.
The Company recognizes revenue from the sale of properties using the
accrual method. Sales not qualifying for full recognition at the time of sale
are accounted for under the percentage-of-completion method. In general,
specific identification and relative sales value methods are used to determine
the cost of sales. Estimated future costs to be incurred by the Company after
completion of each sale are included in cost of sales.
Cash and cash equivalents and restricted cash and investments --The Company
considers all highly liquid investments with a maturity of three months or less
at time of purchase to be cash equivalents. Of the total restricted cash and
investments of $49.3 million, $8.8 million at December 31, 1998, represents
proceeds from development property sales being held in separate cash accounts at
a trust company in order to preserve the Company's options of reinvesting the
proceeds on a tax-deferred basis. In addition, restricted investments of $40.5
million at December 31, 1998 represent certificates of deposits used to guaranty
completion of building construction and lease performance for certain properties
securing mortgage debt.
Interest rate protection contracts ("Treasury-lock contracts") --The
Company may enter into an interest rate protection agreement to lock its
interest rate when negotiating fixed rate financing agreements. Amounts paid or
received are capitalized and amortized as a component of interest expense using
the effective interest method over the term of the associated mortgage debt
agreement.
Financial instruments--The historical cost basis of the Company's notes
receivable is representative of fair value based on a comparison to year-end
interest rates for receivables of comparable risks and maturities. Mortgage and
other debt have carrying values which approximate estimated fair value based on
a comparison to year-end interest rates for debt with similar terms and
remaining maturities, with the exception of one of the Company's first mortgage
loans in 1997. As of December 31, 1997, this loan had an estimated aggregate
fair market value of $270 million and remaining principal of $251.6 million.
F-7
<PAGE>
Property and deferred costs--Real estate is stated at cost or the lower of
cost or estimated fair value. For operating properties and properties held for
long-term investment, a write-down to estimated fair value is recognized when a
property's estimated undiscounted future cash flow, before interest charges, is
less than its book value. For properties held for sale, a write-down to
estimated fair value is recorded when the Company determines that the carrying
cost exceeds the estimated selling price, less cost to sell. This evaluation is
made by management on a property by property basis. The evaluation of fair value
and future cash flows from individual properties requires significant judgment;
it is reasonably possible that a change in estimate could occur.
The Company capitalizes construction and development costs. Costs
associated with financing or leasing projects are also capitalized and amortized
over the period benefited by those expenditures.
Depreciation is computed using the straight-line method. Buildings and
improvements are depreciated using lives of between 20 and 40 years. Tenant
improvements are depreciated over the primary terms of the leases (generally 3-
15 years), while furniture and equipment are depreciated using lives ranging
between 3 and 10 years.
Maintenance and repair costs are charged to expense as incurred, while
significant improvements, replacements and major renovations are capitalized.
Allocated costs--Direct and indirect costs, including related general and
administrative expense, incurred by the Company in connection with property
sales and development and management fees are reflected as an offset to the
associated revenues in the accompanying consolidated statement of operations.
Included in cost of sales were direct and indirect costs of $12.0 million, $8.0
million and $7.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Development and management fee income, net, included $8.6 million,
$7.5 million and $8.5 million of direct and indirect costs for the same periods.
Notes receivable--Notes receivable are carried at the principal balance,
less estimated uncollectible amounts of $1.9 million as of December 31, 1998.
Interest is recognized as earned; however, the Company discontinues accruing
interest when collection is considered doubtful. All notes are secured by real
property.
Allowance for uncollectible accounts--Accounts receivable are net of an
allowance for uncollectible accounts totaling $1.3 million and $2.1 million at
December 31, 1998 and 1997, respectively.
Environmental costs--The Company incurs on-going environmental remediation
costs, including clean-up costs, consulting fees for environmental studies and
investigations, monitoring costs, and legal costs relating to clean-up,
litigation defense, and the pursuit of responsible third parties. Costs incurred
in connection with operating properties and properties previously sold are
expensed. Costs relating to undeveloped land are capitalized as part of
development costs. Costs incurred for properties to be sold are deferred and
charged to cost of sales when the properties are sold.
The Company maintains a reserve for known, probable costs of environmental
remediation to be incurred in connection with operating properties and
properties previously sold. When there is a legal requirement for environmental
remediation of developable land, the Company will accrue for the estimated cost
of remediation and capitalize that amount. Where there is no legal requirement
for remediation, costs will be capitalized, as incurred, as part of the project
costs.
Income taxes--Income taxes are recorded based on the future tax effects of
the difference between the tax and financial reporting bases of the Company's
assets and liabilities. In estimating future tax consequences, expected future
events are considered except for potential income tax law or rate changes.
Income per share--Income per share of common stock applicable to common
stockholders is computed by dividing net income, before extraordinary expense,
after reduction for preferred stock dividends and premium on redemption of
preferred stock, by the weighted average number of shares of common stock and
equivalents outstanding during the period (see table below for effect of
dilutive securities).
F-8
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Per Share Per Share Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
-------- -------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before extraordinary expense....... $59,903 $ 25,241 $ 25,401
Less: preferred stock dividends........... -- (1,353) (22,173)
premium on redemption of preferred
stock............................... -- -- (1,334)
-------- -------- --------
Income applicable to common stockholders.. 59,903 106,689 $ 0.56 23,888 97,601 $ 0.24 1,894 74,947 $ 0.03
======== ======== ========
Effect of dilutive securities - stock
options............................. -- 2,731 -- 3,167 -- 888
-------- -------- -------- -------- -------- --------
Income applicable to common stockholders
plus assumed conversion of options.. $ 59,903 109,420 $ 0.55 $ 23,888 100,768 $ 0.24 $ 1,894 75,835 $ 0.03
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Preferred stock convertible into 29,040,000 shares of common stock was
outstanding at December 31, 1996, but was not included in the computation of
diluted income per share because the assumed conversion would have been anti-
dilutive for the period.
Use of estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenue and expenses. Actual results could differ from those
estimates.
Reclassifications--Certain prior year amounts have been reclassified to
conform with the current year financial statement presentation.
New Accounting Standards--In the fourth quarter 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which
changed the method of calculation and presentation of earnings per share. This
change did not have any impact on previously reported income per share amounts
for the years ended December 31, 1996 or 1997.
During June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 131, ''Segment Reporting'', which
is effective for fiscal years beginning after December 15, 1997. SFAS No. 131
establishes standards for determining an entity's operating segments and the
type and level of financial information to be disclosed. The Company adopted
this statement for the annual financial statements for the year ending December
31, 1998.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 is effective for years beginning after June 15, 1999. The statement
requires all derivatives to be recorded on the balance sheet at fair value and
establishes new accounting treatment for the different types of transactions
qualifying for hedge accounting. The Company plans to adopt this statement in
the first quarter of 2000. Management does not believe this new standard will
significantly impact the financial position, results of operations, or cash
flows of the Company.
F-9
<PAGE>
Note 3. Mortgage and Other Debt
Mortgage and other debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
-------------- ---------------
(In thousands)
<S> <C> <C>
First mortgage loan, interest at 6.01%, due at various dates through
November 11, 2008 (a)............................................................... $372,629 $251,589
Secured revolving credit line, interest variable (7.44% at December 31, 1998),
due November 1, 2000 (b)............................................................ 190,135 192,100
First mortgage loans, interest at 6.65% to 9.75%, due at various
dates through March 1, 2009 (c)..................................................... 184,551 65,843
Acquisition loans, interest at 7.23%, due at various dates through
December 1, 2005 (d)................................................................ 34,311 --
Unsecured revolving credit line (residential subsidiary), interest variable
(6.75% at December 31, 1998) due October 1, 2000 (e)................................ 24,700 --
Assessment district bonds, interest at 6.218% to 8.7%, due at various
dates through September 2, 2021 (f)................................................. 19,585 17,825
Residential construction loans, interest variable (7.75% to 8.75%
at December 31, 1998), due at various dates through February 26, 2002 (g)........... 3,975 6,453
Term loan, secured, interest variable (7.0% at December 31, 1998),
due August 1, 2002 (h).............................................................. 12,778 12,929
Secured promissory notes, interest variable (9.0% to 9.75% at December
31, 1998), due at various dates through October 22, 2003 (i)........................ 21,360 21,570
Other loans, interest at 4.6% to 5.91%, due at various dates through
October 15, 2025 (j)................................................................ 9,183 390
-------------- ---------------
$873,207 $568,699
============== ===============
</TABLE>
(a) On October 26, 1998, the Company closed a $373 million loan, which bears
interest at 6.01% and is amortized over 30 years with a maturity of 10
years. The Company repaid an existing first mortgage loan which had an
average interest rate of 8.71% and recognized a $25.2 million extraordinary
charge, net of tax benefit of $16.8 million, related to the early retirement
of this loan. In connection with this new loan, the Company executed
several Treasury-lock contracts for purposes of fixing the interest rate on
this new loan. The net payment upon liquidation of the Treasury-lock
contracts was approximately $16.9 million which, considered with other
financing costs, resulted in an effective interest rate of 6.6% on the new
loan.
This loan is collateralized by certain of the Company's operating properties
and by an assignment of rents generated by the underlying properties. This
loan has a yield maintenance premium if paid prior to maturity.
(b) The Company's $265 million secured revolving credit line was extended and
modified on October 30, 1998. The secured revolving credit line's maturity
was extended for two years to November 1, 2000, at an initial amount of $213
million, with the capacity to go up to $265 million provided that additional
lender participation is obtained. At December 31, 1998, the line's capacity
was $215.9 million with $22.4 million available for future borrowings. The
credit line is collateralized by certain of the Company's operating
properties, an assignment of rents generated by the underlying properties
and certain land holdings.
(c) The first mortgage loans consist of $148.5 million bearing interest at 6.65%
(6.82% effective rate when considering financing costs), maturing in
September 2006; $22.2 million bearing interest at 9.75%, maturing October
2002; and $13.9 million bearing interest at 7.625% to 9.5%, maturing at
various dates from October 2002 through March 2009 from various lenders.
During 1998, the Company closed $153.5 million of new loans, of which $148.9
million was funded through December 31, 1998. The loans amortize over 30
years with a maturity of 8 years. The remaining $4.6 million of the loan is
expected to close in 1999 when collateral provisions are met.
F-10
<PAGE>
These first mortgage loans are collateralized by certain of the Company's
operating properties and by an assignment of rents generated by the
underlying properties. A majority of these loans have penalties if paid
prior to maturity.
(d) In connection with acquisitions of land, land leases and other leases,
subsidiaries of the Company issued a total of $40.1 million of secured
promissory notes. The Company intends to sell these assets. Accordingly,
these collaterized promissory notes are paid-down on a pro-rata basis upon
the sales of these assets.
(e) On September 25, 1998, the Company's residential subsidiary closed an
unsecured credit line with a capacity up to $60 million. This credit line
bears interest at LIBOR + 1.5% which was 6.75% at December 31, 1998, and
matures on October 1, 2000. At December 31, 1998, the line's capacity was
$28.8 million with $4.1 million available for future borrowings.
(f) The assessment district bonds are issued through local municipalities to
fund the construction of public infrastructure and improvements which
benefit the Company's properties. These bonds are secured by certain of the
Company's properties.
(g) The Company's residential construction loans are used to finance development
projects and are secured by the related land and improvements.
(h) This secured term loan is collateralized by an operating property and by an
assignment of rents generated by the underlying property.
(i) These promissory notes were used to finance land purchases for residential
development projects and are secured by deeds of trust.
(j) In conjunction with improvements made by a third party that will benefit a
mixed-use project, the Company issued a note for $8.6 million. The note
bears interest at a Commercial Paper Rate plus 50 basis points (5.33% at
December 31, 1998) and matures October 15, 2025.
Certain loan agreements contain restrictive financial covenants, the most
restrictive of which require a debt coverage ratio of at least 1.30:1, require
stockholders' equity to be no less than $409 million, and require that the
Company maintain certain other specified financial ratios. The Company was in
compliance with all such covenants at December 31, 1998.
The maturities of mortgage and other debt outstanding as of December 31,
1998 are summarized as follows (in thousands):
1999.............................. $ 10,059
2000.............................. 228,886
2001.............................. 10,687
2002.............................. 69,271
2003.............................. 12,960
Thereafter........................ 541,344
----------
$ 873,207
==========
F-11
<PAGE>
Interest costs relating to mortgage and other debt are summarized as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Total interest incurred............ $ 58,630 $ 46,684 $ 45,377
Interest capitalized............... (21,246) (6,696) (2,856)
--------- --------- ---------
Interest expensed.................. $ 37,384 $ 39,988 $ 42,521
========= ========= =========
</TABLE>
Note 4. Income Taxes
The income tax expense reflected in the consolidated statement of
operations differs from the amounts computed by applying the federal statutory
rate of 35% to income before income taxes and extraordinary item as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Federal income tax expense at
statutory rate................... $ 35,106 $ 14,904 $ 15,028
Increase in taxes resulting from:
State income taxes, net of
federal impact................. 5,203 2,345 2,441
Other............................ 91 94 68
--------- --------- ---------
$ 40,400 $ 17,343 $ 17,537
========= ========= =========
</TABLE>
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets and
liabilities and for operating loss and tax credit carryforwards. Significant
components of the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Involuntary conversions (condemnations) of property............ $ 90,079 $ 89,076
Capitalized interest and taxes................................. 90,052 88,580
Like-kind property exchanges................................... 35,729 22,463
Investments in partnerships.................................... 28,171 23,335
Other.......................................................... 6,894 8,043
------------ ------------
250,925 231,497
------------ ------------
Deferred tax assets:
Operating loss and tax credit carryforwards.................... $ 8,247 $ 9,757
Intercompany transactions (prior to spin-off).................. 14,707 14,620
Capitalized rent............................................... 23,921 23,873
Adjustment to carrying value of property....................... 40,843 43,669
Depreciation and amortization.................................. 12,541 10,399
Environmental reserve.......................................... 4,590 4,624
Other.......................................................... 7,543 6,850
------------ ------------
112,392 113,792
Deferred tax assets valuation allowance........................ -- --
------------ ------------
112,392 113,792
------------ ------------
Net deferred tax liability..................................... $ 138,533 $ 117,705
============ ============
</TABLE>
F-12
<PAGE>
During 1996, the Company generated a net operating loss carryforward of
$0.2 million for tax purposes which expires in 2011. Deferred income tax expense
was reduced to reflect the future benefit of this amount. Deferred tax assets
include $6.0 million relating to net operating loss carryforwards ("NOLs") of
$17.1 million. The Company has NOLs of $10.1 million, $6.5 million, $0.3 million
and $0.2 million which expire in 2007, 2008, 2009 and 2011 (none of the
Company's NOLs are scheduled to expire in 2010).
The income tax benefit of $1.2 million and $1.7 million for the years ended
December 31, 1998 and 1997 associated with the exercise of stock options is
credited directly to paid-in capital on the accompanying statement of
shareholders' equity.
Note 5. Joint Venture Investments
The Company has investments in a variety of unconsolidated real estate
joint ventures that are involved in both operation of income-producing
properties and development of various other projects.
The Company's joint ventures include the following at December 31, 1998:
<TABLE>
<CAPTION>
Ownership Ownership
Income-Producing Properties Percentage Development Projects Percentage
------------------------------- ----------- ------------------------------------ -----------
<S> <C> <C> <C>
Hotel Residential Development
International Rivercenter 25.16% Ridgemoor Projects 25%
New Orleans Rivercenter 41.86% Talega Associates, LLC 33%
Pacific Market Investment Company 50% CRG Financial Services, L.P. 70%
Serrano Associates, LLC 67%
Office Restoration Venture, LLC 50%
Torrance Investment Company 66.67%
Commercial Development
Apartment Desman Road Partners 37.82%
JMB/Santa Fe Bayfront Venture 50%
Design Center
Pacific Design Center 74%
</TABLE>
The Company guarantees a portion of the debt and interest of certain of its
joint ventures. At December 31, 1998, these guarantees totaled $79.7 million.
F-13
<PAGE>
The condensed combined balance sheets and statement of operations of these
unconsolidated joint ventures, along with the Company's proportionate share, are
summarized as follows:
<TABLE>
<CAPTION>
Combined Proportionate Share
-------------------- -----------------------
December 31, December 31,
-------------------- -----------------------
1998 1997 1998 1997
--------- --------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Income-producing properties:
Property............................................ $ 220,538 $ 226,704 $ 104,155 $ 104,872
Other............................................... 23,597 22,285 12,157 11,978
Development projects:
Property............................................ 215,393 113,483 121,804 23,085
Other............................................... 50,046 4,970 22,890 1,052
--------- --------- --------- ---------
Total........................................... $ 509,574 $ 367,442 $ 261,006 $ 140,987
========= ========= ========= =========
Liabilities and venturers' deficit:
Income-producing properties:
Notes Payable....................................... $ 415,814 $ 410,003 $ 159,145 $ 160,643
Other............................................... 16,240 14,256 5,497 4,720
Development projects:
Notes Payable....................................... 132,938 23,847 72,770 1,842
Other............................................... 24,362 2,283 9,721 246
--------- --------- --------- ---------
Total liabilities............................... 589,354 450,389 247,133 167,451
--------- --------- --------- ---------
Venturers' equity/(deficit)
Income-producing properties......................... (187,918) (175,270) (48,330) (48,512)
Development projects................................ 108,138 92,323 62,203 22,048
--------- --------- --------- ---------
(79,780) (82,947) 13,873 (26,464)
--------- --------- --------- ---------
Total liabilities and venturers' deficit........ $ 509,574 $ 367,442 $ 261,006 $ 140,987
========= ========= ========= =========
</TABLE>
The Company's proportionate share of venturers' deficit is an aggregate
amount for all ventures. Because the Company's ownership percentage differs from
venture to venture, and certain ventures have accumulated deficits while others
have accumulated equity, the Company's percentage of venturers' deficit is not
reflective of the Company's ownership percentage of the ventures. The Company
does not recognize its share of losses generated by joint ventures in excess of
its investment unless it is committed, legally or otherwise, to fund deficits in
the future.
The Company has contributed appreciated property to certain of its joint
venture investments. Although the properties are recorded by the venture at fair
value on the date of contribution, the related gains have been deferred in the
Company's financial statements and will be recognized when the properties are
sold by the joint ventures.
<TABLE>
<CAPTION>
Combined Proportionate Share
---------------------------- ----------------------------
Year Ended December 31,
----------------------------------------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Income-producing properties............... $148,669 $144,291 $134,144 $ 38,716 $ 37,622 $ 35,527
Development projects...................... 101,765 52,545 49,235 38,472 13,556 9,516
-------- -------- -------- -------- -------- --------
250,434 196,836 183,379 77,188 51,178 45,043
-------- -------- -------- -------- -------- --------
Expenses
Income-producing properties............... 128,145 127,746 122,964 29,348 30,186 29,534
Development projects...................... 84,785 48,161 45,256 31,845 11,433 8,758
-------- -------- -------- -------- -------- --------
212,930 175,907 168,220 61,193 41,619 38,292
-------- -------- -------- -------- -------- --------
Net earnings before income tax.............. $ 37,504 $ 20,929 $ 15,159 $ 15,995 $ 9,559 $ 6,751
======== ======== ======== ======== ======== ========
</TABLE>
The Company had a loan outstanding to one of its joint ventures in the
amount of $1.7 million at December 31, 1995. During 1996, the Company converted
this note to equity in the joint venture.
F-14
<PAGE>
Note 6. Property
Book value by property type consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Income-producing properties:
Industrial buildings .......................................................... $ 547,903 $ 465,300
Office buildings .............................................................. 205,024 193,639
Retail buildings .............................................................. 95,729 97,467
Land leases /(1)/ ............................................................. 65,245 11,317
Investment in operating joint ventures ........................................ (48,330) (48,513)
------------ ------------
865,571 719,210
------------ ------------
Developable Properties:
Industrial .................................................................... 168,453 138,734
Residential ................................................................... 72,413 68,499
Mixed-use ..................................................................... 294,084 260,004
Retail, office and other ...................................................... 20,532 47,983
Natural resources ............................................................. 6,445 5,108
Properties held for sale ...................................................... 10,144 29,597
Investment in development joint ventures ...................................... 62,203 22,049
------------ ------------
634,274 571,974
------------ ------------
Work-in-process:
Industrial .................................................................... 103,456 39,264
Residential ................................................................... 34,350 7,411
------------ ------------
137,806 46,675
------------ ------------
Other ........................................................................... 22,903 20,948
------------ ------------
Gross book value ................................................................ 1,660,554 1,358,807
Accumulation depreciation ....................................................... (265,077) (235,832)
------------ ------------
Net book value .................................................................. $1,395,477 $1,122,975
============ ============
</TABLE>
/(1)/ This category includes $37.8 million of land which the Company intends to
sell.
During 1998, 1997 and 1996, the Company recorded a write-down of $9.0
million, $8.6 million and $9.9 million, respectively, to cost of sales relating
to non-strategic assets.
F-15
<PAGE>
Note 7. Other Financial Statement Captions
Other Assets and Deferred Charges, Net
The Company's other assets and deferred charges consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Deferred financing fees, net.................. $26,479 $ 8,752
Deferred lease commissions, net............... 22,186 18,451
Straight-line rent............................ 11,988 10,410
Other......................................... 19,587 12,525
------- -------
$80,240 $50,138
======= =======
</TABLE>
Amortization of lease commissions was $4.0 million, $3.2 million and $3.0
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Amortization of deferred finance fees was $2.8 million, $3.0 million and $4.8
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Accounts Payable and Accrued Expenses
The Company's accounts payable and accrued expenses consisted of the
following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
<S> <C> <C>
(In thousands)
Accrued construction costs.................... $31,161 $23,777
Salaries, bonuses and deferred compensation... 17,501 12,432
Property taxes................................ 8,457 6,783
Interest...................................... 6,509 3,780
Other......................................... 18,323 15,909
------- -------
$81,951 $62,681
======= =======
</TABLE>
Deferred Credits and Other Liabilities
The Company's deferred credits and other liabilities consisted of the
following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
<S> <C> <C>
(In thousands)
Environmental and legal reserve............... $12,849 $12,995
Deferred revenues............................. 12,732 4,934
Security deposits............................. 4,963 4,258
Minority interest............................. 1,012 5,991
Other......................................... 10,064 11,857
------- -------
$41,620 $40,035
======= =======
</TABLE>
The environmental and legal reserve is more fully described in Notes 11 and
16. Deferred revenues represent cash received by the Company in connection with
property sales transactions which do not meet the criteria for profit
recognition.
F-16
<PAGE>
Note 8. Leases
The Company, as lessor, has entered into noncancelable operating leases
expiring at various dates through 2040. Rental revenue under these leases
totaled $150.1 million in 1998, $131.1 million in 1997 and $118.7 million in
1996. Included in this revenue are rentals contingent on lessees' operations of
$2.6 million in 1998, $3.0 million in 1997 and $2.7 million in 1996. Future
minimum rental revenue under existing noncancelable operating leases as of
December 31, 1998, are summarized as follows (in thousands):
<TABLE>
<S> <C>
1999...................................... $ 110,719
2000...................................... 101,287
2001...................................... 86,857
2002...................................... 71,721
2003...................................... 55,286
Thereafter................................ 365,818
---------
$ 791,688
=========
</TABLE>
The book value of the Company's properties under operating leases or held
for rent are summarized as follows:
<TABLE>
December 31,
----------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Buildings................................. $ 670,540 $ 584,121
Land and improvements..................... 275,472 199,980
--------- ---------
946,012 784,101
Less accumulated depreciation............. (247,729) (220,084)
--------- ---------
$ 698,283 $ 564,017
========= =========
</TABLE>
The Company, as lessee, has entered into noncancelable operating leases
expiring at various dates through 2023. Rental expense under these leases
totaled $3.0 million in 1998, $2.5 million in 1997 and $1.6 million in 1996.
Future minimum lease payments as of December 31, 1998 are summarized as follows
(in thousands):
<TABLE>
<S> <C>
1999...................................... $ 2,494
2000...................................... 1,946
2001...................................... 1,344
2002...................................... 965
2003...................................... 883
Thereafter................................ 2,705
---------
$ 10,337
=========
</TABLE>
F-17
<PAGE>
Note 9. Revenues and Direct Costs by Activity
Revenues and related costs exclusive of depreciation and amortization are
summarized by activity as follows:
<TABLE>
<CAPTION>
Property Excess
Operating (Deficit) of
Costs or Cost Revenues
Revenues Of Sales over Costs
-------- ------------- ------------
(In thousands)
<S> <C> <C> <C>
Year Ended December 31, 1998
Income-producing properties:
Industrial buildings.......................................... $ 78,918 $ 16,486 $ 62,432
Office buildings.............................................. 31,765 13,400 18,365
Retail buildings.............................................. 13,241 4,115 9,126
Land development.............................................. 11,693 7,415 4,278
Land leases................................................... 13,750 782 12,968
Equity in earnings of operating joint ventures................ 9,368 -- 9,368
-------- ------------- ------------
158,735 42,198 116,537
-------- ------------- ------------
Other property activities and fee services:
Commercial property sales..................................... 86,975 68,102 18,873
Residential property sales.................................... 106,656 91,673 14,983
Other property sales.......................................... 11,636 8,238 3,398
Development and management fees............................... 15,928 8,562 7,366
Equity in earnings of development joint ventures.............. 6,627 -- 6,627
Land holdings................................................. 3,072 5,223 (2,151)
-------- ------------- ------------
230,894 181,798 49,096
-------- ------------- ------------
$389,629 $ 223,996 $ 165,633
======== ============= ============
Year Ended December 31, 1997
Income-producing properties
Industrial buildings.......................................... $ 67,186 $ 14,529 $ 52,657
Office buildings.............................................. 29,713 12,753 16,960
Retail buildings.............................................. 13,273 3,932 9,341
Land development.............................................. 10,853 6,557 4,296
Land leases................................................... 7,928 899 7,029
Equity in earnings of operating joint ventures................ 7,436 -- 7,436
-------- ------------- ------------
136,389 38,670 97,719
-------- ------------- ------------
Other property activities and fee services:
Commercial property sales..................................... 39,587 31,717 7,870
Residential property sales.................................... 82,632 77,305 5,327
Development and management fees............................... 13,976 7,527 6,449
Equity in earnings of development joint ventures.............. 2,123 -- 2,123
Land holdings................................................. 3,675 4,916 (1,241)
-------- ------------- ------------
141,993 121,465 20,528
-------- ------------- ------------
$278,382 $ 160,135 $ 118,247
======== ============= ============
Year Ended December 31, 1996
Income-producing properties
Industrial buildings.......................................... $ 55,865 $ 14,014 $ 41,851
Office buildings.............................................. 28,407 12,661 15,746
Retail buildings.............................................. 13,215 4,376 8,839
Land development.............................................. 10,589 7,252 3,337
Land leases................................................... 7,810 1,105 6,705
Equity in earnings of operating joint ventures................ 5,993 -- 5,993
-------- ------------- ------------
121,879 39,408 82,471
-------- ------------- ------------
Other property activities and fee services:
Commercial property sales..................................... 40,525 26,709 13,816
Residential property sales.................................... 21,945 20,138 1,807
Development and management fees............................... 11,945 8,513 3,432
Equity in earnings of development joint ventures.............. 758 -- 758
Land holdings................................................. 4,874 8,598 (3,724)
-------- ------------- ------------
80,047 63,958 16,089
-------- ------------- ------------
$201,926 $ 103,366 $ 98,560
======== ============= ============
</TABLE>
F-18
<PAGE>
Note 10. Non-Strategic Asset Sales
The Company's non-strategic asset sales are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996
---------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Sales..................................................... $ 80,041 $ 31,122 $ 85,678
Cost of Sales............................................. 61,112 26,093 61,273
---------- ----------- ------------
Gain................................................... $ 18,929 $ 5,029 $ 24,405
========== =========== ============
</TABLE>
Note 11. Litigation and Environmental Costs
Litigation and environmental costs are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996
---------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Litigation recovery....................................... $ -- $ -- $ --
Environmental recovery, net............................... -- 2,551 1,093
---------- ----------- ------------
$ -- $ 2,551 $ 1,093
========== =========== ============
</TABLE>
Environmental costs charged to operations, including amounts charged to
cost of sales, for 1997 and 1996 totaled $0.1 million and $1.1 million,
respectively. Environmental costs capitalized in 1998, 1997 and 1996 were $3.6
million, $5.7 million and $2.8 million, respectively.
See further discussion regarding litigation and environmental matters at
Note 16.
Note 12. Other, net
Other income (expense) is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996
---------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Interest income........................................... $ 1,791 $ 931 $ 1,212
Cost of S-3 registration/(1)/............................. -- (1,000) --
All other, net............................................ (397) (1,044) (1,231)
---------- ----------- ------------
$ 1,394 $ (1,113) $ (19)
========== =========== ============
</TABLE>
/(1)/ The Company registered shares issued to the California Public Employees'
Retirement System during 1997. As the Company did not receive any proceeds
from this offering, such costs were expensed in the fourth quarter 1997.
F-19
<PAGE>
Note 13. Employee Benefit and Stock Option Plans
The Company has a profit sharing and savings plan for all employees.
Funding consists of employee contributions along with matching and discretionary
contributions by the Company. Total expense for the Company under this plan was
$0.9 million, $0.7 million and $0.4 million in 1998, 1997 and 1996,
respectively.
The Company has various plans through which employees may purchase common
stock of the Company.
The Incentive Stock Compensation Plan (Substitute Plan) was adopted to
provide substitute awards to employees whose awards under certain plans of the
former parent company, Santa Fe Pacific Corporation (SFP), were forfeited as a
result of the Company's spin-off from SFP in 1990. The number of shares,
exercise price and expiration dates of these awards were set so the participant
retained the full unrealized potential value of the original SFP grant. Options
became exercisable after March 5, 1992 and expire from 1996 through 1999.
The Company also has four stock option plans under which certain committees
of the Board of Directors may grant options to purchase up to 8,750,000 shares
of common stock (Stock Option Plan, 1995 Stock Option Plan, Amended and Restated
Executive Stock Option Plan and Amended and Restated 1996 Performance Award
Plan). The exercise price of options granted under these plans is generally the
fair market value of the common stock on the date of grant. Options generally
are exercisable no earlier than six months from the date of grant and typically
expire ten years after the date of grant, although some options expire after
five years. A majority of the options granted in 1998 become exercisable in
four annual installments commencing on the first anniversary of the date of
grant. The remaining options generally become exercisable in three annual
installments commencing on the first or third anniversary of the date of grant.
A number of options granted in 1998 also require achievement of stock price
benchmarks before each annual installment becomes exercisable.
The Company also has various plans through which non-employee directors may
purchase common stock of the Company.
Under the Amended and Restated Executive Stock Option Plan, each non-
employee director was automatically granted an option, upon initial election to
the Board of Directors, to purchase 5,000 shares of common stock at a price of
127.63% of the fair market value on the date of grant, increasing 5% on each
anniversary of the grant date commencing on the sixth anniversary. These options
are exercisable in installments on a cumulative basis at a rate of 20% each
year. No further options may be granted to non-employee directors under this
plan.
Under the Amended and Restated 1996 Performance Award Plan, each non-
employee director is automatically granted an option to purchase 5,000 shares of
common stock upon initial election to the Board of Directors and annually
thereafter during his or her term of service. The exercise price of these
options is the fair market value of the common stock on the date of grant and
the options are exercisable based upon stock price performance benchmarks.
In addition, under the Amended and Restated 1996 Performance Award Plan,
each non-employee director may elect to defer receipt of his or her annual
retainer fee, meeting fees, and chairmen's retainer until termination of board
service or upon the occurrence of an earlier specified date which is at least
three years after the election of deferral and to acquire stock rather than
receive cash at a purchase price equal to 90% of the fair market value of the
common stock on the date of deferral.
The Company has elected to follow Accounting Principles Board Opinion No.
25, ''Accounting for Stock Issued to Employees'' (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, ''Accounting for Stock-
Based Compensation'' (Statement 123) requires use of option valuation models
that were developed for use in valuing publicly traded stock options. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
F-20
<PAGE>
Pro forma information regarding net income (loss) and income (loss) per
share is required by Statement 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method. The
weighted-average fair value of options granted during 1998, 1997 and 1996 were
$6.26, $6.36 and $3.30, respectively. The fair value of options granted was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1998, 1997 and 1996,
respectively: risk-free interest rates of 5.15%, 6.22%, and 5.82%; zero percent
dividend yields; volatility factors of the expected market price of the
Company's common stock of 31.4%, 29.95% and 29.56%, and a weighted-average
expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands, except income per share
information)
<S> <C> <C> <C>
Pro forma net income applicable to common
stockholders.................................... $ 32,786 $ 21,120 $ 671
========= ========= =========
Pro forma income per share - basic................ $ 0.31 $ 0.22 $ 0.01
========= ========= =========
Pro forma income per share - assuming dilution.... $ 0.30 $ 0.21 $ 0.01
========= ========= =========
</TABLE>
A summary of the Company's stock option activity, and related information
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- --------------------------- --------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
-------- ---------------- ------- ---------------- ------- -----------------
(In thousands, except exercise price information)
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year...... 6,522 $ 9.16 6,361 $ 8.13 2,877 $ 9.84
Granted............................ 1,446 $ 15.98 778 $ 16.58 4,189 $ 8.85
Exercised.......................... (305) $ 7.69 (473) $ 7.35 (68) $ 7.15
Expired............................ (2) $ 14.71 -- -- -- --
Forfeited.......................... (278) $ 11.06 (144) $ 8.99 (637) $ 10.81
------- ------- -------
Outstanding-end of year............ 7,383 $ 10.49 6,522 $ 9.16 6,361 $ 8.13
======= ======= =======
Exercisable at end of year......... 3,414 $ 8.05 2,129 $ 7.84 404 $ 7.32
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$5.58 to $21.38. The weighted-average remaining contractual life of those
options is 7.6 years.
F-21
<PAGE>
Note 14. Capital Stock
The Company has authorized the issuance of 150 million shares of $.01 par
value common stock. The Company has reserved 8,750,000 shares of common stock
pursuant to various compensation programs.
Prior to September 1996, the Company had outstanding 3,449,999 shares of
$3.75 Series A Cumulative Convertible Preferred Stock (Series A preferred stock)
and 3,000,000 shares of $3.625 Series B Cumulative Convertible Exchangeable
Preferred Stock (Series B preferred stock). The Series A preferred stock had an
annual dividend of $3.75 per share and a stated value of $50 per share. The
Series A preferred stock was convertible into common stock at a price of $9.06
per common share and was also redeemable, at the Company's option, at any time
after February 16, 1996, at $52.625 per share. The Series B preferred stock had
an annual dividend of $3.625 per share and a stated value of $50 per share. The
Series B preferred stock was convertible into common stock at a price of $9.80
per common share and was also redeemable, at the Company's option, at any time
after November 15, 1996, at $52.5375 per share.
During 1996, the Company commenced a series of calls for redemption of its
outstanding preferred stock. As a result of these calls, during 1996, 453,326
Series A preferred shares were converted into 2,501,783 common shares and
508,113 Series A preferred shares were redeemed at a cost of approximately $26.7
million. In 1997, 2,480,671 shares of Series A preferred stock and all of the
Series B preferred stock were converted into 29,001,469 shares of common stock,
with 7,889 shares of Series A preferred stock redeemed at a cost of
approximately $440,000. With the completion of these calls in June 1997, the
Company has no remaining outstanding preferred stock.
Note 15. Segment Reporting
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting which disaggregates its
business by service rendered and asset type. The Company has four reportable
segments: Asset Management, Commercial Development, Residential Development,
and Mixed-Use Development. The Asset Management segment consists of leasing,
management and sales of Company owned buildings and land leases. The Commercial
Development segment develops real estate for the Company's own account or for
third parties, and acquires and sells developable land and commercial buildings.
The Residential Development segment is involved in home building, community
development and project management activities. The Mixed-Use Development
segment entitles and develops major mixed-use development sites, which include
development for residential, office, retail and entertainment purposes.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 2). Each segment is
evaluated on the excess of revenues over costs, exclusive of depreciation,
amortization, income taxes and extraordinary expense. Inter-segment gains and
losses are not recognized. Debt and interest bearing assets are allocated to
segments based upon the grouping of the underlying assets. All other assets and
liabilities are specifically identified. Each segment has a separate operating
management structure, but more than one segment may ultimately report to the
same operating manager.
F-22
<PAGE>
Financial data by reportable segment is as follows:
<TABLE>
<CAPTION>
Asset Commercial Residential
Management Development Development
------------ ------------- -------------
(In thousands)
<S> <C> <C> <C>
1998
Revenues from external customers (see Note 9)....................... $ 151,042 $ 81,169 $ 112,639
Interest revenue.................................................... 151 354 591
Interest expense, net of capitalized................................ (44,985) -- --
Segment earnings before depreciation, amortization, gain or non-
strategic asset sales, income taxes, and extraordinary expense.... 66,996 14,924 21,604
Depreciation and amortization....................................... (29,864) (553) (3)
Segment assets...................................................... 725,300 256,500 201,100
Expenditures for segment assets..................................... 47,300 171,300 110,000
1997
Revenues from external customers (see Note 9)....................... 151,743 17,517 83,869
Interest revenue.................................................... 203 192 261
Interest expense, net of capitalized................................ (38,201) -- --
Segment earnings before depreciation, amortization, gain or non-
strategic asset sales, income taxes, and extraordinary expense.... 59,048 5,013 5,939
Depreciation and amortization....................................... (27,830) (689) 133
Segment assets...................................................... 604,600 188,900 115,200
Expenditures for segment assets..................................... 6,400 112,300 94,100
1996
Revenues from external customers (see Note 9)....................... 112,354 43,213 23,178
Interest revenue.................................................... 344 114 45
Interest expense, net of capitalized................................ (36,394) -- --
Segment earnings before depreciation, amortization, gain or non-
strategic asset sales, income taxes, and extraordinary expense.... 48,720 10,937 (787)
Depreciation and amortization....................................... (27,173) (592) (52)
Segment assets...................................................... 498,100 170,000 56,600
Expenditures for segment assets..................................... 15,800 42,600 42,000
Mixed-Use Consolidated
Development Others/(a)/ Total
------------ ------------- -------------
(In thousands)
<S> <C> <C> <C>
1998
Revenues from external customers (see Note 9)....................... $ 13,944 $ 30,835 $ 389,629
Interest revenue.................................................... 9 686 1,791
Interest expense, net of capitalized................................ (1,927) 9,528 (37,384)
Segment earnings before depreciation, amortization, gain or non-
strategic asset sales, income taxes, and extraordinary expense.... 1,697 10,207 115,428
Depreciation and amortization....................................... (1,676) (1,958) (34,054)
Segment assets...................................................... 291,700 150,900 1,625,500
Expenditures for segment assets..................................... 26,200 29,400 384,200
1997
Revenues from external customers (see Note 9)....................... 12,189 13,064 278,382
Interest revenue.................................................... 8 267 931
Interest expense, net of capitalized................................ (2,019) 232 (39,988)
Segment earnings before depreciation, amortization, gain or non-
strategic asset sales, income taxes, and extraordinary expense.... 2,379 (3,579) 68,800
Depreciation and amortization....................................... (1,207) (1,652) (31,245)
Segment assets...................................................... 254,500 77,800 1,241,000
Expenditures for segment assets..................................... 15,900 6,900 235,600
1996
Revenues from external customers (see Note 9)....................... 15,158 8,023 201,926
Interest revenue.................................................... 10 699 1,212
Interest expense, net of capitalized................................ (2,741) (3,386) (42,521)
Segment earnings before depreciation, amortization, gain or non-
strategic asset sales, income taxes, and extraordinary expense.... 2,705 (12,481) 49,094
Depreciation and amortization....................................... (1,186) (1,558) (30,561)
Segment assets...................................................... 240,600 157,800 1,123,100
Expenditures for segment assets..................................... 10,900 4,000 115,300
</TABLE>
/(a)/ Includes a third party land management and other property company, a
segment to manage/dispose of various resource properties, and corporate.
None of those segments meets any of the quantitative thresholds for
determining reportable segments.
Note 16. Commitments and Contingencies
As of December 31, 1998, the Company has outstanding standby letters of
credit and surety bonds in the amount of $104.5 million in favor of local
municipalities or financial institutions to guarantee performance on real
property improvements or financial obligations.
The Company, as a partner in certain joint ventures, has made certain
financing guarantees (Note 5).
The Company is a party to a number of legal actions arising in the ordinary
course of business. While the Company cannot predict with certainty the final
outcome of these proceedings, considering current insurance coverages and the
substantial legal defenses available, management believes that none of these
actions, when finally resolved, will have a material adverse effect on the
consolidated financial position, results of operations, or cash flows of the
Company.
Inherent in the operations of the real estate business is the possibility
that environmental liability may arise from the current or past ownership, or
current or past operation, of real properties. Also, the Company does not
generally have access to properties sold in the past which could create
environmental liabilities. The Company may be required in the future to take
action to correct or reduce the environmental effects of prior disposal or
release of hazardous substances by third parties, the Company, or its corporate
predecessors. Future environmental costs are difficult to estimate because of
such factors as the unknown magnitude of possible contamination, the unknown
timing and extent of the corrective actions which may be required, the
determination of the Company's liability in proportion to that of other
responsible parties, and the extent to which such costs are recoverable from
insurance.
F-23
<PAGE>
At December 31, 1998, management estimates that future costs for
remediation of identified or suspected environmental contamination on operating
properties and properties previously sold approximate $10.8 million, and has
provided a reserve for that amount. It is anticipated that such costs will be
incurred over the next ten years with a substantial portion incurred over the
next five years. Management also estimates that similar costs relating to the
Company's properties to be developed or sold may range from $11.4 million to
$30.4 million. These amounts will be capitalized as components of development
costs when incurred, which is anticipated to be over a period of twenty years,
or will be deferred and charged to cost of sales when the properties are sold.
The Company's estimates were developed based on reviews which took place over
several years based upon then prevailing law and identified site conditions.
Because of the breadth of its portfolio, and past sales, the Company is unable
to review each property extensively on a regular basis. Such estimates are not
precise and are always subject to the availability of further information about
the prevailing conditions at the site, the future requirements of regulatory
agencies, and the availability of other parties to pay some or all of such
costs.
Summarized Quarterly Results (Unaudited)
The Company's income and cash flow are determined to a large extent by
property sales. Sales and net income have fluctuated significantly from quarter
to quarter, as evidenced by the following summary of unaudited quarterly
consolidated results of operations. Property sales fluctuate from quarter to
quarter, reflecting general market conditions and the Company's intent to sell
property when it can obtain attractive prices. Cost of sales may also vary
widely because (i) a number of properties have been owned for many decades; (ii)
some properties were acquired within the last ten to fifteen years; (iii)
properties are owned in various geographical locations; and (iv) development
projects have varying infrastructure costs and build-out periods.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1998
-------------------------------------------------
First Second Third Fourth
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
Income producing properties:
Rental revenue................................................ $ 35,494 $ 37,786 $ 37,145 $ 38,942
Property operating costs...................................... (9,988) (10,085) (10,910) (11,215)
Other property activities and fee services:
Gain on property sales........................................ 6,139 3,957 10,144 17,014
Development and management fee income, net.................... 755 2,388 2,602 1,621
Gain on non-strategic asset sales............................... (53) 4,423 2,858 11,701
Interest expense................................................ (9,562) (10,447) (9,043) (8,332)
General and administrative expense.............................. (3,274) (3,089) (3,214) (4,638)
Depreciation and amortization................................... (8,185) (8,586) (8,230) (9,053)
Income before extraordinary expense............................. 7,913 11,743 14,702 25,545
Extraordinary expense, net...................................... -- -- (3,307) (21,858)
Net income...................................................... $ 7,913 $ 11,743 $ 11,395 $ 3,687
========== =========== ========== =========
Net income per common share -- basic............................ $ 0.07 $ 0.11 $ 0.11 $ 0.03
========== =========== ========== =========
Net income per common share -- assuming dilution................ $ 0.07 $ 0.11 $ 0.10 $ 0.03
========== =========== ========== =========
EBDDT /(1)/..................................................... $ 19,898 $ 21,706 $ 27,003 $ 34,787
========== =========== ========== =========
Year Ended December 31,
-------------------------------------------------
1997
-------------------------------------------------
First Second Third Fourth
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
Income producing properties:
Rental revenue................................................ $ 30,805 $ 31,421 $ 32,901 $ 33,826
Property operating costs...................................... (9,056) (10,045) (9,747) (9,822)
Other property activities and fee services:
Gain on property sales........................................ 484 3,154 3,368 6,191
Development and management fee income, net.................... 719 1,435 2,223 2,072
Gain on non-strategic asset sales............................... 3,640 418 570 401
Interest expense................................................ (9,794) (10,205) (10,035) (9,954)
General and administrative expense.............................. (2,615) (2,701) (2,926) (2,655)
Depreciation and amortization................................... (7,476) (7,723) (7,839) (8,207)
Income before extraordinary expense............................. 5,109 5,685 6,278 8,169
Extraordinary expense, net...................................... -- -- -- --
Net income...................................................... $ 5,109 $ 5,685 $ 6,278 $ 8,169
========== =========== ========== =========
Net income per common share -- basic............................ $ 0.05 $ 0.06 $ 0.06 $ 0.08
========== =========== ========== =========
Net income per common share -- assuming dilution................ $ 0.05 $ 0.06 $ 0.06 $ 0.07
========== =========== ========== =========
EBDDT /(1)/..................................................... $ 10,563 $ 16,297 $ 17,199 $ 18,712
========== =========== ========== =========
</TABLE>
/(1)/ The Company uses a supplemental performance measure called Earnings
Before Depreciation and Deferred Taxes (EBDDT), along with net income, to
report its operating results. EBDDT is not a measure of operating results
or cash flows from operating activities as defined by generally accepted
accounting principles. Additionally, EBDDT is not necessarily indicative
of cash available to fund cash needs and should not be considered as an
alternative to cash flows as a measure of liquidity. However, the Company
believes that EBDDT provides relevant information about its operations
and is necessary, along with net income, for an understanding of its
operating results.
EBDDT is calculated by making various adjustments to net income.
Depreciation, amortization and deferred income taxes are excluded from
EBDDT as they represent non-cash charges. In addition, gains on the sale
of non-strategic assets and extraordinary items, including their current
tax effect, represent unusual and/or non-recurring items and are excluded
from the EBDDT calculation.
F-24
<PAGE>
Exhibit
No.
- -------
3.1 Form of Restated Certificate of Incorporation of the Registrant(1)
3.1A Amendment to Restated Certificate of Incorporation of the
Registrant(6)
3.2 Form of Certificate of Designations, Preferences and Rights of $3.25
Series
A Cumulative Convertible Preferred Stock(2)
3.3 By-Laws, as amended(11)
3.4 Form of Certificate of Designations, Preferences and Rights of $3.625
Series B Cumulative Convertible Exchangeable Preferred Stock(6)
4.1 Form of stock certificate representing Common Stock(1)
4.2 Amended and Restated Line of Credit Loan Agreement among Catellus
Development Corporation, Bank of America National Trust and Savings
Association as Arranger and Administrative Agent, The First National Bank
of Chicago as Documentation Agent, and The Other Financial Institutions
Party Hereto, dated as of October 28, 1998*
4.3 Loan Agreement by and between Catellus Finance 1, L.L.C. and Prudential
Mortgage Capital Company, Inc. dated as of October 26, 1998*
10.1 Exploration Agreement and Option to Lease dated December 28, 1989 between
the Registrant and Santa Fe Pacific Minerals Corporation(1)
10.2 Registration Rights Agreement dated as of December 29, 1989 among the
Registrant, BAREIA, O&Y and Itel(1)
10.2A Letter Agreement dated November 14, 1995 between the Registrant and
California Public Employees' Retirement System(8)
10.3 Restated Tax Allocation and Indemnity Agreement dated December 29, 1989
among the Registrant and certain of its subsidiaries and Santa Fe Pacific
Corporation ("SFP")(1)
10.4 State Tax Allocation and Indemnity Agreement dated December 29, 1989
among the Registrant and certain of its subsidiaries and SFP(1)
10.5 Registrant's Incentive Stock Compensation Plan(3)
10.6 Termination, Substitution and Guarantee Agreement between ATSF and the
Registrant dated December 21, 1990(4)
10.7 Registrant's Amended and Restated 1991 Stock Option Plan(10)
10.8 Registrant's Amended and Restated Executive Stock Option Plan(10)
10.9 Form of First Amendment to Registration Rights Agreement among the
Registrant, BAREIA, O&Y and Itel(5)
10.10 Amended and Restated Executive Employment Agreement dated as of November
29, 1995 between the Registrant and Nelson C. Rising(8)
10.11 Executive Employment Agreement dated February 10, 1995 between the
Registrant and Timothy J. Beaudin(7)
E-1
<PAGE>
10.12 Employment Agreement dated July 24, 1996 between the Registrant and
Stephen P. Wallace(8)
10.13 Registrant's Amended and Restated 1995 Stock Option Plan(10)
10.14 Registrant's Amended and Restated 1996 Performance Award Plan(10)
10.15 Employment Agreement dated February 1, 1996 between the Registrant and
Ira Yellin(9)
10.16 Letter Agreement dated February 1, 1996 between the Registrant and Ira
Yellin(9)
10.17 Amended and Restated Employment Agreement dated September 16,1997 between
the Registrant and Kathleen Smalley(10)
10.18 Letter Agreement dated November 16, 1996 between the Registrant and
Steve Wallace(9)
10.19 Letter Agreement dated November 16, 1996 between the Registrant and
Timothy Beaudin(10)
10.20 Office lease dated November 22, 1996 between Bradbury Associates, L.P.
and the Registrant(10)
10.21 Registrant's Deferred Compensation Plan(10)
10.22 Letter Agreement dated November 14, 1997 between the Registrant and Doug
Gardner*
21.1 Subsidiaries of the Registrant*
23.1 Consent of Independent Accountants*
24.1 Powers of Attorney from directors with respect to the filing of the
Form 10-K*
27 Financial Data Schedule*
99.1 Report of the Independent Real Estate Appraisers dated March 12,
1996(8)
The Registrant has omitted instruments with respect to long-term debt where the
total amount of the securities authorized thereunder does not exceed 10 percent
of the assets of the Registrant and its subsidiaries on a consolidated basis.
The Registrant agrees to furnish a copy of such instrument to the Commission
upon request.
*Filed with this report on Form 10-K.
(1) Incorporated by reference to the Registration Statement on Form 10
(Commission File No. 0-18694) as filed with the Commission on July 18, 1990
("Form 10").
(2) Incorporated by reference to the Form 8 constituting a Post-Effective
Amendment No. 1 to the Form 8-A as filed with the Commission on February
19, 1993.
(3) Incorporated by reference to the Form 8 constituting Post-Effective
Amendment No. 1 to the Form 10 as filed with the Commission on November 20,
1990.
(4) Incorporated by reference to the Form 10-K for the year ended December 31,
1990.
(5) Incorporated by reference to Amendment No. 2 to Form S-3 as filed with the
Commission on February 4, 1993.
E-2
<PAGE>
(6) Incorporated by reference to the Form 10-K for the year ended December 31,
1993.
(7) Incorporated by reference to the Form 10-K for the year ended December 31,
1994.
(8) Incorporated by reference to the Form 10-K for the year ended December 31,
1995.
(9) Incorporated by reference to the Form 10-K for the year ended December 31,
1996.
(10) Incorporated by reference to the Form 10-K for the year ended December 31,
1997.
(11) Incorporated by reference to the Form 10-Q for the quarter ended September
30, 1998.
E-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
The Board of Directors
of Catellus Development Corporation
Our audits of the consolidated financial statements referred to in our
report dated February 2, 1999, appearing on page F-2 of this Form 10-K of
Catellus Development Corporation, also included an audit of the Financial
Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion,
these Financial Statement Schedules present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
San Francisco, California
February 2, 1999
S-1
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Year Expenses Accounts Deductions Year
----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts receivable.............. $ 1,751 $ 1,053 $ 81 $ (533)/(1)/ $ 2,352
Reserve for abandoned projects.......................... 1,346 -- -- (30)/(2)/ 1,316
Reserve for environmental and legal costs............... 14,355 -- 200 (416)/(3)/ 14,139
Year ended December 31, 1997
Allowance for doubtful accounts receivable.............. 2,352 359 6 (636)/(1)/ 2,081
Reserve for abandoned projects.......................... 1,316 1,275 1,226 (1,422)/(2)/ 2,395
Reserve for environmental and legal costs............... 14,139 -- 574 (1,718)/(3)/ 12,995
Year ended December 31, 1998
Allowance for doubtful accounts receivable.............. 2,081 90 -- (904)/(1)/ 1,267
Allowance for doubtful notes receivable................. -- 1,860 -- -- 1,860
Reserve for abandoned projects.......................... 2,395 -- -- (2,088)/(2)/ 307
Reserve for environmental and legal costs............... 12,995 -- 24 (170)/(3)/ 12,849
</TABLE>
Notes:
/(1)/ Balances written off as uncollectible.
/(2)/ Costs of unsuccessful projects written off.
/(3)/ Environmental costs incurred.
S-2
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Initial Cost to Subsequent
Catellus to Acquisition
--------------------------- -------------------------
Building & Carrying
Description Encumbrances Land Improvements Improvements Costs
- -------------------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Income producing properties:
Mission Bay,
San Francisco, CA............. $ -- $ 80,587 $ 3,952 $ 40,829 $ 43,311
Other properties
less than 5% of total......... 749,273 182,281 47,335 619,986 189,704
------------ ----------- ---------- ---------- ----------
749,273 262,868 51,287 660,815 233,015
------------ ----------- ---------- ---------- ----------
Land holdings........................ 123,934 115,501 11,697 228,940 59,655
------------ ----------- ---------- ---------- ----------
Total................................ $ 873,207 $ 378,369 $ 62,984 $ 889,755 $ 292,670
============ =========== ========== ========== ==========
Gross Amount at Which Carried
at Close of Period
/(1)/(2)/(3)/(4)/
--------------------------------------------
Buildings & Accumulated
Description Land Improvements Total Depreciation
- -------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income producing properties:
Mission Bay,
San Francisco, CA............. $ 80,587 $ 88,092 $ 168,679 $ 3,711
Other properties
less than 5% of total......... 182,281 857,025 1,039,306 244,261
------------ ----------- ---------- ----------
262,868 945,117 1,207,985 247,972
------------ ----------- ---------- ----------
Land holdings........................ 115,501 300,292 415,793 4,360
------------ ----------- ---------- ----------
Total................................ $ 378,369 $ 1,245,409 $1,623,778 $ 252,332
============ =========== ========== ==========
Life on Which
Depreciation
Date of in Latest
Completion Income
of Date Statement
Description Construction Acquired is Computed
- -------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Income producing properties:
Mission Bay,
San Francisco, CA............. N/A various (5)
Other properties
less than 5% of total......... N/A various (5)
Land holdings........................ N/A various (5)
Total................................
</TABLE>
/(1)/ A reserve of $307,000 against predevelopment costs has been established
for projects to be abandoned.
/(2)/ The aggregate cost for federal income tax purpose is approximately
$1,297,000,000.
/(3)/ See Attachment A to Schedule III for reconciliation of beginning of period
total to total at close of period.
/(4)/ Excludes investments in joint ventures and furniture and equipment.
/(5)/ Reference is made to Note 2 to the Consolidated Financial Statements for
information related to depreciation.
S-3
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
ATTACHMENT A TO SCHEDULE III
RECONCILIATION OF COST OF REAL ESTATE AT BEGINNING OF PERIOD
WITH TOTAL AT END OF PERIOD
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1.............................. $ 1,364,324 $ 1,258,121 $ 1,218,995
------------ ------------ ------------
Additions during period:
Acquisitions.................................. 126,634 30,105 10,987
Improvements.................................. 322,319 201,774 104,646
Reclassification from other accounts.......... 836 965 30
------------ ------------ ------------
Total additions.......................... 449,789 232,844 115,663
------------ ------------ ------------
Deductions during period:
Cost of real estate sold...................... 190,067 122,270 75,364
Other
Reclassification to personal property
and other accounts..................... 268 3,096 1,173
Increase reserve for abandoned projects..... -- 1,275 --
------------ ------------ ------------
Total deductions......................... 190,335 126,641 76,537
------------ ------------ ------------
Balance at December 31............................ $ 1,623,778 $ 1,364,324 $ 1,258,121
============ ============ ============
</TABLE>
RECONCILIATION OF REAL ESTATE ACCUMULATED DEPRECIATION
AT BEGINNING OF PERIOD WITH TOTAL AT END OF PERIOD
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1.............................. $ 225,087 $ 202,352 $ 177,312
------------ ------------ ------------
Additions during period:
Charged to expense............................ 28,029 26,349 25,994
------------ ------------ ------------
Deductions during period:
Cost of real estate sold...................... 734 3,488 1,190
Other......................................... 50 126 (236)
------------ ------------ ------------
Total deductions......................... 784 3,614 954
------------ ------------ ------------
Balance at December 31............................ $ 252,332 $ 225,087 $ 202,352
============ ============ ============
</TABLE>
S-4
<PAGE>
Exhibit 4.2
AMENDED AND RESTATED LINE OF CREDIT
LOAN AGREEMENT
among
CATELLUS DEVELOPMENT CORPORATION,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Arranger and Administrative Agent,
THE FIRST NATIONAL BANK OF CHICAGO
as Documentation Agent,
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
Dated as of October 28, 1998
<PAGE>
TABLE OF CONTENTS
--------------------
Page
--
ARTICLE 1. DEFINITIONS............................................. 2
1.1 Certain Defined Terms.............................. 2
1.2 Other Interpretive Provisions...................... 22
1.2.1 Use of Defined Terms............................ 22
1.2.2 Certain Common Terms............................ 23
(a) The Agreement................................... 23
(b) Documents....................................... 23
(c) Including....................................... 23
(d) Performance..................................... 23
(e) Contracts....................................... 23
(f) Laws............................................ 23
(g) Captions........................................ 24
(h) Independence of Provisions...................... 24
(i) Exhibits........................................ 24
1.2.3 Accounting Principles........................... 24
(a) Accounting Terms................................ 24
(b) Fiscal Periods.................................. 24
ARTICLE 2. THE CREDITS............................................. 24
2.1 Amounts and Terms of Commitments.................. 24
2.2 Loan Accounts..................................... 25
2.3 Procedure for Borrowing........................... 26
2.4 Conversion and Continuation Elections............. 27
2.5 Optional Prepayments.............................. 28
2.6 Mandatory Prepayments of Loans.................... 29
2.6.1 Property Dispositions..................... 29
2.6.2 Events of Loss............................ 29
2.6.3 Remargining............................... 29
2.6.4 General................................... 31
2.7 Repayment at Maturity.................................... 31
2.8 Interest................................................. 31
2.8.1 Accrual Rate.............................. 31
2.8.2 Payment................................... 31
2.8.3 Default Interest.......................... 31
2.8.4 Maximum Legal Rate........................ 32
2.9 Fees..................................................... 32
2.9.1 Administrative Agent Fees................. 32
2.9.2 Commitment Fee............................ 32
2.9.3 Unused Fee................................ 32
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<PAGE>
2.9.4 Letter of Credit Fees...................... 33
2.10 Computation of Interest and Fees................... 33
2.11 Payments by the Borrower........................... 33
2.12 Payments by the Banks to the Administrative Agent.. 34
2.13 Sharing of Payments................................ 35
2.14 Security........................................... 35
2.15 Reconveyance....................................... 35
2.16 Encumbrance of Additional Properties............... 39
2.17 Development of Entitled Land and Construction
Properties......................................... 42
2.18 Increases and Decreases in Pro Rata Shares......... 42
2.19 Increase in Maximum Commitment Amount.............. 42
ARTICLE 3. TAXES, YIELD PROTECTION AND ILLEGALITY.................. 44
3.1 Taxes.............................................. 44
3.2 Illegality......................................... 44
3.3 Increased Costs and Reduction of Return............ 45
3.4 Funding Losses..................................... 47
3.5 Inability to Determine Rates....................... 48
3.6 Certificates of Banks.............................. 48
3.7 Survival........................................... 48
ARTICLE 4. CONDITIONS PRECEDENT.................................... 49
4.1 Conditions of Initial Loans........................ 49
4.1.1 Credit Agreement, Notes and
Environmental Indemnity............. 49
4.1.2 Resolutions; Incumbency............. 49
4.1.3 Organization Documents; Good
Standing............................ 49
4.1.4 Legal Opinions...................... 50
4.1.5 Payment of Fees..................... 50
4.1.6 Collateral Documents................ 50
4.1.7 Environmental Review................ 52
4.1.8 Lease Review........................ 52
4.1.9 Certificate......................... 52
4.1.10 Establishment of Appraised Values... 52
4.1.11 Other Documents..................... 53
4.2 Conditions to All Borrowings....................... 53
4.2.1 Notice of Borrowing................. 53
4.2.2 Continuation of Representations
and Warranties...................... 53
4.2.3 No Existing Default................. 53
4.2.4 No Future Advance Notice............ 53
4.2.5 Further Assurances.................. 53
4.2.6 Title Indorsements.................. 54
4.3 Letters of Credit.................................. 54
4.3.1 Letter of Credit Application........ 54
-ii-
<PAGE>
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.......................... 54
5.1 Corporate Existence and Power...................... 54
5.2 Corporate Authorization; No Contravention.......... 55
5.3 Governmental Authorization......................... 55
5.4 Binding Effect..................................... 55
5.5 Litigation......................................... 56
5.6 No Default......................................... 56
5.7 ERISA Compliance................................... 56
5.8 Use of Proceeds; Margin Regulations................ 57
5.9 Title to Properties................................ 57
5.10 Taxes 57
5.11 Financial Condition................................ 58
5.12 Environmental Matters.............................. 58
5.13 Collateral Documents............................... 59
5.14 Regulated Entities................................. 60
5.15 No Burdensome Restrictions......................... 60
5.16 Subsidiaries....................................... 60
5.17 Insurance.......................................... 60
5.18 Solvency........................................... 60
5.19 Full Disclosure.................................... 60
5.20 Name and Principal Place of Business............... 61
5.21 Year 2000 Readiness and Disclosure................. 61
ARTICLE 6. AFFIRMATIVE COVENANTS................................... 61
6.1 Financial Statements............................... 61
6.1.1 Annual Borrower Financial Statements....... 61
6.1.2 Annual Borrower Cash Flow Projections...... 62
6.1.3 Quarterly Borrower Financial Statements.... 62
6.1.4 Quarterly Property Operating Statements
and Rent Rolls............................. 62
6.2 Certificates; Other Information.................... 62
6.3 Notices 63
6.4 Preservation of Corporate Existence, Etc........... 65
6.5 Maintenance of Property............................ 65
6.6 Insurance.......................................... 65
6.7 Payment of Obligations............................. 67
6.8 Compliance with Laws............................... 67
6.9 Inspection of Property and Books and Records....... 67
6.10 Environmental Laws................................. 68
6.11 Use of Proceeds.................................... 68
6.12 Further Assurances................................. 68
6.13 Copies of Leases................................... 69
6.14 Debt Coverage...................................... 69
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<PAGE>
6.15 Fixed Charge Coverage.............................. 69
6.16 Leverage........................................... 69
6.17 Tangible Net Worth................................. 69
6.18 Portfolio Net Cash Flow Coverage................... 70
ARTICLE 7. NEGATIVE COVENANTS...................................... 70
7.1 Limitation on Liens................................ 70
7.2 Lease of a Property................................ 71
7.3 Consolidations and Mergers......................... 72
7.4 Limitation on Subordinated Indebtedness............ 72
7.5 Limitation on Preferred Shares..................... 72
7.6 Transactions with Affiliates....................... 72
7.7 Use of Proceeds.................................... 72
7.8 Change in Business................................. 72
7.9 Accounting Changes................................. 72
7.10 Lease Amendments................................... 73
7.11 Leasing or Management Office....................... 73
7.12 Management Agreements.............................. 73
ARTICLE 8. EVENTS OF DEFAULT....................................... 73
8.1 Event of Default................................... 73
(a) Non-Payment............................. 73
(b) Representation or Warranty............... 73
(c) Certain Specific Defaults................ 73
(d) Other Specific Defaults.................. 74
(e) Other Defaults.......................... 74
(f) Insolvency; Voluntary Proceedings........ 74
(g) Involuntary Proceedings.................. 74
(h) Monetary Judgments....................... 74
(i) Non-Monetary Judgments................... 75
(j) Adverse Change........................... 75
8.2 Remedies........................................... 75
8.3 Rights Not Exclusive............................... 76
ARTICLE 9. THE ADMINISTRATIVE AGENT................................ 76
9.1 Appointment and Authorization...................... 76
9.2 The Administrative Agent's Powers.................. 76
9.3 Limitation on the Administrative Agent's Duties.... 77
9.4 Acknowledgment of the Co-Lender Agreement.......... 77
9.5 Documentation Agent and Co-Agents.................. 77
9.6 Successor Administrative Agent, Documentation
Agent and Co-Agents................................ 77
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<PAGE>
ARTICLE 10. MISCELLANEOUS........................................... 78
10.1 Amendments and Waivers............................. 78
10.2 Notices 79
10.3 No Waiver; Cumulative Remedies..................... 80
10.4 Costs and Expenses................................. 80
10.5 Indemnity.......................................... 81
10.6 Assignments, Participations, etc................... 83
10.7 Successors and Assigns............................. 85
10.8 Confidentiality.................................... 85
10.9 Set-off 85
10.10 Notification of Addresses, Lending Offices, Etc.... 86
10.11 Counterparts....................................... 86
10.12 Severability....................................... 86
10.13 No Third Parties Benefited......................... 86
10.14 Governing Law and Jurisdiction..................... 86
10.15 Reference and Arbitration.......................... 87
10.15.1 Judicial Reference........................ 87
10.15.2 Mandatory Arbitration..................... 87
10.15.3 Real Property Collateral.................. 87
10.15.4 Provisional Remedies, Self-Help and
Foreclosure............................... 88
10.16 Entire Agreement; Amendment and Restatement........ 88
-v-
<PAGE>
AMENDED AND RESTATED LINE OF CREDIT
LOAN AGREEMENT
(Secured)
This AMENDED AND RESTATED LINE OF CREDIT LOAN AGREEMENT (the "Agreement")
---------
is entered into as of October 28, 1998, among CATELLUS DEVELOPMENT CORPORATION,
a Delaware corporation (the "Borrower"), the several financial institutions from
--------
time to time party to this Agreement (collectively, the "Banks"; individually, a
-----
"Bank"), Bank of America National Trust and Savings Association, as arranger and
----
as administrative agent for the Banks, and The First National Bank of Chicago,
as documentation agent.
Factual Background
------------------
WHEREAS, certain of the Banks have previously made available to the
Borrower a secured revolving line of credit on the terms and subject to the
conditions set forth in that certain Line of Credit Loan Agreement dated as of
October 28, 1996, among the Borrower, the banks party thereto and BofA, as
administrative agent for such banks, as amended by (i) that certain First
Modification Agreement to Line of Credit Loan Agreement dated as of December 23,
1996 (the "First Modification"), (ii) that certain Second Modification Agreement
------------------
to Line of Credit Loan Agreement dated as of March 1, 1997 (the "Second
------
Modification"), (iii) that certain Third Modification Agreement to Line of
- ------------
Credit Loan Agreement dated as of June 1, 1997 (the "Third Modification"), (iv)
------------------
that certain Fourth Modification Agreement to Line of Credit Loan Agreement
dated as of September 15, 1997 (the "Fourth Modification"), (v) that certain
-------------------
Fifth Modification Agreement to Line of Credit Loan Agreement (the "Fifth
-----
Modification") dated as of December 23, 1997, and (vi) that certain Sixth
- ------------
Modification Agreement to Line of Credit Loan Agreement (the "Sixth
-----
Modification") dated as of July 29, 1998 (as amended, the "Existing Loan
-------------
Agreement");
- ---------
WHEREAS, under the Existing Loan Agreement, the Banks party thereto agreed
to make available to the Borrower a secured revolving line of credit in the
maximum principal amount of $265,000,000, with BofA having a pro rata share of
29.24528%, representing a maximum commitment of $77,500,000; The First National
Bank of Chicago having a pro rata share of 15.09433%, representing a maximum
commitment of $40,000,000; CIBC Inc. having a pro rata share of 11.32075%,
representing a maximum commitment of $30,000,000; The Bank of Nova Scotia, San
Francisco Agency, having a pro rata share of 11.32075%, representing a maximum
commitment of $30,000,000; The First National Bank of Boston having a pro rata
share of 11.32075%, representing a maximum commitment of $30,000,000;
Commerzbank AG, Los Angeles Branch, having a pro rata share of 9.43396%,
representing a maximum commitment of $25,000,000; Union Bank of California, N.A.
having a pro rata share of 7.54716%, representing a maximum commitment of
-1-
-1-
<PAGE>
20,000,000; and Wells Fargo Bank, National Association having a pro rata share
of 4.71698%, representing a maximum commitment of $12,500,000;
WHEREAS, the Borrower has requested that the Banks modify the terms of the
secured revolving line of credit made available to the Borrower pursuant to the
Existing Loan Agreement;
WHEREAS, following modification of the revolving credit facility made
available to the Borrower pursuant to the Existing Loan Agreement, CIBC Inc. and
Commerzbank AG, Los Angeles Branch, will no longer be parties to the revolving
line of credit; and
WHEREAS, the remaining Banks have agreed to make available to the Borrower
an amended secured revolving line of credit in the maximum principal amount of
$213,000,000 upon the terms and subject to the conditions set forth in this
Agreement, which amends and restates in full the Existing Loan Agreement, with
the pro rata shares of the remaining Banks adjusted so that BofA has a pro rata
share of 36.3850%, representing a maximum commitment of $77,500,000; The First
National Bank of Chicago has a pro rata share of 15.4930%, representing a
maximum commitment of $33,000,000; The Bank of Nova Scotia, San Francisco
Agency, has a pro rata share of 14.0845%, representing a maximum commitment of
$30,000,000; The First National Bank of Boston has a pro rata share of 14.0845%,
representing a maximum commitment of $30,000,000; Union Bank of California, N.A.
has a pro rata share of 14.0845%, representing a maximum commitment of
30,000,000; and Wells Fargo Bank, National Association has a pro rata share of
5.8685%, representing a maximum commitment of $12,500,000.
Agreement
---------
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
-----------
1.1 Certain Defined Terms . The following terms have the following
---------------------
meanings:
"Administrative Agent" means BofA in its capacity as administrative
--------------------
agent for the Banks hereunder, and any successor administrative agent designated
under Section 9.6.
-----------
-2-
-2-
<PAGE>
"Affiliate" means, as to any Person, (a) any other Person which,
---------
directly or indirectly, is in control of, is controlled by, or is under common
control with, (i) such Person or (ii) any general partner of such Person; (b)
any other Person five percent (5%) or more of the equity interest of which is
held beneficially or of record by (i) such Person or (ii) any general partner of
such Person; or (c) any general or limited partner of (i) such Person or (ii)
any general partner of such Person. A Person shall be deemed to "control"
another Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of the
other Person, whether through the ownership of voting securities, by contract,
or otherwise; provided, however, that no Person shall be deemed to "control"
--------
another Person solely because such Persons have a common director or an employee
or agent of one such Person is a director of the other.
"Agent-Related Persons" means BofA and any successor administrative
---------------------
agent designated under Section 9.6, together with their respective Affiliates,
-----------
and the officers, directors, employees, agents and attorneys-in-fact of such
Persons and Affiliates.
"Agent's Payment Office" means the address for payments set forth on
----------------------
the signature page hereto in relation to the Administrative Agent, or such other
address as the Administrative Agent may from time to time specify by written
notice to Borrower in accordance with the terms of this Agreement.
"Agreement" means this Amended and Restated Line of Credit Loan
---------
Agreement, as amended, supplemented or modified from time to time.
"Applicable Margin" means (i) with respect to Base Rate Loans, 0.50%,
-----------------
and (ii) with respect to LIBOR Loans, 1.80%.
"Appraisal" means an appraisal of the value of a Property taking into
---------
account any and all Estimated Remediation Costs applicable to such Property.
Such appraisal shall be conducted in accordance with all Requirements of Law
applicable to the Banks, and all applicable internal policies of the
Administrative Agent, by (i) an independent appraisal firm selected by the
Administrative Agent or (ii) the BofA in-house appraisal department. No
appraisal of any Property shall include any part of such Property (or any
improvements located on such part of such Property) previously released or
reconveyed from the Lien of the Deed of Trust encumbering such Property and no
longer owned by the Borrower.
"As-Completed Appraised Value" means, for any Construction Property at
----------------------------
any time, the estimated market value of such Property upon completion of all of
the improvements to be constructed by the Borrower pursuant to the sale
agreement or lease relating to such Construction Property, as established by an
Appraisal conducted prior to the recording of the Deed of Trust encumbering such
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<PAGE>
Construction Property to secure the Obligations. The As-Completed Appraised
Values for the Construction Properties as of the Closing Date are set forth on
Schedule 1.1. However, nothing contained in this Agreement is intended to be,
- ------------
nor should it be construed as, an admission by the Borrower as to the fair cash
market value of any Property, or any portion thereof.
"As-Is Appraised Value" means, for any Property at any time, the
---------------------
market value of such Property in the condition existing as of the date of the
Appraisal establishing its value, as established by an Appraisal conducted (i)
prior to the recording of the Deed of Trust encumbering such Property to secure
the Obligations or (ii) if a Deed of Trust was recorded pursuant to the Existing
Loan Agreement and continues to secure the Obligations, prior to the recording
of the Modification Agreement relating to such Deed of Trust. The As-Is
Appraised Values for the Properties (other than the Construction Properties) as
of the Closing Date are set forth on Schedule 1.1. However, nothing contained
------------
in this Agreement is intended to be, nor should it be construed as, an admission
by the Borrower as to the fair cash market value of any Property, or any portion
thereof.
"Assignee" has the meaning specified in Section 10.6.1.
-------- --------------
"Attorney Costs" means and includes all reasonable fees and
--------------
disbursements of any law firm or other external counsel, and the reasonable
allocated cost of internal legal services and all disbursements of internal
counsel, to the extent described in Sections 4.1.5, 10.4 and 10.5.1.
-------------------------------
"Availability" means, at any time, the lesser of (i) the Portfolio
------------
Appraisal Value at such time, or (ii) the Maximum Commitment Amount at such
time.
"Bank" means one of the institutions described as a "Bank" in the
----
introductory clause hereto.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended
---------------
or recodified from time to time (11 U.S.C. '101, et seq.) .
------
"Base Rate" means, at any time, the greater of the Reference Rate or
---------
the Federal Funds Rate at such time.
"Base Rate Loan" means a Loan that bears interest based on the Base
--------------
Rate.
"BofA" means Bank of America National Trust and Savings Association, a
----
national banking association.
-4-
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<PAGE>
"Borrower" means the Person specified as the "Borrower" in the
--------
introductory clause hereto.
"Borrowing" means a disbursement hereunder consisting of Loans of the
---------
same Type made to the Borrower on the same day by the Banks under Article 2 and,
---------
other than in the case of Base Rate Loans, having the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
--------------
Section 2.3.
- -----------
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in New York City or San Francisco are authorized
or required by law to close and, if the applicable Business Day relates to any
LIBOR Loan, means such a day on which dealings are carried on in the applicable
offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or
---------------------------
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
"Capital Allowance" means (a) with respect to an Industrial Property,
-----------------
fifty cents ($0.50) per annum per square foot of net rentable area of such
Industrial Property, (b) with respect to an Office Property, one dollar and
fifty cents ($1.50) per annum per square foot of net rentable area of such
Office Property, or (c) with respect to a Retail Property, seventy-five cents
($0.75) per annum per square foot of net rentable area of such Retail Property.
For purposes of this definition, the Sale-Leaseback Property located in Ontario,
California, shall be considered to be an Industrial Property and the Sale-
Leaseback Property located in Emeryville, California, shall be considered to be
a Retail Property.
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act of 1980, as amended or recodified from time to time.
"Closing Date" means the date of recording of (i) the initial Deeds of
------------
Trust, and (ii) as to Deeds of Trust recorded pursuant to the Existing Loan
Agreement that continue to secure the Obligations, the Modification Agreements
relating to such Deeds of Trust
"Co-Agent" means any Bank designated as a "Co-Agent" in this
--------
Agreement, each in its capacity as a co-agent for the Banks hereunder, and any
successor co-agent designated under Section 9.6.
-----------
-5-
-5-
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended or
----
recodified from time to time, and regulations promulgated thereunder.
"Collateral" means all property and interests in property and proceeds
----------
thereof now owned or hereafter acquired by the Borrower in or upon which a Lien
now or hereafter exists in favor of the Administrative Agent, on behalf of the
Banks, whether under this Agreement or under any other documents executed by the
Borrower and delivered to the Administrative Agent, on behalf of the Banks.
"Collateral Documents" means, collectively, (i) the Deeds of Trust,
--------------------
the Lease Assignments and all other security agreements, mortgages, deeds of
trust, lease assignments and other similar agreements between the Borrower and
the Administrative Agent, for the benefit of the Banks, now or hereafter
delivered to the Administrative Agent pursuant to or in connection with the
transactions contemplated hereby, and all financing statements (or comparable
documents now or hereafter filed in accordance with the Uniform Commercial Code
or comparable law) against the Borrower as debtor in favor of the Administrative
Agent, for the benefit of the Banks, as secured party, pursuant to or in
connection with the transactions contemplated hereby, and (ii) any amendments,
supplements, modifications, renewals, replacements, consolidations,
substitutions and extensions of any of the foregoing, including the Modification
Agreements.
"Commitment" means the amount of the credit and the outstanding Loans
----------
for which each Bank is obligated under this Agreement.
"Compliance Certificate" means a certificate substantially in the form
----------------------
of Exhibit C.
---------
"Construction Property" means a Property (a) that is either (i) pre-
---------------------
sold (subject only to completion of the improvements) to a third-party buyer
satisfactory to the Banks under a signed sale agreement satisfactory to the
Banks, in each case in their sole and absolute discretion, or (ii) pre-leased
(subject only to completion of the improvements) to one or more third-party
lessees satisfactory to the Banks under signed leases satisfactory to the Banks,
in each case in their sole and absolute discretion, and (b) on which the
Borrower intends to construct an industrial, manufacturing, research and
development or warehouse distribution facility. A pre-leased Construction
Property shall cease to be a Construction Property, and shall instead become an
Industrial Property, upon (w) the recording of a notice of completion or
comparable notice with respect to the improvements constructed on such Property,
if and to the extent permitted in the jurisdiction in which such Property is
located, (x) delivery to the Administrative Agent of reasonably satisfactory
evidence of lien-free completion of such improvements, (y) the issuance of a
certificate of occupancy or comparable permit for such improvements by the
applicable
-6-
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<PAGE>
Governmental Authority, if and to the extent available in the
jurisdiction in which such Property is located, and (z) occupancy of such
improvements by the lessee.
"Construction Property Value" means, with respect to each Construction
---------------------------
Property at any time, an amount equal to the lesser of (i) seventy-five percent
(75%) of the Cost of such Construction Property, or (ii) seventy percent (70%)
of the As-Completed Appraised Value of such Construction Property; provided,
--------
however, that the Construction Property Value of any Construction Property pre-
sold to a third party buyer shall be reduced to zero (0) for the period after
the first anniversary of the date on which such Construction Property is
encumbered with a Deed of Trust for the benefit of the Administrative Agent to
secure the Obligations.
"Contingent Obligation" means, as to any Person, any liability of that
---------------------
Person, whether or not contingent, with or without recourse, (a) with respect to
any Guaranty Obligation; or (b) with respect to any Surety Instrument issued for
the account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings or payments; provided, however, that for purposes of
--------
the definition of the term "Total Liabilities," the Borrower's liability for
Guaranty Obligations relating to the Indebtedness of any affiliate of the
Borrower whose financial results are not consolidated with those of the Borrower
for financial reporting purposes in accordance with GAAP shall be the greater of
(i) the Borrower's pro rata share of such affiliate's Indebtedness, determined
in accordance with GAAP, or (ii) the amount of such Guaranty Obligation.
"Contractual Obligation" means, as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which, under Section
---------------------------- -------
2.4, the Borrower (a) converts Loans of one Type to another Type, or (b)
- ---
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Cost" means, with respect to each Construction Property, the actual
----
cost of developing such Property, including both hard costs and soft costs of
constructing the improvements to be constructed by the Borrower on such
Construction Property (based on the initial construction budget for such
improvements that the Borrower delivers to the Administrative Agent), the value
of the land (which shall be equal to the lesser of book value or cost) and a
management fee payable to the Borrower or an Affiliate of the Borrower in an
amount not to exceed three percent (3%) of the total cost of developing such
Construction Property, but excluding all other development and other fees
payable to the Borrower or an Affiliate of the Borrower.
-7-
-7-
<PAGE>
["CRG" means Catellus Residential Group, Inc., a California
---
corporation.]
"Debt Coverage" means, at any time, the ratio of (a) EBITDA to (b)
-------------
Debt Service, each measured over the four (4) most recent consecutive fiscal
quarters for which financial statements are available at such time.
"Debt Service" means, for any period, (i) all interest expense
------------
(including capitalized interest expense and accrued interest expense) for such
period, plus (ii) the aggregate amount of regularly scheduled principal payments
----
due and payable during such period.
"Deed of Trust" means any deed of trust, mortgage, leasehold mortgage,
-------------
assignment of rents or other document creating a Lien on real property or any
interest in real property.
"Default" means any event or circumstance which, with the giving of
-------
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Disposition" means the sale, conveyance or other disposition of a
-----------
Property, but excluding any Event of Loss.
"Documentation Agent" means The First National Bank of Chicago in its
-------------------
capacity as documentation agent for the Banks hereunder, and any successor
documentation agent designated under Section 9.6.
-----------
"Dollars," "dollars" and "$" each mean lawful money of the United
------- ------- -
States.
"EBITDA" means, for any fiscal period, (a) the sum of the aggregate
------
amounts of the following items for the Borrower and its subsidiaries for such
period: (i) net income, (ii) provisions for taxes based on income, (iii)
interest expense (including capitalized interest expense), (iv) depreciation
expense, (v) amortization expense and (vi) the aggregate amount of other
expenses, losses on sales of non-strategic assets, net realizable value write-
downs and other non-recurring charges and extraordinary losses, less (b) the
----
aggregate amount of gain on sales of non-strategic assets and other
extraordinary gains, all as determined on a consolidated basis for the Borrower
and its subsidiaries in accordance with GAAP, consistently applied.
"Eligible Assignee" means (i) a commercial bank, savings and loan or
-----------------
savings bank organized under the laws of the United States, or any state
thereof, and having a combined capital and surplus of at least $100,000,000;
(ii) a commercial bank
-8-
-8-
<PAGE>
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the
"OECD"), or a political subdivision of any such country, and having a combined
----
capital and surplus of at least $100,000,000, provided that such bank is acting
--------
through a branch or agency located in the United States; (iii) a Person that is
primarily engaged in the business of commercial banking and that is (A) a
Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is a
Subsidiary, or (C) a Person of which a Bank is a Subsidiary; or (iv) any other
Person engaged in the business of commercial real estate lending and acceptable
to the Administrative Agent, the Majority Banks and the Borrower in their sole
discretion.
"Entitled Land" means an unimproved Property that satisfies all of the
-------------
following conditions: (i) the intended use of such Property (which shall be
limited to an industrial, manufacturing or warehouse distribution facility, a
research and development facility or an office building, except that the
Internationale Centre Property located in Woodridge, Illinois, may include any
one or more of the uses permissible under clause (i) of the first sentence of
Section 2.16.1) is permissible under the applicable general plan or its
- --------------
equivalent, and (ii) such intended use is permissible under any applicable
specific plan, zoning classification or development agreement; provided,
--------
however, that the Property located in Romeoville, Illinois shall be deemed to be
"Entitled Land" notwithstanding the zoning of a portion of such Property for
agricultural uses. The Entitled Land as of the date of this Agreement is
described on Exhibit G.
---------
"Environmental Claims" means all claims, however asserted, by any
--------------------
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon the presence, placement, discharge, emission or release (including
intentional and unintentional, negligent and non-negligent, sudden or non-
sudden, accidental or non-accidental, placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from property,
whether or not owned by the Borrower.
"Environmental Indemnity" means the unsecured environmental indemnity
-----------------------
executed by the Borrower and delivered to the Administrative Agent, for the
benefit of the Banks, pursuant to Section 4.1.1.
-------------
"Environmental Laws" means all federal, state or local laws, statutes,
------------------
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of,
-9-
-9-
<PAGE>
and agreements with, any Governmental Authorities, in each case
relating to environmental, health and safety matters, including CERCLA, the
Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste
Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Emergency Planning and Community Right-to-Know Act,
the California Hazardous Waste Control Law, the California Solid Waste
Management, Resource, Recovery and Recycling Act, the California Water Code and
the California Health and Safety Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended or recodified from time to time, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) under common control with the Borrower within the meaning of
Sections 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
-----------
Plan or a Multiemployer Plan; (b) a withdrawal by the Borrower or any ERISA
Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan
year in which it was a substantial employer (as defined in Section 4001(a)(2) of
ERISA) or a cessation of operations which is treated as such a withdrawal under
Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower
or any ERISA Affiliate from a Multiemployer Plan; (d) the filing of a notice of
intent to terminate, the treatment of a plan amendment as a termination under
Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC
to terminate a Pension Plan or Multiemployer Plan subject to Title IV of ERISA;
(e) failure by the Borrower or any member of the Controlled Group to make
required contributions to a Pension Plan or Multiemployer Plan; (f) an event or
condition which might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan or Multiemployer Plan; (g) the imposition of any
liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA
Affiliate; or (g) an application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Tax Code with respect to any
Pension Plan.
"Estimated Remediation Cost" means for any Property all costs
--------------------------
associated with performing work to remediate contamination of real property or
groundwater, as determined by a qualified engineer or consultant reasonably
acceptable to the Administrative Agent, to the extent that any such work is
required to be performed or any such cost must be incurred in order to bring
such Property into compliance with any Requirement of Law, including engineering
and other
-10-
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<PAGE>
professional fees and expenses, costs to remove, transport and dispose
of contaminated soil, costs to "cap" or otherwise contain contaminated soil, and
costs to pump and treat water and monitor water quality.
"Event of Default" means any of the events or circumstances specified
----------------
in Section 8.1.
-----------
"Event of Loss" means, with respect to any Property, any of the
-------------
following: (a) any loss or destruction of, or damage to, such Property; or (b)
any actual condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such Property, or confiscation of such Property or the
requisition of the use of such Property by a Governmental Authority or any
Person having the power of eminent domain, or any voluntary transfer of such
Property or any portion thereof in lieu of any such condemnation, seizure or
taking.
"Existing Properties" means those Properties encumbered with Deeds of
-------------------
Trust entered into pursuant to the Existing Loan Agreement that have not been
released.
"Federal Funds Rate" means, for any day, the rate set forth in the
------------------
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean, as determined by the Administrative Agent, of the rates for the
last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York City time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Administrative Agent.
"Fee Letter" has the meaning specified in Section 2.9.1.
---------- -------------
"Fixed Charge Coverage" means, as of any date of determination, the
---------------------
ratio of (a) an amount equal to EBITDA plus the aggregate amount of gain on
----
sales of non-strategic assets less the aggregate amount of losses on sales of
----
non-strategic assets to (b) Fixed Charges, each measured over the four (4) most
recent consecutive fiscal quarters for which financial statements are available
at such time.
"Fixed Charges" means, for any period, the sum of (i) the consolidated
-------------
interest expense (including capitalized interest expense and accrued interest
expense) of the Borrower and its subsidiaries for such period, plus (ii) the
----
aggregate amount of regularly scheduled principal payments due and payable by
the Borrower and its subsidiaries during such period, plus (iii) the aggregate
----
amount of dividends declared and payable to both preferred and common
shareholders of the Borrower during such
-11-
-11-
<PAGE>
period, all as determined on a consolidated basis in accordance with GAAP,
consistently applied.
"FRB" means the Board of Governors of the Federal Reserve System, and
---
any Governmental Authority succeeding to any of its principal functions.
"GAAP" means generally accepted accounting principles set forth from
----
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Ground Leased Property" means a Property that (a) the Borrower has
----------------------
leased in its entirety to a third-party lessee satisfactory to the Banks in
their sole and absolute discretion (b) pursuant to a lease that is senior to any
Lien encumbering such Property (other than a Permitted Lien or the Lien of a
Deed of Trust securing the Obligations), and (c) such lease has a term of which
not less than ten (10) years are remaining at the time such Property is
encumbered with a Deed of Trust.
"Guaranty Obligation" means, as to any Person, any direct or indirect
-------------------
contractual liability of that Person, whether or not contingent, with or without
recourse, with respect to any Indebtedness, lease, dividend, letter of credit or
other monetary obligation (the "primary obligations") of another Person (the
"primary obligor").
"Hazardous Materials" means all those substances that are regulated
-------------------
by, or which may form the basis of liability under, any Environmental Law,
including all substances identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material or toxic substance, or petroleum or petroleum-
derived substance or waste.
"Indebtedness" of any Person means, without duplication, (a) all
------------
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all
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<PAGE>
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses; (e) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property); (f) all
obligations with respect to capital leases; (g) all liquidated net obligations
with respect to Swap Contracts; (h) all indebtedness referred to in clauses (a)
through (g) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including accounts and contracts rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness; and (i) all Guaranty Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (a) through (g) above.
"Indemnified Liabilities" has the meaning specified in Section 10.5.
----------------------- ------------
"Indemnified Person" has the meaning specified in Section 10.5.
------------------ ------------
"Independent Auditor" has the meaning specified in Section 6.1.1.
------------------- -------------
"Industrial Property" means any Property improved with an industrial,
-------------------
manufacturing or warehouse distribution facility, including any R&D Property.
"Insolvency Proceeding" means (a) any case, action or proceeding
---------------------
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshaling of assets for creditors, or other similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, undertaken under U.S. federal, state or foreign law, including
the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan, the tenth (10th) day of
---------------------
each calendar month.
"Interest Period" means, as to any LIBOR Loan, the period commencing
---------------
on the Borrowing Date of such Loan or on the Conversion/Continuation Date on
which the Loan is converted into or continued as a LIBOR Loan, and ending on the
date one (1), two (2), three (3), four (4), six (6), nine (9) or twelve (12)
months thereafter (and any other period that is twelve (12) months or less and
is consented to by the Majority Banks in the given instance), as selected by the
Borrower in its Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
- --------
(i) if any Interest Period would otherwise end on a day that is
not
-13-
-13-
<PAGE>
a Business Day, that Interest Period shall be extended to the following
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest
Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of the calendar month at the end of such
Interest Period; and
(iii) no Interest Period for any Loan shall extend beyond the
Maturity Date.
"IRS" means the Internal Revenue Service, and any Governmental
---
Authority succeeding to any of its principal functions.
"Lease Assignment" means any assignment of leases or rents executed by
----------------
the Borrower to secure the Obligations.
"Lending Office" means, as to any Bank, the office or offices of such
--------------
Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore
Lending Office", as the case may be, on Schedule 10.2, or such other office or
-------------
offices as the Bank may from time to time notify the Borrower and the
Administrative Agent.
"Letter of Credit" means a letter of credit issued by BofA for the
----------------
Borrower's account pursuant to Article 2.
---------
"Leverage" means, as of any date of determination, the ratio of (a)
--------
Total Liabilities as of such date to (b) Total Assets as of such date.
"LIBOR" means the rate of interest per annum (rounded upward to the
-----
next 1/16th of 1%) determined by the Administrative Agent as the rate at which
dollar deposits in the approximate amount of the Loan to be made or continued
as, or converted into, a LIBOR Loan and having a maturity comparable to such
Interest Period would be offered by BofA's London Branch, London, England, to
major banks in the London dollar interbank market at their request at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the
commencement of such Interest Period.
"LIBOR Loan" means a Loan that bears interest based on LIBOR.
----------
"Lien" means any security interest, mortgage, deed of trust, pledge,
----
hypothecation, assignment, charge or deposit arrangement, encumbrance or lien
-14-
-14-
<PAGE>
(statutory or other) in respect of any property (including those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing lease
having substantially the same economic effect as any of the foregoing, or the
filing of any financing statement naming the owner of the asset to which such
lien relates as debtor, under the UCC or any comparable law), but not including
the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Bank to the Borrower under
----
Article 2, and may be a Base Rate Loan or a LIBOR Loan.
- ---------
"Loan Documents" means this Agreement, any Notes, the Collateral
--------------
Documents, the Fee Letters and all other documents (except for the Environmental
Indemnity) delivered to the Administrative Agent, on behalf of the Banks, to
evidence or secure any of the Loans or reimbursement obligations relating to any
Letter of Credit.
"Majority Banks" means at any time at least two Banks then holding at
--------------
least 66-2/3% of the then aggregate unpaid principal amount of the Loans, or, if
no such principal amount is then outstanding, at least two Banks then having at
least
66-2/3% of the aggregate amount of the Commitments; provided, however, that
--------
solely for purposes of removing the Administrative Agent, the Documentation
Agent or any Co-Agent pursuant to Section 9.6, if any Bank holds more than 33-
-----------
1/3% of the then aggregate unpaid principal amount of the Loans (or, if
applicable, the Commitments), "Majority Banks" means at least two Banks holding
a percentage of the amount of the aggregate unpaid principal amount of the Loans
(or, if applicable, the Commitments) equal to 66-2/3% less the aggregate
----
percentage in excess of 33-1/3% held by any Bank.
"Margin Stock" means "margin stock" as such term is defined in
------------
Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material impairment of the
-----------------------
Borrower's ability to perform under any Loan Document and to avoid any Event of
Default; or (b) a material adverse effect upon (i) the legality, validity,
binding effect or enforceability against the Borrower of any Loan Document, or
(ii) the perfection or priority of any Lien granted under any of the Collateral
Documents.
"Material Lease" means any lease covering more than the greater of (i)
--------------
twenty-five percent (25%), or (ii) fifty thousand (50,000) square feet, of the
net rentable area of the improvements located on any Property.
"Maturity Date" means November 1, 2000.
-------------
"Maximum Commitment Amount" means, at any time, Two Hundred Thirteen
-------------------------
-15-
-15-
<PAGE>
Million and No/100 Dollars ($213,000,000.00), subject to increase pursuant to,
and on the terms and subject to the conditions set forth in, Section 2.19.
------------
"Modification Agreement" means an agreement dated as of the date
----------------------
hereof modifying a Deed of Trust encumbering an Existing Property.
"Monetary Default" means any Default with respect to the payment of
----------------
any amount owed by Borrower to a Bank under any Loan Document.
"Multiemployer Plan" means a "multiemployer plan" within the meaning
------------------
of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.
"Net Cash Flow" means, (a) for any Operating Property at any time, the
-------------
actual net operating income for such Operating Property for the last twelve (12)
consecutive calendar months for which operating reports are available at such
time; provided, however, that for any Operating Property for which operating
--------
reports are not required to have been delivered to the Administrative Agent for
twelve (12) consecutive calendar months as of the determination date, "Net Cash
Flow" means an amount equal to the actual net operating income for such
Operating Property for the number of the most recent consecutive calendar months
for which operating reports are available at such time multiplied by a fraction
the numerator of which is twelve (12) and the denominator of which is the number
of consecutive calendar months for which operating reports are available for
such Operating Property at such time, or (b) for any Construction Property at
any time, the stabilized net operating income for such Construction Property
established by the Appraisal of such Construction Property.
"Net Proceeds" means, as to any Disposition by a Person, proceeds in
------------
cash, checks or other cash equivalent financial instruments as and when received
by such Person or any exchange accommodator for the benefit of such Person, net
of: (a) the out-of-pocket costs relating to such Disposition, excluding amounts
ultimately payable to such Person or any Affiliate of such Person, and (b) sale,
use or other transaction taxes paid or payable by such Person as a direct result
thereof. "Net Proceeds" shall also include proceeds paid on account of any
------------
Event of Loss, net of (i) all money actually applied or to be applied to repair
or reconstruct the damaged property or property affected by the condemnation or
taking, (ii) all of the costs and expenses reasonably incurred in connection
with the collection of such proceeds, award or other payments, and (iii) any
amounts retained by or paid to parties having superior rights to such proceeds,
awards or other payments.
"Note" means a promissory note executed by the Borrower in favor of a
----
Bank pursuant to subsection 2.2(b), in substantially the form of Exhibit F;
----------------- ---------
"Notes" means, at any time,
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<PAGE>
all of the Notes executed by the Borrower in favor of a Bank outstanding at
such time.
"Notice of Borrowing" means a notice in substantially the form of
-------------------
Exhibit A.
- ---------
"Notice of Conversion/Continuation" means a notice in substantially
---------------------------------
the form of Exhibit B.
---------
"Obligations" means all advances, debts, liabilities, obligations,
-----------
covenants and duties arising under any Loan Document owing by the Borrower to
any Bank, the Administrative Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or contingent, due
or to become due, now existing or hereafter arising.
"Office Property" means any Property improved with an office building.
---------------
"Operating Portfolio Debt Service Interest Rate" means, at any time, a
----------------------------------------------
rate per annum (calculated on the basis of a 360-day year, actual days elapsed)
equal to the greater of (a) eight percent (8.0%) or (b) the sum of (i) the rate
payable on United States Treasury Notes having a maturity of seven (7) years,
determined on the first day of the month in which the calculation is made (or
the date closest to the first day of such month for which rate data are
available), plus (ii) 1.75%.
"Operating Portfolio Net Cash Flow" means, at any time, (a) the
---------------------------------
aggregate amount of Net Cash Flow for all of the Properties that on the date of
determination are considered to be Operating Properties or Construction
Properties pursuant to this Agreement, adjusted for deferred rents, plus (b) the
----
Net Proceeds of the Disposition of any Property during the twelve (12)
consecutive calendar month period used to determine Net Cash Flow, less (c) the
----
aggregate amount of Capital Allowances for all of the Properties that on the
date of determination are considered to be Industrial Properties, Retail
Properties, Office Properties, Sale-Leaseback Properties or Construction
Properties pursuant to this Agreement; provided, however, that for purposes of
--------
clause (a), above, any portion of the Net Cash Flow for any Operating Property
that exceeds fifteen percent (15%) of the aggregate amount of Net Cash Flow for
all of the Operating Properties at such time shall not be considered in
computing the aggregate amount of Net Cash Flow for all of the Properties at
such time.
"Operating Property" means an Industrial Property, a Retail Property,
------------------
an Office Property, a Ground Leased Property or a Sale-Leaseback Property; the
Operating Properties as of the date of this Agreement are described on Exhibit
-------
G.
"Opinions of Counsel" has the meaning specified in Section 5.3.
------------------- -----------
"Organization Documents" means, for any corporation, the certificate
----------------------
-17-
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<PAGE>
or articles of incorporation, any certificate of determination or instrument
relating to the rights of preferred shareholders of such corporation, any
shareholder rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation.
"Other Taxes" means any present or future stamp or documentary taxes
-----------
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any of the other Loan
Documents, excluding, in the case of each Bank and the Administrative Agent,
such taxes (including income taxes or franchise taxes) as are imposed on or
measured by such Person's net income, gross income or net worth.
"Participant" has the meaning specified in Section 10.6.4.
----------- --------------
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
Governmental Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
------------
ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains, or
to which it makes, is making, or is obligated to make contributions, or in the
case of a multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding five (5) plan
years.
"Permitted Encumbrances" has the meaning specified in Section 5.13.
---------------------- ------------
"Permitted Liens" has the meaning specified in Section 7.1.
--------------- -----------
"Person" means an individual, partnership, corporation, business
------
trust, limited liability company, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
----
ERISA) which the Borrower sponsors or maintains or to which the Borrower makes,
is making, or is obligated to make contributions, and includes any Pension Plan.
"Portfolio Appraisal Value" means, at any time, the sum of (i) 75% of
-------------------------
the aggregate amount of the As-Is Appraised Values for each of the Industrial
Properties at such time, and (ii) 65% of the aggregate amount of the As-Is
Appraised Values for each of the Retail Properties at such time, (iii) 65% of
the aggregate amount of the As-Is Appraised Values for each of the Office
Properties at such time, (iv) 60% of the aggregate amount of the As-Is Appraised
Values for each of the Sale-Leaseback Properties at such time, (v) 70% of the
-18-
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<PAGE>
aggregate amount of the As-Is Appraised Values for each of the Ground Leased
Properties at such time, (vi) 50% of the aggregate amount of the As-Is Appraised
Values for each of the parcels of Entitled Land at such time, and (vii) the
aggregate amount of the Construction Property Values for each of the
Construction Properties at such time; provided, however, that neither the amount
--------
determined under clause (vi), above, nor the amount determined under clause
(vii), above, shall at any time exceed 25% of the sum of the amounts determined
under clauses (i), (ii), (iii), (iv), (v), (vi) and (vii), above, and any
portion of the aggregate amount of the As-Is Appraised Values for the Entitled
Land that exceeds such limit at any time, or any portion of the aggregate amount
of the Construction Property Values for the Construction Properties that exceeds
such limit at any time, shall not be considered in computing the "Portfolio
Appraisal Value" at such time; and provided further, however, that for purposes
----------------
of determining the amount under clause (vi), above, no single parcel of Entitled
Land (other than the Internationale Centre Property located in Woodridge,
Illinois) shall be considered to have an As-Is Appraised Value in excess of
$20,000,000.
"Portfolio Net Cash Flow Coverage Ratio" means, at any time, the ratio
--------------------------------------
of (a) Operating Portfolio Net Cash Flow at such time to (b) the annual interest
that would accrue on the aggregate principal amount of the Loans outstanding at
such time at a rate equal to the Operating Portfolio Debt Service Interest Rate
at such time, computed on the basis of a 360-day year for the actual number of
days elapsed.
"Property" means, collectively, all right, title and interest, whether
--------
now existing or hereafter acquired, in and to any real property which is
encumbered by a Deed of Trust, together with all easements and other rights now
or hereafter made appurtenant thereto, all improvements and fixtures now or
hereafter located thereon, and all additions and accretions thereto.
"Pro Rata Share" means, as to any Bank at any time, the percentage
--------------
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Bank's Commitment divided by the combined Commitments of all Banks.
"R&D Property" means any parcel of real property owned by the Borrower
------------
more than fifty percent (50%) of whose net rentable area is improved as research
and development space.
"Reference Rate" means, at any time, the rate of interest publicly
--------------
announced from time to time by BofA in San Francisco, California, as its
"reference rate." (The "reference rate" is a rate set by BofA based upon
various factors, including BofA's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate.) Any change
in the reference rate announced by BofA shall take effect at the opening of
business on the day specified in the public announcement of such change.
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"Release Price" means, with respect to a Property, the amount, if any,
-------------
necessary to reduce the aggregate outstanding principal amount of the Loans to
the Availability (computed without regard to the Property for which the Borrower
is seeking release), determined on the date of the Borrower's request that the
Administrative Agent, on behalf of the Banks, release the Deed of Trust
encumbering such Property.
"Reportable Event" means, as to any Plan, any of the events set forth
----------------
in Section 4043(c) of ERISA, or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Requirement of Law" means, as to any Person, any law (statutory or
------------------
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or as to which the Person or any of its property is subject.
"Responsible Officer" means the chief financial officer, treasurer,
-------------------
controller, director of finance or Vice President of Asset Management of the
Borrower, or any other officer having substantially the same authority and
responsibility.
"Retail Property" means any Property improved with a shopping center,
---------------
theater, restaurant facility or other similar retail project or use (or any
combination thereof).
"Sale-Leaseback Property" means the leasehold interest of the Borrower
-----------------------
in either or both of the real properties located in Emeryville, California, and
Ontario, California, more particularly described in Exhibit J attached hereto,
---------
for as long as the Borrower's interest in such Property is a leasehold
interest. Regardless of the improvements located thereon, none of the Sale-
Leaseback Properties shall be considered to be an Industrial Property, an Office
Property or a Retail Property for so long as Borrower's interest in such
Property is a leasehold interest.
"SEC" means the Securities and Exchange Commission, or any
---
Governmental Authority succeeding to any of its principal functions.
"Senior Officer" means the chief executive officer, chief financial
--------------
officer, the vice president-finance or general counsel of Borrower.
"Solvent" means, as to any Person at any time, that (a) the fair value
-------
of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
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<PAGE>
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code and, in the alternative, for purposes of the
California Uniform Fraudulent Transfer Act; (b) the present fair saleable value
of the property of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become
absolute and matured; (c) such Person is able to realize upon its property and
pay its debts and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course of business; (d)
such Person does not intend to, and does not believe that it will, incur debts
or liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"Subsidiary" of a Person means, as of any date of determination, any
----------
corporation, partnership, joint venture or other business entity, whether now
existing or hereafter organized or acquired: (a) (i) in the case of a
corporation, of which a majority of the securities having ordinary voting power
for the election of directors or other governing body (other than securities
having such power only by reason of the happening of a contingency) are at the
time owned by such Person or by one or more Subsidiaries of such Person, or (ii)
in the case of a partnership, joint venture or other business entity, of which
such Person or a Subsidiary of such Person is a general partner or joint
venturer or of which a majority of the partnership or other ownership interests
are at the time owned by such Person or by one or more of its Subsidiaries, and
(b) the financial condition and results of which would be consolidated with the
financial condition and results of such Person under GAAP, consistently applied.
"Supermajority Banks" means at any time at least two Banks then
-------------------
holding at least 76% of the then aggregate unpaid principal amount of the Loans,
or, if no such principal amount is then outstanding, at least two Banks then
having at least 76% of the aggregate amount of the Commitments.
"Surety Instrument" means any letter of credit (including standby and
-----------------
commercial), banker's acceptance, bank guaranty, surety bond or similar
instrument.
"Swap Contract" means any agreement, whether or not in writing,
-------------
relating to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap or
option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap, cross-
currency rate swap, swaption, currency option or any other, similar transaction
(including any option to enter into any of the foregoing) or any combination of
the foregoing and, unless the context otherwise clearly requires, any master
agreement relating to or governing any or all of the foregoing.
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<PAGE>
"Tangible Net Worth" means, as of any date of determination, the
------------------
consolidated total stockholders= equity of the Borrower and its subsidiaries
(net of intangible assets) using the historical cost method in accordance with
GAAP, consistently applied, based on the Borrower's consolidated balance sheet
for the most recent fiscal period.
"Taxes" means any and all present or future taxes, levies, imposts,
-----
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Bank and the Administrative Agent, such taxes
(including income taxes or franchise taxes) as are imposed on or measured by
such Person's net income, gross income or net worth.
"Total Assets" means, as of any date of determination, the aggregate
------------
amount of all assets of the Borrower and its subsidiaries, as shown on the
Borrower's consolidated balance sheet for the most recent fiscal period, plus
----
accumulated depreciation as of such date; provided, however, that the Borrower's
--------
investment in any affiliate of the Borrower whose financial results are not
consolidated with those of the Borrower for financial reporting purposes in
accordance with GAAP shall be an amount equal to the Borrower's pro rata share
of such affiliate's assets (which assets shall be determined in accordance with
GAAP).
"Total Liabilities" means, as of any date of determination, the
-----------------
aggregate amount of all liabilities of the Borrower and its subsidiaries, as
shown on the Borrower's consolidated balance sheet for the most recent fiscal
period, plus Contingent Obligations of the Borrower.
----
"Type" means, in connection with a Loan, the characterization of such
----
Loan as a Base Rate Loan or a LIBOR Loan.
"UCC" means the Uniform Commercial Code as in effect in the State of
---
California.
"United States" and "U.S." each means the United States of America.
------------- ----
1.2 Other Interpretive Provisions .
-----------------------------
1.2.1 Use of Defined Terms. Unless otherwise specified herein or
--------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant to
this Agreement. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms. Terms (including uncapitalized
terms) not otherwise defined herein and that are defined in the UCC shall have
the meanings therein described.
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<PAGE>
1.2.2 Certain Common Terms.
--------------------
(a) The Agreement . The words "hereof," "herein," "hereunder"
-------------
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement,
and section, schedule and exhibit references are to this Agreement unless
otherwise specified.
(b) Documents . The term "documents" includes any and all
---------
instruments, documents, agreements, certificates, indentures, notices and
other writings, however evidenced.
(c) Including . The term "including" is not limiting and means
---------
"including without limitation."
(d) Performance . Whenever any performance obligation
-----------
hereunder (including a payment obligation) shall be stated to be due or
required to be satisfied on a day other than a Business Day, such
performance shall be made or satisfied on the next succeeding Business Day.
In the computation of periods of time from a specified date to a later
specified date (other than with respect to computation of interest owed or
accrued under this Agreement), the word "from" means "from and including"
and the words "to" and "until" each mean "to and including". If any
provision of this Agreement refers to any action taken or to be taken by
any Person, or which such Person is prohibited from taking, such provision
shall be interpreted to encompass any and all reasonable means, direct or
indirect, of taking or not taking such action.
(e) Contracts . Unless otherwise expressly provided in this
---------
Agreement, references to agreements and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications
thereto, but only to the extent such amendments and other modifications are
not prohibited by the terms of any Loan Document.
(f) Laws . References to any statute or regulation are to be
----
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation.
(g) Captions . The captions and headings of this Agreement are
--------
for convenience of reference only, and shall not affect the construction of
this Agreement.
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<PAGE>
(h) Independence of Provisions . If a conflict exists between
--------------------------
the terms of this Agreement and those of any other Loan Document, this
Agreement shall prevail; provided, however, that the parties acknowledge
--------
that this Agreement and the other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters,
and that such limitations, tests and measurements are cumulative and must
each be performed, except as expressly stated to the contrary in this
Agreement, or unless the applicable provisions are inconsistent or cannot
be simultaneously enforced or performed.
(i) Exhibits . All of the exhibits attached to this Agreement
--------
are incorporated herein by this reference.
1.2.3 Accounting Principles.
---------------------
(a) Accounting Terms . Unless the context otherwise clearly
----------------
requires, all accounting terms not expressly defined herein shall be
construed, and all financial computations required under this Agreement
shall be made, in accordance with GAAP, consistently applied.
(b) Fiscal Periods . References herein to "fiscal year" and
--------------
"fiscal quarter" refer to such fiscal periods of the Borrower.
ARTICLE 2.
THE CREDITS
-----------
2.1 Amounts and Terms of Commitments . Each Bank severally agrees, on
--------------------------------
the terms and subject to the conditions set forth in this Agreement,
(a) to make Loans to the Borrower (each, a "Loan")from time to time
on any Business Day during the period from the Closing Date to the Maturity
Date, in an aggregate amount not to exceed at any time outstanding such Bank=s
Pro Rata Share of the Availability, as the same may be reduced as a result of
one or more assignments permitted under Section 10.6, and
------------
(b) to fund drawings on any Letters of Credit that BofA issues for
the Borrower's account from time to time, in an aggregate amount not to exceed
at any time outstanding such Bank=s Pro Rata Share of the amount of such
drawing.
BofA agrees to issue Letters of Credit for the Borrower's account on any
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<PAGE>
Business Day during the period from the Closing Date to the Maturity Date, for
any purpose, in an aggregate amount not to exceed Fifteen Million Dollars
($15,000,000.00) at any time outstanding; provided, however, that no Letter of
--------
Credit shall have an expiry date later than the Maturity Date. Notwithstanding
any contrary provision of this Agreement, the aggregate principal amount of all
outstanding Loans shall not at any time exceed the Availability, and the
aggregate amount of outstanding but undrawn Letters of Credit shall be
considered a portion of the principal amount outstanding on the Loans for
purposes of determining (x) the amount of Availability remaining available for
disbursement, (y) mandatory repayments under Section 2.6.3 and (z) computation
-------------
of the unused fee pursuant to Section 2.9.3. Within the limits of each Bank's
-------------
Commitment, and subject to the other terms and conditions hereof, the Borrower
may borrow under this Section 2.1, repay under Section 2.5 and reborrow under
----------- -----------
this Section 2.1.
-----------
2.2 Loan Accounts .
-------------
(a) The Loans made by each Bank shall be evidenced by one or more loan
accounts or records maintained by such Bank in the ordinary course of business.
The loan accounts or records maintained by the Administrative Agent and each
Bank shall be conclusive, absent manifest error, of the amount of the Loans made
by the Banks to the Borrower and the interest and payments thereon. Any failure
to record any such amounts or any error in doing so shall not, however, limit or
otherwise affect the obligation of the Borrower hereunder to pay any amount
owing with respect to the Loans.
(b) Upon the request of any Bank made through the Administrative
Agent, the Loans made by such Bank may be evidenced by one or more Notes,
instead of loan accounts. Each such Bank may endorse on schedules annexed to
its Note(s) the date, amount (which shall not include undrawn amounts on
outstanding Letters of Credit, but shall include the amounts of any drawings on
outstanding Letters of Credit) and maturity of each Loan made by it and the
amount of each payment of principal made by the Borrower with respect thereto.
Each such Bank is irrevocably authorized by the Borrower to endorse its Note(s),
and each Bank's record shall be conclusive absent manifest error; provided,
--------
however, that the failure of a Bank to make, or an error in making, a notation
- -------
thereon with respect to any Loan shall not limit or otherwise affect the
obligations of the Borrower hereunder or under any such Note to such Bank.
2.3 Procedure for Borrowing .
-----------------------
2.3.1 Each Borrowing shall be made and each Letter of Credit shall
be issued upon the Borrower's irrevocable written notice (including notice by
facsimile, confirmed immediately by telephone) delivered to the Administrative
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<PAGE>
Agent in the form of a Notice of Borrowing (which notice must be received by the
Administrative Agent prior to 11:00 a.m. San Francisco time (i) four (4)
Business Days prior to the requested Borrowing Date, in the case of LIBOR Loans,
(ii) one (1) Business Day prior to the requested Borrowing Date, in the case of
Base Rate Loans, or (iii) five (5) Business Days prior to the requested issuance
date of a Letter of Credit) specifying:
(a) the amount of the Borrowing or the Letter of Credit, which
for any Borrowing shall be in an aggregate minimum amount of $2,500,000 or
any multiple of $100,000 in excess thereof, and for any Letter of Credit
may be any amount; provided, however, that the aggregate minimum amount of
--------
LIBOR Loans in respect of any Borrowing shall be $5,000,000.00 or any
multiple of $100,000.00 in excess thereof;
(b) the requested Borrowing Date or Letter of Credit issuance
date, which shall be a Business Day;
(c) the Type of Loans comprising the Borrowing; and
(d) the duration of the Interest Period applicable to such Loans
included in such notice. If the Notice of Borrowing fails to specify the
duration of the Interest Period for any Borrowing comprised of LIBOR Loans,
such Interest Period shall be one (1) month; provided, however, that with
-------- -------
respect to the Borrowing to be made on the Closing Date, the Notice of
Borrowing shall be delivered to the Administrative Agent not later than
11:00 a.m. San Francisco time one (1) Business Day before the Closing Date,
and such Borrowing will consist of Base Rate Loans only.
Notwithstanding the foregoing provisions of this Section 2.3.1, any amount drawn
-------------
under a Letter of Credit shall, from and after the date on which such drawing is
made, constitute a Borrowing for all purposes under this Agreement (including
accrual and payment of interest and repayment of principal) other than
disbursement of Loan proceeds under this Section 2.3.1.
-------------
2.3.2 The Administrative Agent will notify each Bank (a) on the day
of its receipt of any Notice of Borrowing, in the case of a request for a
Borrowing consisting of Base Rate Loans, and (b) within one (1) Business Day
after its receipt of any Notice of Borrowing, in the case of a request for a
Borrowing consisting of LIBOR Loans, of the amount of such Bank's Pro Rata Share
of that Borrowing.
2.3.3 Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Administrative Agent for the account of the Borrower
at the Administrative Agent's Payment Office by 11:00 a.m. San Francisco time on
the Borrowing Date requested by the Borrower in funds immediately available to
the Administrative Agent. The Administrative Agent will then make the proceeds
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<PAGE>
of all such Loans available to the Borrower by wire transfer to a deposit
account designated by the Borrower of like funds as received by the
Administrative Agent.
2.3.4 After giving effect to any Borrowing, there may not be more
than eight (8) different Interest Periods in effect.
2.3.5 Borrowings and/or the issuance of Letters of Credit shall be
made on not more than three (3) Business Days during any calendar month without
payment of a fee. The Borrower shall pay to the Administrative Agent, on the
date of each additional Borrowing and/or issuance of a Letter of Credit, an
administration fee of $1,500.00 for each additional Business Day during any
calendar month on which one or more Borrowings occurs and/or a Letter of Credit
is issued.
2.4 Conversion and Continuation Elections .
-------------------------------------
2.4.1 The Borrower may, upon irrevocable written notice to the
Administrative Agent in accordance with Section 2.4.2:
-------------
(a) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case
of LIBOR Loans, to convert any such Loans (or any part thereof in an amount
not less than $5,000,000.00, or that is in an integral multiple of $100,000
in excess thereof) into Loans of any other Type; or
(b) elect, as of the last day of the applicable Interest Period,
to continue any Loans having Interest Periods expiring on such day (or any
part thereof in an amount not less than $5,000,000.00, or that is in an
integral multiple of $100,000 in excess thereof);
provided, that if at any time the aggregate amount of LIBOR Loans in respect of
- --------
any Borrowing is reduced, by payment, prepayment, or conversion of part thereof
to be less than $5,000,000, such LIBOR Loans shall automatically convert into
Base Rate Loans, and on and after such date the right of the Borrower to
continue such Loans as, and convert such Loans into, LIBOR Loans shall
terminate.
2.4.2 The Borrower shall deliver a Notice of Conversion/Continuation
by facsimile, immediately confirmed in writing, to be received by the
Administrative Agent not later than 11:00 a.m. San Francisco time at least (i)
four (4) Business Days in advance of the Conversion/Continuation Date, if the
Loans are to be converted into or continued as LIBOR Loans; and (ii) one (1)
Business Day in advance of the Conversion/ Continuation Date, if the Loans are
to be converted into Base Rate Loans (provided, however, that the Administrative
--------
Agent may, in its discretion, permit the Borrower's chief financial officer,
treasurer or controller to give such notice by telephone, to be followed by a
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<PAGE>
written Notice of Conversion/Continuation within forty-eight (48) hours),
specifying:
(a) the proposed Conversion/Continuation Date;
(b) the aggregate amount of Loans to be converted or renewed;
(c) the Type of Loans resulting from the proposed conversion or
continuation; and
(d) other than in the case of conversions into Base Rate Loans,
the duration of the requested Interest Period.
2.4.3 If upon the expiration of any Interest Period applicable to
LIBOR Loans the Borrower has failed to select timely a new Interest Period to be
applicable to such LIBOR Loans, or if any Event of Default then exists, the
Borrower shall be deemed to have elected to convert such LIBOR Loans into Base
Rate Loans effective as of the expiration date of such Interest Period.
2.4.4 The Administrative Agent will notify each Bank within one (1)
Business Day after its receipt of a Notice of Conversion/Continuation, or, if no
timely notice is provided by the Borrower, the Administrative Agent will
promptly notify each Bank of the details of any automatic conversion. All
conversions and continuations shall be made ratably according to the respective
outstanding principal amounts of the Loans with respect to which the notice was
given.
2.4.5 Unless the Majority Banks otherwise agree, (a) during the
existence of a Monetary Default, the Borrower may not elect to have a Loan
converted into or continued as a LIBOR Loan having an Interest Period longer
than one (1) month, and (b) during the existence of an Event of Default, the
Borrower may not elect to have a Loan converted into or continued as a LIBOR
Loan.
2.4.6 After giving effect to any conversion or continuation of
Loans, there may not be more than eight (8) different Interest Periods in
effect.
2.5 Optional Prepayments . Subject to the provisions of Section 3.4, the
-------------------- -----------
Borrower may, at any time or from time to time (but in no event more often than
three times during any calendar month, unless the Borrower pays to the
Administrative Agent an administrative fee of $1,500.00 for each additional
prepayment), upon not less than one (1) Business Days' irrevocable written
notice to the Administrative Agent, ratably prepay Loans in whole or in part, in
minimum amounts of $2,500,000.00 or any multiple of $100,000.00 in excess
thereof. Such notice of prepayment shall specify the date and amount of such
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<PAGE>
prepayment and the Type(s) of Loans to be prepaid. The Administrative Agent
will promptly notify each Bank of its receipt of any such notice, and of such
Bank's Pro Rata Share of such prepayment. If such notice is given by the
Borrower, the payment amount specified in such notice shall be due and payable
on the date specified therein, together with accrued interest to each such date
on the amount prepaid and any amounts required pursuant to Section 3.4;
-----------
provided, however, that the Borrower's failure to prepay the amount specified in
- --------
such notice on such date shall not constitute a Default or an Event of Default
so long as the Borrower pays the amount required pursuant to Section 3.4.
-----------
2.6 Mandatory Prepayments of Loans .
------------------------------
2.6.1 Property Dispositions. If at any time or from time to time
---------------------
the Borrower shall make a Disposition with respect to a Property, then (a) the
Borrower shall notify the Administrative Agent of such proposed Disposition at
least ten (10) days prior to the requested reconveyance date and (b) promptly
upon the Borrower's receipt of the Net Proceeds of such Disposition, the
Borrower shall prepay Loans in an aggregate amount equal to the Release Price of
the Property subject to the Disposition.
2.6.2 Events of Loss. If at any time or from time to time the
--------------
Borrower shall suffer an Event of Loss with respect to a Property, then (a) the
Borrower shall promptly notify the Administrative Agent of such Event of Loss
(including the amount of the estimated Net Proceeds to be received by the
Borrower in respect thereof) and (b) except to the extent that the Net Proceeds
are to be made available for restoration pursuant to Section 5.5 of the Deed of
Trust encumbering such Property, promptly upon the Borrower's receipt of the Net
Proceeds of such Event of Loss, the Borrower shall prepay Loans in an amount
equal to the Release Price of the Property subject to such Event of Loss.
2.6.3 Remargining. The Portfolio Appraisal Value will from time to
-----------
time be adjusted (i) upon the encumbrance of an additional Property with a Deed
of Trust to secure the Obligations pursuant to Section 2.16, (ii) upon the
------------
release of a Property or a Parcel pursuant to Section 2.15, (iii) on any date on
------------
which the Construction Property Value for any Construction Property is reduced
to zero (0) pursuant to the terms of this Agreement, and (iv) on the date that
the Administrative Agent notifies the Borrower of any Bank's disapproval of a
Property or the As-Is Appraised Value of an Existing Property pursuant to
Section 2.15.3, and the amount of the Availability as of each such date shall be
- --------------
adjusted solely to reflect the foregoing occurrences. If (x) the aggregate
outstanding principal amount of the Loans on the date of any such adjustment
exceeds the Availability (computed using the adjusted Portfolio Appraisal Value
determined as of such date) or (y) at any time a violation of the Portfolio Net
Cash Flow covenant of Section 6.18 has occurred, the Borrower shall, within
------------
fifteen (15) Business Days after the Administrative Agent's notice to the
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Borrower (with copies to the Banks) of the existence and amount of such excess
or of the violation of Section 6.18, either (a) prepay Loans in an aggregate
------------
amount equal to (i) the amount of such excess or (ii) in the event of a
violation of Section 6.18, an aggregate amount sufficient to remedy such
------------
violation, or (b) identify to the Administrative Agent and the Banks one or more
real properties owned by the Borrower, satisfactory to the Administrative Agent
or the Supermajority Banks, as applicable, and improved with an industrial,
manufacturing or warehouse distribution facility, a research and development
facility, an office building, or a shopping center, theater, restaurant facility
or other similar retail project or use (or any combination thereof), that, if
encumbered with Deeds of Trust for the benefit of the Administrative Agent, as
administrative agent for the Banks, would (i) cause the Availability (computed
using a Portfolio Appraisal Value that assumes that such identified real
properties have become Operating Properties) as of the date of determination to
equal or exceed the aggregate outstanding principal amount of the Loans on such
date, or (ii) in the event of a violation of Section 6.18, cause the Portfolio
------------
Net Cash Flow Coverage Ratio to satisfy the requirements of Section 6.18. The
------------
Borrower shall promptly provide to the Administrative Agent a "New Property
Information Package" containing the information described in Section 2.16.1
--------------
relating to each of the identified real properties, and the Administrative Agent
shall provide a copy of the "New Property Information Package" to each Bank. In
the event that the Borrower timely identifies one or more real properties that
satisfy the conditions set forth in clause (b), above, and promptly delivers a
"New Property Information Package" to the Administrative Agent with respect to
each such identified real property, the Administrative Agent shall cause an
Appraisal of each such identified real property to be prepared and delivered to
each of the Banks for review and comment pursuant to Section 2.16.2, the
--------------
Administrative Agent or the Supermajority Banks, as applicable, shall approve or
disapprove any such identified real property pursuant to Section 2.16.3, and if
--------------
any such identified real property is approved by the Administrative Agent or the
Supermajority Banks pursuant to Section 2.16.3, the Borrower shall cause each of
--------------
the conditions set forth in Section 2.16 with respect to such property to be
------------
satisfied not later than ninety (90) days after the Administrative Agent's
notice to the Borrower of the existence and amount of such excess or of the
violation of Section 6.18. If all such conditions have not been satisfied with
------------
respect to all of the identified properties within such ninety-day period, the
amount by which the outstanding principal amount of the Loans exceeds the
Availability shall be immediately due and payable on the first Business Day
following the end of such ninety-day period or, in the event of a violation of
Section 6.18, such failure of all such conditions shall constitute an Event of
- ------------
Default. Neither the Administrative Agent nor the Banks shall have the right to
reappraise any Property in connection with any adjustment of the Portfolio
Appraisal Value pursuant to this Section 2.6.3 except as specifically
-------------
contemplated in Section 2.15, with respect to the release of a Property or a
------------
Parcel thereof, or Section 2.16, with respect to the encumbrance of an
------------
additional property with a Deed of Trust.
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2.6.4 General. Any prepayments pursuant to this Section 2.6 shall
------- -----------
be applied first to any Base Rate Loans then outstanding and then to LIBOR Loans
with the shortest Interest Periods remaining; provided, however, that if the
-------- -------
amount of Base Rate Loans then outstanding is not sufficient to satisfy the
entire prepayment requirement, and so long as no Monetary Default or Event of
Default has occurred and remains uncured, the Borrower may, at its option, place
any amounts which it would otherwise be required to use to prepay LIBOR Loans on
a day other than the last day of the Interest Period therefor in an interest-
bearing account pledged to the Administrative Agent for the benefit of the Banks
until the end of such Interest Period, at which time such pledged amounts will
be applied to prepay such LIBOR
Loans. The Borrower shall pay, together with each prepayment under this Section
-------
2.6, accrued interest on the amount prepaid and any amounts required pursuant to
- ---
Section 3.4.
- -----------
2.7 Repayment at Maturity . Subject to acceleration pursuant to the
---------------------
provisions of Section 8.2, the outstanding principal amount of the Loans shall
-----------
be due and payable in full, together with all accrued and unpaid interest, fees
and costs thereon, on the Maturity Date.
2.8 Interest .
--------
2.8.1 Accrual Rate. Each Loan shall bear interest on the
------------
outstanding principal amount thereof from the applicable Borrowing Date (which,
in the case of a drawing on a Letter of Credit, is the date of such drawing) at
a rate per annum equal to LIBOR or the Base Rate, as the case may be (and
subject to the Borrower's right to convert to other Types of Loans under Section
-------
2.4), plus the Applicable Margin.
- --- ----
2.8.2 Payment. Interest on each Loan shall be paid in arrears on
-------
each Interest Payment Date. Not less than five (5) days prior to each Interest
Payment Date, the Administrative Agent shall notify the Borrower, by telecopier
or other means reasonably selected by the Administrative Agent, of the amount of
accrued and unpaid interest due and payable on such Interest Payment Date.
During the existence of any Event of Default, interest shall be paid on demand
of the Administrative Agent at the request or with the consent of the Majority
Banks.
2.8.3 Default Interest. Notwithstanding the provisions of Section
---------------- -------
2.8.1, while any Event of Default exists the Borrower shall pay interest (after
- -----
as well as before entry of judgment thereon to the extent permitted by law) on
the principal amount of all outstanding Loans at a rate per annum which is
determined by adding three percent (3%) per annum to the Applicable Margin then
in effect for such Loans and, in the case of Obligations other than Loans, at a
rate per annum equal to the Base Rate plus 3%; provided, however, that, on and
-------- -------
after the expiration of any Interest Period applicable to any LIBOR Loan
outstanding on the date of occurrence of such Event of Default, the principal
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amount of such Loan shall, during the continuation of such Event of Default,
bear interest at a rate per annum equal to the Base Rate plus 3%.
2.8.4 Maximum Legal Rate. Notwithstanding any contrary provision of
------------------
this Agreement, the Borrower's Obligations to any Bank hereunder shall be
subject to the limitation that payments of interest shall not be required, for
any period for which interest is computed hereunder, to the extent (but only to
the extent) that such Bank's contracting for or receiving such payment would be
contrary to the provisions of any
law applicable to such Bank limiting the highest rate of interest that such Bank
may lawfully contract for, charge or receive, and in such event the Borrower
shall pay such Bank interest at the highest rate permitted by applicable law.
2.9 Fees .
----
2.9.1 Administrative Agent Fees. The Borrower shall pay to the
-------------------------
Administrative Agent, for the Administrative Agent's own account, such fees as
required by the letter agreement of even date herewith (the "Fee Letter")
----------
between the Borrower and the Administrative Agent.
2.9.2 Commitment Fee. The Borrower shall pay to the Administrative
--------------
Agent on the Closing Date, for the account of each Bank, a commitment fee in an
amount equal to one-half of one percent (0.50%) of the Maximum Commitment Amount
on such date.
2.9.3 Unused Fee. The Borrower shall pay to the Administrative
----------
Agent, for the account of each Bank, an unused fee equal to (i) four-tenths of
one percent (0.40%) per annum of the difference between the Maximum Commitment
Amount and the average daily amount outstanding hereunder (the "Average Unused
--------------
Amount"), if the Average Unused Amount for the determination period is greater
- ------
than or equal to fifty percent (50%) of the Maximum Commitment Amount, or (ii)
two-tenths of one percent (0.20%) per annum of the Average Unused Amount, if the
Average Unused Amount for the determination period is less than fifty percent
(50%) of the Maximum Commitment Amount, as calculated by the Administrative
Agent quarterly in arrears at the end of each calendar quarter after the Closing
Date, pro rated for partial calendar quarters. Such unused fee shall accrue
from the Closing Date to the Maturity Date, and shall be due and payable
quarterly in arrears on the 15th day of each January, April, July and October,
with the final payment to be made on the Maturity Date. The unused fee provided
in this Section 2.9.3 shall accrue at all times after the Closing Date,
-------------
including at any time during which one or more conditions in Article 4 are not
---------
met.
2.9.4 Letter of Credit Fees. The Borrower shall pay to the
---------------------
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<PAGE>
Administrative Agent, for the account of each Bank, a fee with respect to
outstanding Letters of Credit equal to one and five-eighths percent (1.625%) per
annum of the aggregate face amount of all Letters of Credit outstanding
hereunder (as reduced by the aggregate amount of any drawings thereunder), as
calculated by the Administrative Agent quarterly in arrears at the end of each
calendar quarter after the Closing Date during which one or more Letters of
Credit are outstanding, pro rated for partial calendar quarters. The letter of
credit fee payable under this Section 2.9.4 shall accrue with respect to each
-------------
Letter of Credit from the date of issuance to the date of expiration,
cancellation or drawing in full, and shall be due and payable quarterly in
arrears on the 15th day of each January, April, July and October.
2.10 Computation of Interest and Fees . All computations of interest for
--------------------------------
Base Rate Loans shall be made on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed. All other computations of fees and
interest shall be made on the basis of a 360-day year and actual days elapsed
(which results in more interest being paid than if computed on the basis of a
365-day year). Interest and fees shall accrue during each period during which
interest or such fees are computed from the first day thereof to the last day
thereof. Each determination of an interest rate by the Administrative Agent
shall be conclusive and binding on the Borrower and the Banks in the absence of
manifest error.
2.11 Payments by the Borrower .
------------------------
2.11.1 All payments (including prepayments) to be made by the
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrower shall be made
to the Administrative Agent for the account of the Banks at the Administrative
Agent's Payment Office, and shall be made in dollars and in immediately
available funds, no later than 11:00 a.m. San Francisco time on the date
specified herein. The Administrative Agent will promptly distribute to each
Bank its Pro Rata Share (or other applicable share as expressly provided herein)
of such payment in like funds as received. Any payment received by the
Administrative Agent later than 11:00 a.m. San Francisco time shall be deemed to
have been received on the following Business Day, and any applicable interest or
fee shall continue to accrue.
2.11.2 Subject to the provisions set forth in the definition of the
term "Interest Period", whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
2.11.3 Unless the Administrative Agent receives notice from the
Borrower prior to the date on which any payment is due to the Banks that the
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Borrower will not make such payment in full as and when required, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date in immediately available funds and the
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Borrower has not made such
payment in full to the Administrative Agent, each Bank shall repay to the
Administrative Agent on demand such amount distributed to such Bank, together
with interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Bank until the date repaid.
2.12 Payments by the Banks to the Administrative Agent .
-------------------------------------------------
2.12.1 Unless the Administrative Agent receives notice from a Bank
on or prior to the Closing Date or, with respect to any Borrowing after the
Closing Date, at least one (1) Business Day prior to the date of such
Borrowing, that such Bank will not make available to the Administrative Agent,
for the account of the Borrower, the amount of that Bank's Pro Rata Share of the
Borrowing as and when required hereunder, the Administrative Agent may assume
that each Bank has made such amount available to the Administrative Agent in
immediately available funds on the Borrowing Date and the Administrative Agent
may (but shall not be so required), in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent any Bank shall not have made its full amount available to the
Administrative Agent in immediately available funds and the Administrative Agent
in such circumstances has made available to the Borrower such amount, that Bank
shall, on the Business Day following such Borrowing Date, make such amount
available to the Administrative Agent, together with interest at the Federal
Funds Rate for each day during such period. A notice of the Administrative
Agent submitted to any Bank with respect to amounts owing under this Section
-------
2.12.1 shall be conclusive, absent manifest error. If such amount is so made
- ------
available, such payment to the Administrative Agent shall constitute such Bank's
Loan on the date of Borrowing for all purposes of this Agreement. If such
amount is not made available to the Administrative Agent on the Business Day
following the Borrowing Date, the Administrative Agent will notify the Borrower
of such failure to fund and, within five (5) Business Days following written
demand by the Administrative Agent, the Borrower shall pay such amount to the
Administrative Agent for the Administrative Agent's account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a
rate per annum equal to the interest rate applicable at the time to the Loans
comprising such borrowing (but without payment of any breakage costs or other
amounts described in Section 3.4).
-----------
2.12.2 The failure of any Bank to make any Loan on any Borrowing
Date shall not relieve any other Bank of any obligation hereunder to make a Loan
on such Borrowing Date, but no Bank shall be responsible for the failure of any
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<PAGE>
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
Any Bank that fails to make a Loan to the Borrower on a Borrowing Date shall be
liable to the Borrower for such failure, and the Borrower may proceed to enforce
this Agreement against such defaulting Bank.
2.13 Sharing of Payments . If, other than as expressly provided
-------------------
elsewhere herein, any Bank shall obtain on account of the Obligations owing to
it any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall
immediately (a) notify the Administrative Agent of such fact, and (b) purchase
from the other Banks such participations in the Loans made by them as shall be
necessary to cause such purchasing Bank to share the excess payment pro rata
with each of them; provided, however, that if all or any portion of such excess
--------
payment is thereafter recovered from the purchasing Bank, such purchase shall to
that extent be rescinded and each other Bank shall repay to the purchasing Bank
the purchase price paid therefor, together with an amount equal to such paying
Bank's ratable share (according to the proportion of (i) the amount of such
paying Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrower
agrees that any Bank so purchasing a participation from another Bank may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of set-off, as limited by Section 10.9) with respect to such
------------
participation as fully as if such Bank were the direct creditor of the Borrower
in the amount of such participation. The Administrative Agent will keep records
(which shall be conclusive and binding in the absence of manifest error) of
participations purchased under this Section 2.13, and will in each case notify
------------
the Banks following any such purchases or repayments.
2.14 Security . All obligations of the Borrower under this Agreement,
--------
the Notes and all other Loan Documents (but not including the Environmental
Indemnity) shall be secured in accordance with the Collateral Documents.
2.15 Reconveyance .
------------
2.15.1 Reconveyance of a Property. The Administrative Agent shall
--------------------------
reconvey or release a Property from the lien of the applicable Deed of Trust
upon the satisfaction of all of the following conditions precedent:
(a0 The Borrower shall have delivered to the Administrative
Agent a written request for the reconveyance or release of such Property at
least ten (10) days prior to the requested reconveyance or release date;
(b0 The Borrower shall have paid to the Administrative Agent,
for the account of the Banks, as a mandatory prepayment of principal of the
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<PAGE>
Loans, an amount equal to the applicable Release Price for such Property;
(c0 The Borrower shall have complied, with respect to such
Property, with all applicable Requirements of Law governing the subdivision
and transfer of real property;
(d0 No Monetary Default or Event of Default shall have occurred
and be continuing, except the occurrence of any Monetary Default or Event
of Default that would be fully cured by the reconveyance or release of such
Property from the lien of the applicable Deed of Trust; and
(e0 The Borrower shall have delivered to the Administrative
Agent such endorsements to the Administrative Agent's policies of title
insurance covering the Deeds of Trust as the Administrative Agent may
reasonably request.
2.15.2 Reconveyance of a Portion of a Property. The Administrative
---------------------------------------
Agent shall reconvey a parcel ("Parcel") of a Property from the lien of the
------
applicable Deed of Trust in connection with any sale or exchange of any such
Parcel, or upon the Borrower=s request, upon the satisfaction of all of the
following conditions precedent:
(a) The Borrower shall have delivered to the Administrative
Agent, at least thirty (30) days prior to the requested reconveyance date,
a written request for reconveyance of the applicable Parcel, accompanied by
the certificate of a Responsible Officer (to which a true and complete copy
of the purchase and sale or exchange agreement for the Parcel, if any,
shall be attached as an exhibit) setting forth, in such detail as the
Administrative Agent may reasonably require, (i) if applicable, the gross
purchase price of the Parcel and (ii) a calculation of the value of the
Parcel (determined by multiplying the average per acre value of the Parcel,
based on the last full appraisal of the Property from which the Parcel is
to be released, by the size of the Parcel in acres (and fractions
thereof));
(b) The Administrative Agent shall have determined the
Availability which would exist following the release of the Parcel by
revaluing the Property from which such Parcel is to be released (the
"Revaluation Property") as follows: (i) during the period from the date of
---------------------
such release until the earlier of (A) the date on which the Administrative
Agent has completed its review and update of the last full Appraisal of the
Revaluation Property or (B) the date that is forty-five (45) days after the
release of such Parcel (the "Interim Valuation Period" for such Revaluation
------------------------
Property), the As-Is Appraised Value of the Revaluation Property shall be
reduced by the greater of (x) 100% percent of the gross purchase price of
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<PAGE>
the Parcel, if any, or (y) an amount equal to the average per acre value of
the Parcel, based on the last full appraisal of the Revaluation Property,
multiplied by the size of the Parcel in acres (and fractions thereof); (ii)
during the period, if any, from the end of the Interim Valuation Period
until the date on which the Administrative Agent has completed its review
and update of the last full Appraisal of the Revaluation Property, the As-
Is Appraised Value of the Revaluation Property shall be further reduced by
100% of the value attributed to the remainder of the Revaluation Property
consisting of land in the last full appraisal of the Revaluation Property;
and (iii) from and after the date on which the Administrative Agent
completes its review and update of the last full Appraisal of the
Revaluation Property, the As-Is Appraised Value of the Revaluation Property
shall be based upon the Administrative Agent=s review and update of such
Appraisal (which review and update may result in a change in the As-Is
Appraised Value of the Revaluation Property, but shall be based on a
valuation as of the date of the last full Appraisal of such Property). The
Borrower shall cooperate with the Administrative Agent and provide the
Administrative Agent and its appraiser with all information regarding the
Revaluation Property reasonably required by the Administrative Agent or
such appraiser to prepare an Appraisal update for such Property. Promptly
following completion of the Appraisal update for the Revaluation Property
and, if earlier, at the end of the Interim Valuation Period, the
Administrative Agent shall notify the Borrower in writing of the revised
As-Is Appraised Value of the Revaluation Property, taking into account the
release of the Parcel. The Borrower shall pay to the Administrative Agent,
within ten (10) days after the Administrative Agent=s written demand, all
costs and expenses of the Administrative Agent's appraiser. If the
Administrative Agent determines, in accordance with this Section 2.15.2(b),
-----------------
that the Availability which would exist immediately following release of
the subject Parcel would be less than the aggregate principal amount
outstanding on the Loans, the Administrative Agent shall notify the
Borrower of such fact and of the amount of any principal prepayment
necessary to reduce the aggregate principal amount outstanding on the Loans
to the amount of the Availability. The Borrower shall thereupon have the
right to cause the condition precedent contained in this Section 2.15.2(b)
-----------------
to be satisfied by paying to the Administrative Agent, on account of the
principal of the Loan, the amount stated in the notification described
above. If the Administrative Agent determines, in accordance with this
Section 2.15.2(b), that the Availability which would exist (i) at the end
-----------------
of the Interim Valuation Period or (ii) upon completion of the Appraisal
update for the Revaluation Property would be less than the principal amount
outstanding on the Loans at such time, the Administrative Agent's notice to
the Borrower of the revised As-Is Appraised Value of the Revaluation
Property shall also notify the Borrower of such fact and of the amount of
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any principal prepayment (the "Required Principal Reduction") necessary to
----------------------------
reduce the principal amount then outstanding on the Loans to the amount of
the Availability at such time. Within ten (10) days after the
Administrative Agent's notice to the Borrower of the amount of any Required
Principal Reduction, the Borrower shall pay such Required Principal
Reduction to the Administrative Agent, for the account of the Banks, in
accordance with the mandatory prepayment provisions of Section 2.6;
-----------
(c) If the Parcel to be released is not a separate, transferrable
legal parcel on the date of this Agreement (or on the recording date of the
Deed of Trust encumbering such Parcel, if later), the Administrative Agent
shall have approved, in its reasonable discretion, the location and
configuration of the Parcel to be released and of the remaining Property;
(d) The Borrower shall have complied, with respect to the Parcel
to be released and the remaining Property, with all applicable laws, rules
and regulations governing the subdivision and transfer of real property
(and the remaining Property shall be lawfully transferable as a whole,
without the need to file a subdivision or parcel map of any kind);
(e) The Borrower shall have reserved such access, utility and
other easements over the real property to be reconveyed for the benefit of
the remaining Property as may be reasonably required by the Administrative
Agent;
(a0 No Event of Default or Monetary Default shall have occurred
and be continuing as of the date of reconveyance, except the occurrence of
any such Event of Default or Monetary Default which would be fully cured by
the reconveyance of the Parcel to be reconveyed from the lien of the Deed
of Trust; and
(b0 The Borrower shall have delivered to the Administrative
Agent such endorsements to the Administrative Agent's policies of title
insurance covering the Deeds of Trust as the Administrative Agent may
reasonably request.
In addition, upon the reconveyance or release of all of a Sale-Leaseback
Property from the lien of the Deed of Trust encumbering such Sale-Leaseback
Property, the Administrative Agent shall also release any liens or security
interests it may then hold in any of the Borrower's other rights or interests in
such Sale-Leaseback Property, including any assignment of the Borrower's option
to purchase the Sale-Leaseback Property and any pledge of the purchase money
note payable to the Borrower and secured by one or more deeds of trust
encumbering the fee interest in such Sale-Leaseback Property.
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2.15.3 Mandatory Release or Adjustment of Appraised Value. Each of
--------------------------------------------------
the Banks shall have the right, at any time on or before the date that is sixty
(60) days after the Closing Date, to approve or disapprove, in its sole and
absolute discretion, (a) each Property that is encumbered with a Deed of Trust
being recorded on the Closing Date and (b) the As-Is Appraised Value established
for each Existing Property. If within such sixty (60) day period any Bank
disapproves any such Property or the As-Is Appraised Value established for any
such Existing Property by giving written notice of such disapproval to the
Administrative Agent, the Administrative Agent shall give prompt written notice
to the Borrower of such disapproval. For purposes of determining Portfolio
Appraisal Value on and after the date of such written notice to the Borrower,
(c) any such disapproved Property shall no longer be considered and (d) the As-
Is Appraised Value of any such disapproved Existing Property shall be recomputed
making use of the "Appraised Value" of such Existing Property immediately prior
to the Closing Date under the Existing Loan Agreement. Following such
disapproval notice to the Borrower, Portfolio Appraisal Value will be
redetermined pursuant to Section 2.6.3, and the Borrower shall repay any amount
-------------
by which the outstanding principal amount of the Loans at such time exceeds the
Availability at such time pursuant to Section 2.6.3.
-------------
2.16 Encumbrance of Additional Properties .
------------------------------------
2.16.1 The Borrower may, from time to time (but in no event more
than once during any calendar month) up to three (3) months prior to the
Maturity Date, submit to the Administrative Agent for the Administrative Agent's
review and, if required by the terms of this Section 2.16, the Banks' approval,
------------
a real property (a) that is owned in fee by the Borrower or a wholly-owned
Subsidiary of the Borrower and that is improved with an industrial,
manufacturing or warehouse distribution facility, a research and development
facility, an office building, or a shopping center, theater, restaurant facility
or other similar retail project or use (or any combination thereof) (which may
include Entitled Land on which the Borrower has constructed any of the foregoing
types of improvements), at least ninety percent (90%) of the net rentable area
of which improvements has been leased to, and occupied by, paying third party
tenants under signed leases, or (b) that is owned in fee by the Borrower or a
wholly-owned Subsidiary of the Borrower and that is (i) unimproved, but
satisfies all of the conditions set forth in the definition of the term
"Entitled Land", or (ii) unimproved, but satisfies all of the conditions set
forth in the definition of the term "Construction Property", or (c) that is
owned in fee by the Borrower and satisfies all of the conditions set forth in
the definition of the term "Ground Leased Property", that the Borrower proposes
to encumber with a Deed of Trust for the benefit of the Administrative Agent, as
administrative agent for the Banks, as additional security for the Obligations.
Any such submission shall be accompanied or promptly supplemented by a "New
Property Information Package" relating to the property, containing all of the
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following information (except with respect to an improved property, for which
item (7) will not be required, an unimproved property that satisfies all of the
conditions set forth in the definition of the term "Entitled Land", for which
items (5), (6) and (7) will not be required, or an unimproved property that
satisfies all of the conditions set forth in the definition of the term
"Construction Property", for which item (6) will not be required), in form
reasonably satisfactory to the Administrative Agent:
(1 a detailed site plan for the property;
(2 the most recent written appraisal of the property (if
available);
(3 a preliminary title report (and copies of all exceptions noted
therein);
(4 a "Phase 1" environmental assessment of the property prepared
by a qualified engineer or consultant reasonably acceptable to the
Administrative Agent;
(5 a rent roll for the property, together with copies of all
tenant leases;
(6 a statement of profit and loss for the property for the most
recent twelve (12) consecutive calendar months;
(7 plans, specifications and a construction budget for any
improvements to be constructed on the property; and
(8 all other information reasonably required by the
Administrative Agent.
2.16.2 Upon its receipt of a complete New Property Information
Package for any property, the Administrative Agent shall provide a copy of such
New Property Information Package to each Bank, and shall cause an Appraisal of
the property to be prepared by (i) an independent appraiser selected by the
Administrative Agent or (ii) the BofA in-house appraisal department. The
Administrative Agent shall notify each Bank of the identity and qualifications
of the proposed appraiser, which appraiser shall be deemed approved unless a
Bank objects within three (3) Business Days after receipt of such notice. The
Administrative Agent shall deliver a copy of such Appraisal to each Bank, and
the Banks shall review such Appraisal within ten (10) Business Days after
receipt and, based upon such review and such comments as the Administrative
Agent may receive from any Bank within such ten (10) Business Day period, the
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Administrative Agent shall make such adjustments to such Appraisal as the
Administrative Agent, on behalf of the Banks, reasonably deems appropriate.
2.16.3 Within five (5) Business Days after the Administrative Agent
determines the final As-Is Appraised Value for a property, the Administrative
Agent shall determine whether such property satisfies all of the following
conditions:
(a0 such property is improved with a completed industrial,
manufacturing or warehouse distribution facility, or is an R&D Property;
(b0 100% of the net rentable area of such property is subject to
one or more signed leases to paying third party tenants expiring not less
than five (5) years after the date of the Administrative Agent's
determination; and
(c0 such property would, if encumbered with a Deed of Trust,
cause an increase in the Availability of $10,000,000.00 or less.
If the Administrative Agent determines that such property satisfies all of the
conditions set forth in this Section 2.16.3, the Administrative Agent may, in
--------------
its sole discretion, approve encumbering such property with a Deed of Trust for
the benefit of the Administrative Agent, as administrative agent for the Banks;
if the Administrative Agent determines that such property does not satisfy all
such conditions, then the Supermajority Banks may, in their sole discretion,
approve encumbering such property with a Deed of Trust for the benefit of the
Administrative Agent, as administrative agent for the Banks; provided, however,
--------
that notwithstanding the foregoing, if such property satisfies all of the
conditions set forth in the definition of the term "Construction Property" all
of the Banks, in their sole discretion, must approve encumbering such property
with a Deed of Trust for the benefit of the Administrative Agent, as
administrative agent for the Banks.
2.16.4 Upon the satisfaction of all of the conditions set forth in
Sections 4.1.2 (if required by the Administrative Agent), 4.1.3 (if required by
- -------------- -----
the Administrative Agent), 4.1.6, 4.1.7, 4.1.8, 4.1.9 and 4.1.10 solely with
-------------------------------------
respect to the new property approved by the Administrative Agent or by the
Supermajority Banks, as applicable, such property shall be a "Property" for all
purposes under this Agreement and the other Loan Documents, and the Availability
shall be recomputed taking account of such additional Property.
2.17 Development of Entitled Land and Construction Properties .
--------------------------------------------------------
2.17.1 The Borrower shall have the right, without the consent of the
Administrative Agent or the Banks, to develop any of the Entitled Land
(including the performance of site work, the installation of utilities or
infrastructure, the alteration or demolition of existing improvements, if any,
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or the construction of improvements on any such Entitled Land, or the taking of
such actions as may be necessary to obtain permits or approvals for the
development of any such Entitled Land). However, unless the Borrower submits
such developed Entitled Land to the Administrative Agent pursuant to Section
-------
2.16, and such developed Entitled Land satisfies the requirements of Section
- ---- -------
2.16, such Property shall continue to be considered Entitled Land
- ----
notwithstanding the Borrower's construction of improvements thereon.
2.17.2 The Borrower shall have the right without the consent of the
Administrative Agent or the Banks to develop each Construction Property
(including the performance of site work, installation of utilities, construction
of improvements and alteration or removal of any existing improvements) to the
extent contemplated under the leases and/or the sale agreement relating to such
Construction Property. Once the Borrower has commenced construction of
improvements on a Construction Property, the Borrower shall diligently proceed
to complete construction of such improvements, free and clear of Liens,
substantially in accordance with the plans and specifications delivered to the
Administrative Agent.
2.18 Increases and Decreases in Pro Rata Shares . Upon the Borrower's
------------------------------------------
satisfaction of all of the conditions set forth in Section 4.1 of this
-----------
Agreement, each Bank whose Pro Rata Share of the combined Commitments of all of
the Banks has increased, as evidenced by the difference for each Bank between
the Pro Rata Share reflected in the Existing Loan Agreement and the Pro Rata
Share reflected in this Agreement, shall pay to the Administrative Agent, for
distribution to the Banks whose Pro Rata Shares of the combined Commitments of
all of the Banks has decreased pursuant to this Agreement, an amount equal to
the product of the increase in such Bank's Pro Rata Share (expressed as a
decimal) multiplied by the aggregate outstanding principal amount of the Loans
on the date of determination.
2.19 Increase in Maximum Commitment Amount .
-------------------------------------
2.19.1 On the terms and subject to the conditions set forth in this
Section 2.19, the Borrower may, at any time and from time to time prior to the
- ------------
Maturity Date, by notice to the Administrative Agent, request an increase in the
Maximum Commitment Amount by (i) permitting any Bank to increase its Commitment
(and accordingly increase the Maximum Commitment Amount by such amount), or (ii)
inviting any Eligible Assignee that has previously been approved by the
Administrative Agent in writing to become a Bank under this Agreement and to
provide a commitment to lend hereunder (and accordingly increase the Maximum
Commitment Amount by such amount); provided, however, that in no event shall
-------- -------
such actions cause the Maximum Commitment Amount to increase above $265,000,000.
2.19.2 The Administrative Agent shall notify the Banks of each such
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request by the Borrower. The Borrower, the Banks and each such Bank or Eligible
Assignee shall execute and deliver to the Administrative Agent (for the benefit
of the Administrative Agent, the Borrower and such Bank or Eligible Assignee)
supplemental signature pages to this Agreement and any Co-Lender Agreement among
the Administrative Agent and the Banks relating to this Agreement, in the form
of Exhibit K-1 attached hereto, in the case of a Bank, or in the form of Exhibit
----------- -------
K-2 hereto in the case of an Eligible Assignee (each, a "Supplemental Signature
- --- ----------------------
Page"). Upon the execution and delivery of each such Supplemental Signature
- ----
Page, and despite any contrary provision of this Agreement (i) each such
Eligible Assignee shall become a party to this Agreement, and thereafter shall
have all of the rights and obligations of a Bank hereunder, (ii) each such
Eligible Assignee or Bank shall simultaneously pay to the Administrative Agent,
for distribution to the Banks whose Pro Rata Shares of the combined Commitments
of all of the Banks has decreased as a result of the new Commitment of such
Eligible Assignee or the increased Commitment of such Bank, an amount equal to
the product of such Eligible Assignee's Pro Rata Share (or the increase in such
Bank's Pro Rata Share), expressed as a decimal, multiplied by the aggregate
outstanding principal amount of the Loans on the date of determination, and
(iii) each such Eligible Assignee or Bank shall thereafter be obligated to make
its Pro Rata Share of Borrowings to the Borrower up to and including the amount
of such Eligible Assignee's or Bank's Pro Rata Share of the increased Maximum
Commitment Amount, on the terms and subject to the conditions set forth in this
Agreement.
2.19.3 Upon any increase in the Maximum Commitment Amount pursuant
to Section 2.19.1, the Administrative Agent shall amend Schedule 2.1 attached
-------------- ------------
hereto to reflect the revised Pro Rata Shares held by the Banks. Such amended
Schedule 2.1 shall supersede all earlier versions of Schedule 2.1, and shall be
- ------------ ------------
conclusive and binding absent manifest error.
2.19.4 Notwithstanding any contrary provision of this Section 2.19,
------------
no increase in the Maximum Commitment Amount will be permitted unless (a) all
then outstanding Loans constitute Base Rate Loans or (b) the Interest Periods
for all outstanding LIBOR Loans will expire (and any new Interest Periods for
any such LIBOR Loans will commence) concurrently with the date on which any
increase in the Maximum Commitment Amount becomes effective.
2.19.5 The effectiveness of any increase in the Maximum Commitment
Amount pursuant to Section 2.19.1 is subject to the Administrative Agent's
--------------
receipt of a CLTA form 108.10 indorsement or other comparable indorsement to
each policy of title insurance insuring a then-existing Deed of Trust, insuring
that the validity and priority of each such Deed of Trust is not affected by the
increase in the Maximum Commitment Amount.
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ARTICLE 3.
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
3.1 Taxes . The Borrower shall pay all Other Taxes. In addition, if
-----
after the date hereof any new Taxes are at any time imposed on any payments
under or in respect of any LIBOR Loan or any instrument or agreement required
hereunder, including payments made pursuant to this Section 3.1, and the result
-----------
thereof is to increase the cost to any Bank or its Offshore Lending Office of
making or maintaining any LIBOR Loan or to reduce the amounts received or
receivable by such Bank or its Offshore Lending Office in connection with any
LIBOR Loan, then within thirty (30) days following such Lender's request, from
time to time the Borrower shall pay all such Taxes and shall also pay to the
Administrative Agent, at the time interest is paid, all additional amounts which
such Bank specifies as necessary to preserve the yield, after payment of such
Taxes, that such Bank would have received if such taxes had not been imposed;
provided, however, that the Borrower shall not be obligated to pay such Bank any
- --------
compensation attributable to any period prior to the date that is ninety (90)
days prior to the date on which such Bank gave notice to the Borrower of the
circumstance entitling such Bank to compensation. Each Bank agrees to notify
the Borrower promptly of its actual knowledge of any event that would entitle
such Bank to compensation under this Section 3.1 (and further agrees to
-----------
designate a different Lending Office with respect to its LIBOR Loans if such
redesignation will avoid the need for or reduce the amount of any such
compensation and will not, in the judgment of such Bank, be illegal or otherwise
disadvantageous to such Bank); provided further, however, that a Lender's
----------------
failure to give any such notice shall not affect the Borrower's obligation to
pay such compensation, except as otherwise expressly provided above. If any
Bank claims compensation or a right to reimbursement under this Section 3.1, the
-----------
Borrower may at any time, upon at least four (4) Business Days' prior written
notice to the Administrative Agent and the Bank and upon payment of all amounts
then due under this Section 3.1 plus any prepayment fee required under Section
----------- -------
3.4, prepay such Bank's affected LIBOR Loans or request that such Bank's LIBOR
- ---
Loans be converted to Base Rate Loans.
3.2 Illegality .
----------
3.2.1 If any Bank determines that (a) the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, occurring after the
date of this Agreement has made it unlawful, or (b) any central bank or other
Governmental Authority has asserted after the date of this Agreement that it is
unlawful for such Bank or its applicable Lending Office to make LIBOR Loans,
then, on notice thereof by such Bank to the Borrower and the Administrative
Agent, any obligation of such Bank to make LIBOR Loans shall be suspended until
such Bank notifies the Administrative Agent and the Borrower that the
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<PAGE>
circumstances giving rise to such determination no longer exist.
3.2.2 If any Bank determines that it is unlawful to maintain any
LIBOR Loan, the Borrower shall, upon its receipt of notice of such fact and
demand from such Bank (with a copy to the Administrative Agent), prepay in full
such Bank's LIBOR Loans then outstanding, together with interest accrued
thereon, but without any amounts that would otherwise be required to be paid in
connection with such prepayment under Section 3.4, either on the last day of the
-----------
Interest Period thereof, if such Bank may lawfully continue to maintain such
LIBOR Loans to such day, or immediately, if such Bank may not lawfully continue
to maintain such LIBOR Loans. If the Borrower is required to so prepay any
LIBOR Loan, then concurrently with such prepayment, the Borrower shall borrow
from the affected Bank, in the amount of such repayment, a Base Rate Loan.
3.2.3 If the obligation of any Bank to make or maintain LIBOR Loans
has been so terminated or suspended, the Borrower may elect, by giving notice to
such Bank and the Administrative Agent, that all Loans which would otherwise be
made by such Bank as LIBOR Loans shall be instead Base Rate Loans.
3.2.4 Before giving any notice to the Borrower and the
Administrative Agent under this Section 3.2, the affected Bank shall designate a
-----------
different Lending Office with respect to its LIBOR Loans if such designation
will avoid the need for giving such notice or making such demand and will not,
in the judgment of such Bank, be illegal or otherwise disadvantageous to such
Bank.
3.3 Increased Costs and Reduction of Return .
---------------------------------------
3.3.1 If any Bank determines that, due to either (i) the
introduction of, or any change in or in the interpretation of, any law or
regulation occurring after the date of this Agreement or (ii) the compliance by
such Bank (or its Lending Office) with any guideline or request from any central
bank or other Governmental Authority (whether or not having the force of law)
imposed after the date hereof, there shall be any increase in the cost to such
Bank of agreeing to make or making, funding or maintaining any LIBOR Loans, then
the Borrower shall be liable for, and shall from time to time, within thirty
(30) days of demand by such Bank (with a copy of such demand to be sent to the
Administrative Agent), pay to the Administrative Agent, for the account of such
Bank, additional amounts as are sufficient to compensate such Bank for such
increased costs; provided, however, that the Borrower shall not be obligated to
--------
pay to the Administrative Agent, for the account of such Bank, any compensation
attributable to any period prior to the date that is ninety (90) days prior to
the date on which such Bank gave notice to the Borrower of the circumstance
entitling such Bank to compensation. A Bank's statement claiming compensation
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under this Section 3.3.1 and setting forth the additional amounts to be paid
-------------
hereunder shall, in the absence of manifest error, be conclusive and binding for
all purposes so long as the amount claimed is calculated and charged in the same
manner as such amounts are generally calculated and charged for such Bank's
other similarly situated borrowers. Each Bank agrees promptly to notify the
Borrower (with a copy to the Administrative Agent) of its actual knowledge of
any event that would entitle such Bank to compensation under this Section 3.3.1
-------------
(and further agrees to designate a different Lending Office with respect to its
LIBOR Loans if such redesignation will avoid the need for, or reduce the amount
of, any such compensation and will not, in the judgment of such Bank, be illegal
or otherwise disadvantageous to such Bank); provided further, however, that a
----------------
Bank's failure to give any such notice(s) shall not affect the Borrower's
obligation to pay such additional amounts hereunder, except as otherwise
expressly provided above. If any Bank claims compensation under this Section
-------
3.3.1, the Borrower may at any time, upon at least four (4) Business Days' prior
- -----
written notice to the Administrative Agent and such Bank, and upon payment of
all amounts required under this Section 3.3.1 plus any prepayment fee required
------------- ----
under Section 3.4, prepay such Bank's LIBOR Loans or request that such Bank's
-----------
LIBOR Loans be converted to Base Rate Loans.
.
3.3.2 If after the date of this Agreement any Bank determines that
(i) the introduction of any Capital Adequacy Regulation, (ii) any change in any
Capital Adequacy Regulation, (iii) any change in the interpretation or
administration of any Capital Adequacy Regulation by any central bank or other
Governmental Authority charged with the interpretation or administration
thereof, or (iv) compliance by such Bank (or its Lending Office), or any
corporation controlling such Bank, with any Capital Adequacy Regulation imposed
after the date hereof affects or would affect the amount of capital required or
expected to be maintained by such Bank or any corporation controlling such Bank,
and such Bank (taking into consideration such Bank's or such corporation's
policies with respect to capital adequacy and such Bank's desired return on
capital) determines that the amount of such capital is increased as a
consequence of its Commitment, loans, credits or obligations under this
Agreement, then, within thirty (30) days of such Bank's demand to the Borrower
(with a copy to the Administrative Agent), the Borrower shall pay to the
Administrative Agent, for the account of such Bank, from time to time as
specified by such Bank, additional amounts sufficient to compensate such Bank
for such increase; provided, however, that the Borrower shall not be obligated
--------
to pay to the Administrative Agent, for the account of such Bank, any
compensation attributable to any period prior to the date that is ninety (90)
days prior to the date on which such Bank gives notice to the Borrower of the
circumstance entitling such Bank to compensation. Each Bank agrees promptly to
notify the Borrower (with a copy to the Administrative Agent) of any
circumstances that would cause the Borrower to pay additional amounts pursuant
to this Section 3.3.2; provided further, however, that a Bank's failure to give
------------- ----------------
any such notice(s) shall not affect the Borrower's obligation to pay such
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additional amounts hereunder, except as otherwise expressly provided above.
Notwithstanding the foregoing, the Borrower shall not be required to pay any
amount to any Bank under this Section 3.3.2 if such Bank has previously received
-------------
the compensation otherwise payable hereunder as a result of any other payment
made by the Borrower to such Bank under any other section of this Agreement or
under one of the other Loan Documents.
.
3.4 Funding Losses . The Borrower shall reimburse each Bank, and hold
--------------
each Bank harmless from, any loss or expense which the Bank may sustain or incur
as a consequence of:
(a0 the Borrower's failure to borrow, continue or convert a Loan
after the Borrower has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/Continuation;
(b0 the Borrower's failure to make any prepayment in accordance with
any notice delivered under Section 2.5;
-----------
(c0 the prepayment (including pursuant to Section 2.6) or other
-----------
payment (including after acceleration thereof) of a LIBOR Loan on a day that is
not the last day of the relevant Interest Period, except as otherwise provided
in Section 3.2.2; or
-------------
(d0 the automatic conversion under Section 2.4 of any LIBOR Loan to a
-----------
Base Rate Loan on a day that is not the last day of the relevant Interest
Period;
to the extent that any such loss or expense arises from the liquidation or
reemployment of funds obtained by it to maintain its LIBOR Loans or from fees
payable to terminate the deposits from which such funds were obtained. For
purposes of this Section 3.4, the loss or expense arising from the liquidation
-----------
or reemployment of funds obtained to maintain any LIBOR Loans shall be an amount
equal to the sum of (i) $250.00 and (ii) the amount, if any, by which X exceeds
Y, and (iii) all other costs and expenses that such Bank would reasonably expect
to incur in connection with the prepayment of the applicable LIBOR Loans, where
"X" equals the additional interest that would have accrued on the principal
amount of the LIBOR Loan prepaid, without regard to the Applicable Margin, if
that principal amount had remained outstanding until the last day of the
applicable Interest Period, and "Y" equals the interest that such Bank could
recover by placing the prepaid funds on deposit in the London U.S. Dollar
interbank market for a period beginning on the day of prepayment and ending on
the last day of the applicable Interest Period, or for a comparable period for
which an appropriate rate quote can be obtained. For purposes of calculating
amounts payable by the Borrower to a Bank under this Section 3.4 and under
-----------
Section 3.3.1, each LIBOR Loan made by a Bank (and each related reserve, special
- -------------
deposit or similar requirement) shall be conclusively deemed to have been funded
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<PAGE>
at the LIBOR for such LIBOR Loan by a matching deposit or other borrowing in the
London U.S. Dollar interbank market for a comparable amount and for a comparable
period, whether or not such LIBOR Loan is in fact so funded.
3.5 Inability to Determine Rates . If the Majority Banks reasonably
----------------------------
determine that for any reason beyond their reasonable control adequate and
reasonable means do not exist for determining LIBOR for any requested Interest
Period with respect to a proposed LIBOR Loan, or that the LIBOR applicable
pursuant to Section 2.8.1 for any requested Interest Period with respect to a
-------------
proposed LIBOR Loan does not adequately and fairly reflect the cost to such
Banks of funding such Loan (and, as a matter of general policy, the Majority
Banks are not making LIBOR Loans to other borrowers similarly situated), the
Administrative Agent will promptly so notify the Borrower and each Bank.
Thereafter, the obligation of the Banks to make or maintain LIBOR Loans
hereunder shall be suspended until the Administrative Agent, upon the
instruction of the Majority Banks, revokes such notice in writing. Upon receipt
of such notice, the Borrower may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Borrower does not revoke
such Notice, the Banks shall make, convert or continue the Loans, as proposed by
the Borrower, in the amount specified in the applicable notice submitted by the
Borrower, but such Loans shall be made, converted or continued as Base Rate
Loans instead
of LIBOR Loans. No breakage or other costs described in Section 3.4 shall be
-----------
charged or payable in connection with any revocation of a notice by Borrower or
any conversion of LIBOR Loans under this Section 3.5.
-----------
3.6 Certificates of Banks . Any Bank claiming reimbursement or
---------------------
compensation under this Article 3 shall deliver to the Borrower (with a copy to
---------
the Administrative Agent) a certificate setting forth in reasonable detail the
amount payable to such Bank hereunder, and such certificate shall be conclusive
and binding on the Borrower (a) so long as the amount payable is calculated and
charged in the same manner as such amounts are calculated and charged generally
to such Bank's other borrowers similarly situated and (b) in the absence of
manifest error.
3.7 Survival . The agreements and obligations of the Borrower in this
--------
Article 3 shall survive the payment and performance of all other Obligations.
- ---------
ARTICLE 4.
CONDITIONS PRECEDENT
--------------------
4.1 Conditions of Initial Loans . The obligation of each Bank to make
---------------------------
its initial Loan hereunder is subject to the condition that the Administrative
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Agent shall have received on or before the Closing Date all of the following, in
form and substance reasonably satisfactory to the Administrative Agent and each
Bank, and in sufficient copies for each Bank:
4.1.1 Credit Agreement, Notes and Environmental Indemnity . This
---------------------------------------------------
Agreement, the Notes and the Environmental Indemnity covering each of the
Properties, each executed by the Borrower.
4.1.2 Resolutions; Incumbency .
-----------------------
(a0 Copies of the resolutions of the board of directors of the
Borrower and each Subsidiary that owns a Property authorizing the
transactions contemplated hereby, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Borrower or such Subsidiary; and
(b0 A certificate of the Secretary or Assistant Secretary of the
Borrower and each Subsidiary that owns a Property certifying the names and
true signatures of the officers of the Borrower or such Subsidiary
authorized to execute and deliver this Agreement, all other Loan Documents
to be delivered by it hereunder, and the Environmental Indemnity.
4.1.3 Organization Documents; Good Standing . Each of the following
-------------------------------------
documents:
(a0 the articles or certificate of incorporation of the Borrower
and each Subsidiary that owns a Property as in effect on the Closing Date,
certified by the Secretary of State of the jurisdiction of the Borrower's
or such Subsidiary's incorporation; and
(b0 good standing and tax good standing certificates for the
Borrower and each Subsidiary that owns a Property from the Secretary of
State (or similar, applicable Governmental Authority) of its state of
incorporation and each state in which a Property is located, as of a recent
date.
4.1.4 Legal Opinions .
--------------
(a0 one or more opinions of counsel to the Borrower and each
Subsidiary that owns a Property addressed to the Administrative Agent and
the Banks, collectively substantially in the form of Exhibit D-1; and
-----------
(b0 opinions of local counsel to the Administrative Agent in the
States of Arizona, Colorado, Illinois, Kansas, Oklahoma, Oregon and Texas
addressed to the Administrative Agent and the Banks, substantially in the
form of Exhibit D-2.
-----------
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4.1.5 Payment of Fees . Evidence of payment by the Borrower of all
---------------
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BofA to the extent invoiced
prior to or on the Closing Date, plus such additional amounts of Attorney Costs
as shall constitute BofA's reasonable estimate of Attorney Costs incurred or to
be incurred by it through the closing proceedings (provided that such estimate
shall not thereafter preclude final settling of accounts between the Borrower
and BofA); including any such costs, fees and expenses arising under or
referenced in Sections 2.9 and 10.4.
---------------------
4.1.6 Collateral Documents . The Collateral Documents and all
--------------------
Modification Agreements, executed by the Borrower, in appropriate form for
recording, where necessary, together with:
(a0 copies of all UCC-1 financing statements to be filed,
registered or recorded to perfect the security interests of the
Administrative Agent, for the benefit of the Banks, or other evidence
satisfactory to the Administrative Agent that there will be filed,
registered or recorded all financing statements and other filings,
registrations and recordings necessary and advisable to perfect the Liens
of the Administrative Agent, for the benefit of the Banks, in accordance
with applicable law;
(b0 written advice relating to such Lien and judgment searches
as the Administrative Agent shall have requested, and such termination
statements or other documents as may be necessary to confirm that the
Collateral is subject to no other Liens in favor of any Persons (other than
Permitted Liens);
(c0 evidence that all other actions necessary or, in the
reasonable opinion of the Administrative Agent or the Banks, desirable to
perfect and protect the first priority security interest created by the
Collateral Documents will be taken, including the recording of each of the
Deeds of Trust and each of the Modification Agreements, as applicable;
(d0 funds sufficient to pay any filing or recording tax or fee
in connection with any and all UCC-1 financing statements and the Deeds of
Trust;
(e0 with respect to each Property, an A.L.T.A. Form B lender's
policy of title insurance, to the extent available in the jurisdiction in
which the applicable Property is located (or other form available in the
jurisdiction in which the applicable Property is located and otherwise
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<PAGE>
acceptable to the Administrative Agent and the Banks), or a binder
therefor, issued by a title insurance company satisfactory to the
Administrative Agent and the Banks (the Administrative Agent and the Banks
hereby acknowledging that Chicago Title Insurance Company is acceptable)
insuring (or undertaking to insure, in the case of a binder) that the
applicable Deed of Trust, as modified by the applicable Modification
Agreement, if any, creates and constitutes a valid first Lien encumbering
such Property in favor of the Administrative Agent, subject only to
exceptions reasonably acceptable to the Administrative Agent and the Banks,
with such endorsements, affirmative insurance and reinsurance as the
Administrative Agent or any Bank may reasonably request;
(f0 evidence that the Administrative Agent has been named as
loss payee under all policies of casualty insurance, and as additional
insured under all policies of liability insurance, required by this
Agreement or the applicable Deed of Trust;
(g0 to the extent required under Section 6.6, evidence of flood
-----------
insurance and earthquake insurance meeting the requirements of Section 6.6;
-----------
(h0 current A.L.T.A. surveys and surveyor's certification as to
each Property in respect of which there is delivered a Deed of Trust, or as
may be reasonably required by the Administrative Agent, each in form and
substance reasonably satisfactory to the Administrative Agent and the
Banks;
(i0 Appraisals of each Property;
(j0 proof of payment of all title insurance premiums,
documentary stamp or intangible taxes, recording fees and mortgage taxes
payable in connection with the recording of any Deed of Trust or the
issuance of the title insurance policies (whether due on the Closing Date
or in the future);
(k0 an estoppel certificate executed by the tenant under any
lease of a Property that covers twenty-five percent (25%) or more of the
net rentable area of such Property; and
(l0 evidence that all other actions necessary or, in the
reasonable opinion of the Administrative Agent or the Banks, desirable to
perfect and protect any of the first priority Liens created by the
Collateral Documents, and to enhance the Administrative Agent's ability to
preserve and protect its interests in and access to any of the Collateral,
have been taken.
4.1.7 Environmental Review . An environmental site assessment with
--------------------
respect to each Property as to which the Administrative Agent is granted a Lien,
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for the benefit of the Banks, dated as of a recent date prior to the Closing
Date, prepared by a qualified firm reasonably acceptable to the Administrative
Agent and the Banks (the Administrative Agent and the Banks hereby approving
Dames & Moore), confirming, among other things, that such Property is either
free from Hazardous Materials that violate applicable Environmental Laws or has
an acceptable remediation plan in place and that the current operations
conducted thereon are in compliance with all Environmental Laws.
4.1.8 Lease Review . Copies of all leases of each Property, which
------------
leases shall be satisfactory in form and substance to the Administrative Agent.
4.1.9 Certificate . A certificate signed by a Senior Officer, dated
-----------
as of the Closing Date, stating that:
(a) the representations and warranties contained in Article 5 are
---------
true and correct on and as of such date, as though made on and as of such
date;
(b) no Default or Event of Default exists or would result from
the initial Borrowing; and
(c) there has occurred since December 31, 1997, no event or
circumstance that has resulted or could reasonably be expected to result in
a Material Adverse Effect.
4.1.10 Establishment of Appraised Values. Subject to the provisions
---------------------------------
of Section 2.15.3, As-Is Appraised Values shall have been established for each
--------------
Operating Property and parcel of Entitled Land listed on Exhibit G, and As-
---------
Completed Appraised Values shall have been established for each Construction
Property listed on Exhibit G.
---------
4.1.11 Other Documents. Such other approvals, opinions, documents
---------------
or materials as the Administrative Agent or any Bank may reasonably request.
4.2 Conditions to All Borrowings . The obligation of each Bank to make
----------------------------
any Loan to be made by it (including its initial Loan) is subject to the
satisfaction of all of the following conditions precedent on the relevant
Borrowing Date:
4.2.1 Notice of Borrowing . The Administrative Agent shall have
-------------------
received (with, in the case of the initial Loan only, a copy for each Bank) a
Notice of Borrowing.
4.2.2 Continuation of Representations and Warranties . The
----------------------------------------------
representations and warranties in Article 5 shall be true and correct on and as
---------
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<PAGE>
of such Borrowing Date with the same effect as if made on and as of such
Borrowing Date (except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date); provided, however, that in connection with any Notice
--------
of Borrowing, the Borrower may supplement or update the representations and
warranties set forth in Article 5, by written notice to the Administrative
---------
Agent, and Article 5 shall automatically be deemed modified so long as the
---------
modifications requested by Borrower do not reflect changes in facts or
circumstances which constitute a Material Adverse Effect.
4.2.3 No Existing Default . No Monetary Default, other Default that
-------------------
the Borrower is not in the process of curing (to the extent permitted by Section
-------
8.1) or Event of Default shall exist or shall result from such Borrowing.
- ---
4.2.4 No Future Advance Notice . Neither the Administrative Agent
------------------------
nor any Bank shall have received from the Borrower, or from any other Person who
has reasonable cause to know, any notice that any Collateral Document will no
longer secure on a first priority basis future advances or future Loans to be
made or extended under this Agreement.
4.2.5 Further Assurances . The Borrower shall have executed and
------------------
acknowledged (or caused to be executed and acknowledged) and delivered to the
Administrative Agent all documents, and taken all actions, reasonably required
by the Administrative Agent from time to time to confirm the rights created or
now or hereafter intended to be created under the Loan Documents or the
Environmental Indemnity, to protect and further the validity, priority and
enforceability of the applicable Collateral Documents, to subject to the
Collateral Documents any property intended by the terms of any Loan Document to
be covered by the Collateral Documents, or otherwise to carry out the purposes
of the Loan Documents and the transactions contemplated by the Loan Documents.
4.2.6 Title Indorsements . The Administrative Agent shall have
------------------
received, at the Borrower's sole expense, a commitment for quarterly date-down
indorsements to the policies of title insurance covering the Properties, all in
form and substance satisfactory to the Administrative Agent and issued by the
title insurer that issued the original title policies.
Each Notice of Borrowing submitted by the Borrower hereunder shall constitute a
representation and warranty by the Borrower hereunder, as of the date of each
such notice and as of each Borrowing Date, that the conditions in Section 4.2
-----------
are satisfied, except as otherwise specified therein.
4.3 Letters of Credit . In addition to the conditions set forth in
-----------------
Sections 4.1 and 4.2, BofA=s obligation to issue any Letter of Credit is subject
- --------------------
to the satisfaction of all of the following conditions precedent on the relevant
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issuance date:
4.3.1 Letter of Credit Application . The Borrower shall have
----------------------------
executed and delivered to the Administrative Agent an application and agreement
for standby letter of credit substantially in the form of Exhibit I.
---------
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to the Administrative Agent and
each Bank that:
5.1 Corporate Existence and Power . The Borrower:
-----------------------------
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents
and the Environmental Indemnity;
(c) is duly qualified as a foreign corporation and is in good standing
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification or license;
and
(d) is in compliance with all Requirements of Law; except, in each
case referred to in clause (c) or clause (d) of this Section 5.1, to the extent
-----------
that the failure to do so could not reasonably be expected to have a Material
Adverse Effect.
5.2 Corporate Authorization; No Contravention . The execution, delivery
-----------------------------------------
and performance by the Borrower of this Agreement, each other Loan Document to
which the Borrower is party and the Environmental Indemnity, have been duly
authorized by all necessary corporate action, and do not and will not:
(a) contravene the terms of any of the Borrower's Organization
Documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under (i) any document evidencing any Contractual
Obligation to which the Borrower is a party in a manner that could reasonably be
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<PAGE>
expected to cause a Material Adverse Effect, or (ii) any order, injunction, writ
or decree of any Governmental Authority known to the Borrower to which the
Borrower or its property is subject in a manner that could reasonably be
expected to cause a Material Adverse Effect; or
(c) violate any Requirement of Law in a manner that could reasonably
be expected to cause a Material Adverse Effect.
5.3 Governmental Authorization . No approval, consent, exemption,
--------------------------
authorization, or other action by, or notice to, or filing with, any
Governmental Authority (except for recordings or filings in connection with the
Liens granted to the Administrative Agent under the Collateral Documents) is
necessary or required in connection with the Borrower's execution, delivery or
performance of this Agreement, any other Loan Document to which the Borrower is
a party or the Environmental Indemnity, or, except as otherwise provided in the
opinions of counsel delivered to the Administrative Agent pursuant to Section
-------
4.1.4 (the "Opinions of Counsel"), the enforcement of any of such agreements
- ----- -------------------
against the Borrower.
5.4 Binding Effect . This Agreement, each other Loan Document to which
--------------
the Borrower is a party and the Environmental Indemnity constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles relating
to enforceability, and subject to the other qualifications on enforceability set
forth in the Opinions of Counsel.
5.5 Litigation . Except as specifically disclosed in Schedule 5.5, there
---------- ------------
are no actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Borrower, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against the Borrower or any of
its properties, which:
(a) purport to affect or pertain to this Agreement, any other Loan
Document or the Environmental Indemnity, or any of the transactions contemplated
hereby or thereby; or
(b) involve amounts in excess of Five Million Dollars ($5,000,000)
and, if determined adversely to the Borrower, would reasonably be expected to
have a Material Adverse Effect. No injunction, writ, temporary restraining
order or any order of any nature has been issued by any court or other
Governmental Authority purporting to enjoin or restrain the execution, delivery
or performance of this Agreement, any other Loan Document or the Environmental
Indemnity, or directing that the transactions provided for herein or therein not
be consummated as herein or therein provided.
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5.6 No Default . No Default or Event of Default exists or would result
----------
from the incurring of any Obligations by the Borrower or from the grant or
perfection of the Liens of the Administrative Agent and the Banks on the
Collateral. As of the Closing Date, the Borrower is not in default under or
with respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a Material
Adverse Effect.
5.7 ERISA Compliance .
----------------
(a) Except as specifically disclosed in Schedule 5.7, each Plan is in
------------
compliance with the applicable provisions of ERISA, the Code and other federal
or state law, except to the extent that any noncompliance could not reasonably
be expected to result in a Material Adverse Effect. Except as specifically
disclosed in Schedule 5.7, each Plan which is intended to qualify under Section
------------
401(a) of the Code has received a favorable determination letter from the IRS
and, to the best knowledge of the Borrower, nothing has occurred which would
cause the loss of such qualification.
(b) There are no pending, or to the best knowledge of Borrower
threatened, claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or other violation of the fiduciary responsibility rule with respect
to any Plan which could reasonably result in a Material Adverse Effect.
(c) Except as specifically disclosed in Schedule 5.7, no ERISA Event
------------
has occurred or is reasonably expected to occur with respect to any Plan which
could reasonably be expected to result in a Material Adverse Effect.
(d) Except as specifically disclosed in Schedule 5.7, no Pension Plan
------------
has any unfunded pension liability.
(e) Except as specifically disclosed in Schedule 5.7, the Borrower has
------------
not incurred, nor does it reasonably expect to incur, any liability under Title
IV of ERISA with respect to any Plan (other than premiums due and not delinquent
under Section 4007 of ERISA), which could reasonably be expected to result in a
Material Adverse Effect.
(f) Except as specifically disclosed in Schedule 5.7, the Borrower has
------------
not transferred any unfunded pension liability to any Person or otherwise
engaged in a transaction that could be subject to Section 4069 of ERISA.
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(g) Neither the Borrower nor any ERISA Affiliate maintains or
contributes to any Plan subject to Section 412 of the Code. Neither the
Borrower nor any ERISA Affiliate has ever contributed to any Multiemployer Plan.
5.8 Use of Proceeds; Margin Regulations . The proceeds of the Loans are
-----------------------------------
to be used solely for the purposes set forth in and permitted by Section 6.11
------------
and Section 7.7. Neither the Borrower nor any Subsidiary is generally engaged
-----------
in the business of purchasing or selling Margin Stock or extending credit for
the purpose of purchasing or carrying Margin Stock.
5.9 Title to Properties . The Borrower has good record and marketable
-------------------
title in fee simple to, or valid leasehold interests in, all of the Properties,
except for (i) Permitted Encumbrances and (ii) such defects in title as could
not, individually or in the aggregate, have a Material Adverse Effect. As of
the Closing Date, the Properties are subject to no Liens other than Permitted
Liens or liens being released in connection with the initial funding of the
Loans on the Closing Date.
5.10 Taxes . The Borrower and its Subsidiaries have filed all Federal
-----
and other material tax returns and reports required to be filed, and have paid
all Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. To the best of the Borrower's knowledge, there is no
proposed tax assessment against the Borrower or any of the Properties that
would, if made, have a Material Adverse Effect.
5.11 Financial Condition .
-------------------
(a) The audited consolidated financial statements of the Borrower and
its Subsidiaries dated December 31, 1997, and the related consolidated
statements of income or operations, shareholders equity and cash flows for the
fiscal year ended on that date (and the notes thereto):
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein, subject to ordinary, good faith year-end audit adjustments;
(ii) fairly present the financial condition of the Borrower and
its Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(iii) except as specifically disclosed in Schedule 5.11, show
-------------
all material indebtedness and other liabilities of the Borrower and its
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consolidated Subsidiaries as of the date thereof, including any liabilities
for taxes, material commitments and Contingent Obligations which are
required by GAAP to be shown in such financial statements.
(b) Since December 31, 1997, there has been no Material Adverse
Effect.
5.12 Environmental Matters .
---------------------
(a) Except as specifically disclosed in Schedule 5.12 or the reports
-------------
listed on Schedule 5.12, to the best of the Borrower's knowledge the on-going
-------------
operations of the Borrower and each of its Subsidiaries comply in all respects
with all Environmental Laws, except such non-compliance which would not (if
enforced in accordance with applicable law) result in liability in excess of
$5,000,000 for an individual site or $15,000,000 in the aggregate.
(b) Except as specifically disclosed in Schedule 5.12 or the reports
-------------
listed on Schedule 5.12, to the best of the Borrower's knowledge the Borrower
-------------
and each of its Subsidiaries have obtained all licenses, permits, authorizations
and registrations required under any Environmental Law ("Environmental Permits")
---------------------
and necessary for their respective ordinary course operations, all such
Environmental Permits are in good standing, and the Borrower and each of its
Subsidiaries are in compliance with all material terms and conditions of such
Environmental Permits.
(c) Except as specifically disclosed in Schedule 5.12 or the reports
-------------
listed on Schedule 5.12, none of the Borrower, any of its Subsidiaries or any of
-------------
their respective present property or operations, is subject to any outstanding
written order from or agreement with any Governmental Authority, nor, to the
best of the Borrower's knowledge, subject to any judicial or docketed
administrative proceeding, respecting any Environmental Law, Environmental Claim
or Hazardous Material.
(d) Except as specifically disclosed in Schedule 5.12 or the reports
-------------
listed on Schedule 5.12, to the best of the Borrower's knowledge there are no
-------------
Hazardous Materials or other conditions or circumstances existing with respect
to any property of the Borrower or any Subsidiary, or arising from operations
prior to the Closing Date, of the Borrower or any of its Subsidiaries that would
reasonably be expected to give rise to Environmental Claims with a liability of
the Borrower and its Subsidiaries in excess of $5,000,000 for an individual
condition or circumstance or $15,000,000 in the aggregate for all such
conditions and circumstances. In addition, except as specifically disclosed in
Schedule 5.12 or the reports listed on Schedule 5.12, (i) neither the Borrower
- ------------- -------------
nor any Subsidiary has any underground storage tanks (x) that are not properly
registered or permitted under applicable Environmental Laws, or (y) that are
leaking or disposing of Hazardous Materials off-site, and (ii) the Borrower and
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<PAGE>
its Subsidiaries have notified all of their employees of the existence, if any,
of any health hazard arising from the conditions of their employment, to the
extent required by applicable Environmental Laws, and have met all notification
requirements under Title III of CERCLA and all other Environmental Laws.
5.13 Collateral Documents .
--------------------
(a) The provisions of each of the Collateral Documents are effective
to create in favor of the Administrative Agent, for the benefit of the Banks, a
legal, valid and enforceable (subject to any qualifications on enforceability
set forth in the Opinions of Counsel) first priority security interest in all
right, title and interest of the Borrower or CRG, as applicable, in the
Collateral described therein.
(b) Each Deed of Trust, when delivered, will be effective to grant to
the Administrative Agent, for the benefit of the Banks, a legal, valid and
enforceable (subject to any qualifications on enforceability set forth in the
Opinions of Counsel) lien on all the right, title and interest of the Borrower
or CRG, as applicable, in the Property described therein. When each such Deed
of Trust is duly recorded and the mortgage recording fees and taxes in respect
thereof are paid and compliance is otherwise had with the formal requirements of
state law applicable to the recording of real estate deeds of trust or mortgages
generally, each such Property, subject to the encumbrances and exceptions to
title set forth in the title policies delivered to the Administrative Agent
pursuant to Section 4.1.6(e), encumbrances approved by the Administrative Agent
----------------
pursuant to this Agreement, and encumbrances for which the Administrative
Agent's consent or approval is not required under this Agreement (collectively,
the "Permitted Encumbrances"), will be subject to a legal, valid, enforceable
----------------------
(subject to any qualifications on enforceability set forth in the Opinions of
Counsel) and perfected first priority lien. When financing statements have been
duly filed, such Deed of Trust shall also create a legal, valid, enforceable
(subject to any qualifications on enforceability set forth in the Opinions of
Counsel) and perfected first lien on, and security interest in, all right, title
and interest of the Borrower or CRG, as applicable, in all personal property and
fixtures covered by such Deed of Trust, subject to no other Liens except
Permitted Liens.
(c) All representations and warranties of the Borrower or CRG, as
applicable, contained in the Collateral Documents are true and correct.
5.14 Regulated Entities . Neither the Borrower, nor any Person
------------------
controlling the Borrower, nor any Subsidiary, is an "Investment Company" within
the meaning of the Investment Company Act of 1940. The Borrower is not subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.
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5.15 No Burdensome Restrictions . Neither the Borrower nor any
--------------------------
Subsidiary is a party to or bound by any Contractual Obligation, or subject to
any restriction in any Organization Document, or any Requirement of Law, which
could reasonably be expected to have a Material Adverse Effect.
5.16 Subsidiaries . As of the Closing Date, the Borrower has no
------------
Subsidiaries other than those specifically disclosed in part (a) of Schedule
--------
5.16 hereto, and has no equity investments in any other corporation or entity
- ----
other than those specifically disclosed in part (b) of Schedule 5.16.
-------------
5.17 Insurance . Except as specifically disclosed in Schedule 5.17, the
--------- -------------
properties of the Borrower and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Borrower, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies of comparable financial capability engaged in similar
businesses and owning similar properties in localities where the Borrower or
such Subsidiary operates.
5.18 Solvency . The Borrower is Solvent.
--------
5.19 Full Disclosure . None of the representations or warranties made by
---------------
the Borrower in the Loan Documents or the Environmental Indemnity as of the date
such representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by a Responsible Officer of the Borrower to the Administrative Agent or the
Banks in connection with the Loan Documents (including the disclosure materials
delivered by a Responsible Officer of the Borrower to the Banks prior to the
Closing Date), contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they are made, not
misleading in any material respect as of the time when made or delivered.
5.20 Name and Principal Place of Business . The Borrower presently uses
------------------------------------
no trade name other than its actual name. The Borrower's principal place of
business is located at 201 Mission Street, San Francisco, California 94105.
5.21 Year 2000 Readiness and Disclosure . The Borrower is developing and
----------------------------------
will budget for a comprehensive program to address the "Year 2000 problem" (that
is, the inability of computers, as well as embedded microchips in non-computing
devices, to properly perform date-sensitive functions with respect to certain
dates prior to and after December 31, 1999). The Borrower is developing that
program, and reasonably anticipates that it will substantially avoid the Year
2000 problem as to all computers, as well as embedded microchips in non-
computing devices, that are material to the Borrower's business, properties or
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<PAGE>
operations. To the extent necessary, the Borrower will develop feasible
contingency plans adequate to ensure uninterrupted and unimpaired business
operation in the event of failure of its own or a third party's systems or
equipment due to the Year 2000 problem, including those of vendors, customers or
suppliers, as well as a general failure of or interruption in its communications
and delivery infrastructure.
ARTICLE 6.
AFFIRMATIVE COVENANTS
---------------------
So long as any Bank shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the
Administrative Agent, on behalf of the Majority Banks, waives compliance or
otherwise consents in writing:
6.1 Financial Statements . The Borrower shall deliver to the
--------------------
Administrative Agent, in form and detail reasonably satisfactory to the
Administrative Agent and the Majority Banks, with sufficient copies for each
Bank:
6.1.1 Annual Borrower Financial Statements. As soon as available,
------------------------------------
but not later than one hundred twenty (120) days after the end of each fiscal
year (commencing with the fiscal year ended December 31, 1998), a copy of the
audited consolidated balance sheet of the Borrower and its subsidiaries as at
the end of such fiscal year and the related consolidated statements of income or
operations, shareholders' equity and cash flows for such fiscal year, setting
forth in each case in comparative form the figures for the previous fiscal year,
and accompanied by the opinion of a nationally-recognized independent public
accounting firm ("Independent Auditor"), which report shall state that such
-------------------
consolidated financial statements present fairly the financial condition and the
results of the operations of the Borrower and its subsidiaries for the periods
indicated in conformity with GAAP applied on a basis
consistent with prior years. Such opinion shall not be qualified or limited
because of a restricted or limited examination by the Independent Auditor of any
material portion of the Borrower's or any subsidiary's records;
6.1.2 Annual Borrower Cash Flow Projections. Not later than one
-------------------------------------
hundred twenty (120) days after the end of each fiscal year, a consolidated cash
flow
projection for Borrower and its subsidiaries, and the operations of Borrower and
its subsidiaries, for the then-current fiscal year and the following fiscal
year, certified by a Senior Officer.
6.1.3 Quarterly Borrower Financial Statements. As soon as
---------------------------------------
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<PAGE>
available, but not later than fifty (50) days after the end of each fiscal
quarter of each fiscal year, a copy of the unaudited consolidated balance sheet
of the Borrower and its subsidiaries as of the end of such quarter and the
related consolidated statements of income, shareholders' equity and cash flows
for the period commencing on the first day and ending on the last day of such
quarter, and certified by a Responsible Officer as fairly presenting, in
accordance with GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of operations of the
Borrower and its subsidiaries;
6.1.4 Quarterly Property Operating Statements and Rent Rolls.
------------------------------------------------------
Within fifty (50) days after the end of each of its first three fiscal quarters,
for each Property (a) a current rent roll for such Property and (b) a separate
statement of profit and loss for such Property as of the end of such quarter,
together with all supporting schedules. Such quarterly Property operating
statements, and all supporting schedules, shall set forth the profit and loss
for the applicable Property on a cash basis, except that rental revenue shall be
shown on an "as-billed" basis and real property taxes and casualty and public
liability insurance costs will be shown on an accrual basis.
6.2 Certificates; Other Information . The Borrower shall furnish to the
-------------------------------
Administrative Agent, with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial statements
referred to in Sections 6.1.1 and 6.1.3, a Compliance Certificate executed by a
-------------- -----
Responsible Officer;
(b) promptly, copies of all financial statements and regular,
periodical or special reports (including Forms 10K, 10Q and 8K) that the
Borrower may make to, or file with, the SEC;
(c) promptly, copies of all financial statements and reports that the
Borrower sends to its shareholders generally;
(d) promptly, such additional information regarding the Properties, or
the business, financial or corporate affairs of the Borrower or any Subsidiary,
as the Administrative Agent, at the request of any Bank, may from time to time
reasonably request, provided that disclosure of such information is not
--------
restricted or prohibited by applicable Requirements of Law or Contractual
Obligations; and
(e) promptly following the date such payment would be delinquent,
evidence of the Borrower's payment of property taxes owing with respect to any
Property.
6.3 Notices . The Borrower shall notify the Administrative Agent within
-------
ten (10) Business Days of a Senior Officer of the Borrower (or, if provided
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<PAGE>
below, a Responsible Officer of the Borrower) learning of any of the following:
(a) the occurrence of any Default or Event of Default;
(b) (i) any breach or non-performance of, or any default under, any
Contractual Obligation of the Borrower that is likely to result in a Material
Adverse Effect; and (ii) any dispute, litigation, investigation, proceeding or
suspension that may exist at any time between the Borrower and any Governmental
Authority that is likely to result in a Material Adverse Effect;
(c) the commencement of, or any material development in, any
litigation or proceeding (i) affecting the Borrower (A) in which the amount of
damages claimed is $5,000,000 (or its equivalent in another currency or
currencies) or more, (B) in which injunctive or similar relief is sought and
which, if adversely determined, would reasonably be expected to have a Material
Adverse Effect, or (C) in which the relief sought is an injunction or other stay
of the performance of this Agreement, any other Loan Document or the
Environmental Indemnity; or (ii) relating to any Property between the Borrower
and (D) any Governmental Authority, (E) any Person having rights under or in
connection with any covenants, conditions, restrictions, easements or rights-of-
way affecting such Property, or (F) any tenant under a Material Lease of such
Property, in each case under this clause (ii) the adverse determination of which
-----------
might materially and adversely affect such Property;
(d) upon, but in no event later than ten (10) days after, a Senior
Officer's or a Responsible Officer's becoming aware of (i) any and all
enforcement, cleanup, removal or other governmental or regulatory actions,
instituted or threatened in writing against (A) the Borrower that involve
potential liability in excess of $5,000,000 for any single action or $15,000,000
in the aggregate for all such actions, or (B) any of the Properties, pursuant to
any applicable Environmental Laws, (ii) all other Environmental Claims against
(C) the Borrower that involve potential liability in excess of $5,000,000 for
any single Environmental Claim or $15,000,000 in the aggregate for all such
Environmental Claims or (D) any Property, and (iii) any environmental or similar
condition on any real property adjoining or in the vicinity of any Property that
causes such Property or any part thereof to be subject to any restrictions on
the ownership, occupancy, transferability or use of such Property under any
Environmental Laws;
(e) of any of the following events affecting the Borrower, together
with a copy of any notice with respect to such event that may be required to be
filed with a Governmental Authority and any notice delivered by a Governmental
Authority to the Borrower with respect to such event:
(i) an ERISA Event;
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(ii) if any of the representations and warranties in Section 5.7
-----------
ceases to be true and correct;
(iii) the adoption of any new Pension Plan or other Plan subject
to Section 412 of the Code;
(iv) the adoption of any amendment to a Pension Plan or other
Plan subject to Section 412 of the Code, if such amendment results in
a material increase in contributions or unfunded pension liability; or
(v) the commencement of contributions to any Pension Plan or
other Plan subject to Section 412 of the Code; and
(f) any trade name hereafter used by the Borrower and any change in
the Borrower's principal place of business.
Each notice under this Section shall be accompanied by a written
statement by a Senior Officer or a Responsible Officer setting forth details of
the occurrence referred to therein, and stating what action, if any, the
Borrower or any affected Subsidiary proposes to take with respect thereto and at
what time. Each notice under subsection 6.3 (a) shall describe with
------------------
particularity any and all clauses or provisions of this Agreement or other Loan
Document that have been breached or violated.
6.4 Preservation of Corporate Existence, Etc . The Borrower shall:
----------------------------------------
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
for the normal conduct of its business, except to the extent that the failure to
do so is not likely to cause a Material Adverse Effect; and
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill.
6.5 Maintenance of Property . The Borrower shall maintain and preserve
-----------------------
all its property which is used or useful in its business, including the
Properties, in good working order and condition, ordinary wear and tear
excepted, and make all necessary repairs thereto and renewals and replacements
thereof except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect. The Borrower shall use the standard of care
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typical in the industry in the operation and maintenance of its facilities.
6.6 Insurance . In addition to insurance requirements set forth in the
---------
Collateral Documents, while any Obligation remains outstanding, the Borrower
shall maintain or cause to be maintained, with insurers reasonably approved by
the Administrative Agent and the Majority Banks, the following policies of
insurance with respect to each Property (except that the Borrower shall not be
required to maintain or cause to be maintained the insurance required under (i)
clauses (a) and (b), below, with respect to any Ground Leased Property, or (ii)
clauses (a), (b), (d) and (e), below, with respect to any Property consisting
solely of Entitled Land, whether or not subject to a ground lease), in form and
substance reasonably satisfactory to the Administrative Agent and the Majority
Banks:
(a) blanket property insurance covering 100% of the replacement cost
of the improvements located on such Property in the event of fire, lightning,
windstorm, vandalism, malicious mischief and all other risks normally covered by
"all risk" coverage policies in the area where the Property is located
(including loss by flood if the Property is in an area designated as subject to
the danger of flood);
(b) blanket (i.e., policies covering the Properties and other
properties of the Borrower and its subsidiaries) earthquake insurance, to the
extent maintained by the Borrower to cover improvements located on Properties
outside California, and blanket earthquake insurance, with limits of at least
$35,000,000 and with deductibles not in excess of 10% of the insured value of
the improvements, covering Properties located within California (to the extent
that such coverage and/or deductible is available at commercially reasonable
rates);
(c) blanket public liability and property damage insurance in amounts
reasonably required by the Administrative Agent from time to time, and in no
event less than $5,000,000 for "single occurrence";
(d) such rental loss insurance as the Administrative Agent reasonably
requires (including insurance against income loss during a period of restoration
of at least twelve (12) months), which insurance coverage may be included in the
policies described in subparagraphs (a) and/or (b), above;
(e) workers' compensation insurance to the extent required by law in
connection with any Property; and
(f) all other insurance reasonably required by the Administrative
Agent from time to time and customarily carried by owners of similar properties
of comparable financial capability in the same general location as the
applicable Property.
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All such insurance shall provide that such policies shall not be canceled for
non-payment of premium, without at least ten (10) days' prior written notice to
the Administrative Agent, or otherwise canceled, surrendered without replacement
or materially amended (which term shall include any reduction in the scope or
limits of coverage) without at least thirty (30) days' prior written notice to
the Administrative Agent. The policies required under subparagraphs (a), (b)
and (d) shall include a "lender's loss payable endorsement" (Form 438BFU or its
equivalent) in form and substance satisfactory to the Administrative Agent,
assuring the Administrative Agent that all proceeds shall be paid to
Administrative Agent, for the benefit of the Banks, as encumbrancer. BofA, as
Administrative Agent, in all cases for the benefit of the Banks, shall be named
as an additional insured in the policies required under subparagraph (c). No
such insurance (other than earthquake insurance) shall include deductible
amounts in excess of $100,000 to which the Administrative Agent has not
previously consented in writing. Certificates of insurance for the above
policies (and/or, with respect to property insurance policies, certified copies
of the original policies, if required by the Administrative Agent) shall be
delivered to the Administrative Agent from time to time within ten (10) days
following written demand. All policies insuring against damage to the
improvements located on any Property shall contain an agreed value clause or
equivalent coverage sufficient to eliminate any risk of co-insurance. Prior to
the expiration of any such policy, the Borrower shall deliver to the
Administrative Agent evidence of renewal or replacement of such policy
reasonably satisfactory to the Administrative Agent.
6.7 Payment of Obligations . The Borrower shall pay and discharge prior
----------------------
to delinquency all of the following obligations and liabilities with respect to
any Property:
(a) all tax liabilities, assessments and governmental charges or
levies upon any Property; and
(b) all other lawful claims which, if unpaid, would by law become a
Lien upon any such Property;
and all other obligations and liabilities in excess of $10,000.00 with respect
to any Property. Notwithstanding the foregoing clauses (a) and (b), the
Borrower shall not be required to pay any such claim, tax, assessment or
governmental charge so long as (i) its validity is being contested in good faith
and by appropriate proceedings and (ii) the Borrower has demonstrated to the
Administrative Agent's reasonable satisfaction that leaving such claim, tax,
assessment or governmental charge unpaid or unperformed pending the outcome of
such proceedings could not, in the Administrative Agent's reasonable judgment,
result in the sale of any Property to satisfy such claim, tax, assessment or
governmental charge or otherwise impair the Banks' interests under the Loan
Documents; provided that, if at any time the Administrative Agent reasonably
--------
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determines that the requirements of clause (ii) are not satisfied, the
Administrative Agent may require the Borrower to deliver to the Administrative
Agent a bond or other Surety Instrument reasonably satisfactory to the
Administrative Agent in an amount not less than 150% of the applicable claim,
tax, assessment or governmental charge as a condition of the Borrower's
continued right to contest such claim, tax, assessment or governmental charge.
6.8 Compliance with Laws . The Borrower shall comply with all
--------------------
Requirements of Law of any Governmental Authority having jurisdiction over it or
its business (including the Federal Fair Labor Standards Act), except such (i)
as may be contested in good faith, (ii) as to which a bona fide dispute may
exist, or (iii) as to which failure to comply could not reasonably be expected
to cause a Material Adverse Effect.
6.9 Inspection of Property and Books and Records . The Borrower shall
--------------------------------------------
maintain proper books of record and account, in which full, true and correct
entries in conformity with GAAP consistently applied shall be made of all
financial transactions and matters involving the assets and business of the
Borrower. Subject to the requirements of Section 10.8, the Borrower shall
------------
permit representatives and independent contractors of the Administrative Agent
or any Bank to visit and inspect any of the Properties, to examine its
corporate, financial and operating records, and make copies thereof or abstracts
therefrom, and to discuss its affairs, finances and accounts with its directors,
officers, agents and independent public accountants, all at such reasonable
times during normal business hours and as often as may be reasonably desired,
upon reasonable advance notice to the Borrower; provided, however, that when an
--------
Event of Default exists, the Administrative Agent or any Bank may do any of the
foregoing at the expense of the Borrower at any time during normal business
hours and without advance notice. The Administrative Agent and the Banks, in
conducting any inspections of any Property, shall comply with reasonable
restrictions on access imposed by tenants under tenant leases.
6.10 Environmental Laws .
------------------
(a) The Borrower shall conduct its operations and keep and maintain
its property in compliance with all Environmental Laws the failure to comply
with which could reasonably be expected to cause a Material Adverse Effect.
(b) Upon the written request of the Administrative Agent or any Bank,
the Borrower shall submit to the Administrative Agent, at the Borrower's sole
cost and expense, at reasonable intervals, a report prepared by the Borrower
providing an update of the status of any environmental, health or safety
compliance, hazard or liability issue identified in any notice or report
required pursuant to subsection 6.3(d), that could, individually or in the
-----------------
aggregate, reasonably be expected to cause a Material Adverse Effect.
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6.11 Use of Proceeds . The Borrower shall use the proceeds of the Loans
---------------
(i) to finance development and construction of pre-sold and/or pre-leased
industrial properties, (ii) to finance completed operating properties and
entitled land on an interim basis, and (iii) for other general corporate
purposes not in contravention of any Requirement of Law or of any Loan Document.
6.12 Further Assurances .
------------------
(a) The Borrower shall use all reasonable efforts to ensure that all
written information, exhibits and reports furnished by or through the Borrower
to the Administrative Agent or the Banks do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any material
fact or any fact necessary to make the statements contained therein not
misleading in any material respect in light of the circumstances in which made,
and will promptly disclose to the Administrative Agent and the Banks and correct
any defect or error that may be discovered therein or in any Loan Document or in
the execution, acknowledgment or recordation thereof.
(b) Promptly upon request by the Administrative Agent or the Majority
Banks, the Borrower shall do, execute, acknowledge, deliver, record, re-record,
file, re-file, register and re-register, any and all such further acts, deeds,
conveyances, security agreements, mortgages, assignments, estoppel certificates,
financing statements and continuations thereof, termination statements, notices
of assignment, transfers, certificates, assurances and other instruments as the
Administrative Agent or such Banks, as the case may be, may reasonably require
from time to time in order (i) to carry out more effectively the purposes of
this Agreement or any other Loan Document, (ii) to subject to the Liens created
by any of the Collateral Documents any of the properties, rights or interests
intended to be covered by any of the Collateral Documents, (iii) to perfect and
maintain the validity, effectiveness and priority of any of the Collateral
Documents and the Liens intended to be created thereby, and (iv) to better
assure, convey, grant, assign, transfer, preserve, protect and confirm to the
Administrative Agent and the Banks the rights granted or now or hereafter
intended to be granted to the Banks under any Loan Document or under any other
document executed in connection therewith; provided, however, that nothing in
--------
this Section 6.12(b) shall require the Borrower to modify any of its rights or
---------------
increase any of its obligations under this Agreement or any of the other Loan
Documents.
6.13 Copies of Leases . The Borrower shall deliver to the Administrative
----------------
Agent, within fourteen (14) days after the Administrative Agent's request, a
true and complete copy of any lease or other agreement pursuant to which any
Person has a right to occupy or use any portion of any Property (and all
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amendments, modifications and supplements thereto).
6.14 Debt Coverage . The Borrower shall maintain Debt Coverage of not
-------------
less than 1.60:1.0 at all times, evaluated quarterly based on the most recent
financial statements delivered to the Administrative Agent pursuant to Section
-------
6.1.
- ---
6.15 Fixed Charge Coverage . The Borrower shall maintain Fixed Charge
---------------------
Coverage of not less than 1.60:1.0 at all times, evaluated quarterly based on
the most recent financial statements delivered to the Administrative Agent
pursuant to Section 6.1.
-----------
6.16 Leverage . The Borrower shall maintain Leverage not greater than
--------
0.75:1.0, evaluated quarterly based on the most recent financial statements
delivered to the Administrative Agent pursuant to Section 6.1.
-----------
6.17 Tangible Net Worth . The Borrower and its subsidiaries shall
------------------
maintain at all times Tangible Net Worth (evaluated quarterly based on the most
recent financial statements delivered to the Administrative Agent pursuant to
Section 6.1) of not less than $402,828,000, plus fifty percent (50%) of the
- ----------- ----
aggregate positive net income of the Borrower during the period from and after
July 1, 1998, plus fifty percent (50%) of the aggregate amount of equity that
----
the Borrower issues from time to time after the date of this Agreement.
6.18 Portfolio Net Cash Flow Coverage . The Borrower and its
--------------------------------
Subsidiaries shall maintain at all times (a) a Portfolio Net Cash Flow Coverage
Ratio of not less than 1.25:1.0, and (b) a Portfolio Net Cash Flow Coverage
Ratio (computed using an Operating Portfolio Net Cash Flow that does not include
the Net Proceeds of the Disposition of any Property) of not less than 1.0:1.0,
in each case evaluated on the Closing Date and semi-annually on each May 1, and
November 1, thereafter, based on the most recent Property operating statements
delivered to the Administrative Agent pursuant to Section 6.1.
-----------
ARTICLE 7.
NEGATIVE COVENANTS
------------------
So long as any Bank shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the
Administrative Agent, on behalf of the Majority Banks, waives compliance or
otherwise consents in writing:
7.1 Limitation on Liens . The Borrower shall not, directly or
-------------------
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indirectly, make, create, incur, assume or suffer to exist any Lien upon or with
respect to any part of any Property, or any personal property encumbered from
time to time by a Deed of Trust, whether now owned or hereafter acquired, other
than the following ("Permitted Liens"):
(a) any Lien created under any Loan Document;
(b) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent, or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 6.7, provided that no notice of
-----------
lien has been filed or recorded under the Code;
(c) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent, or remain payable without penalty, or which are being
contested in good faith and by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property subject thereto;
and
(d) easements, rights-of-way, covenants, conditions and restrictions
and other similar encumbrances incurred in the ordinary course of business
which, in the aggregate, do not materially reduce the value of the Property
subject thereto or interfere with the ordinary conduct of the Borrower's
business; and upon the Borrower's written request, the Administrative Agent
shall cause the Lien of the applicable Deed of Trust to be subordinated to any
such easement, right-of-way, covenant, condition and restriction and other
similar encumbrance that does not materially and adversely affect the value of
the Property subject thereto.
7.2 Lease of a Property . The Borrower shall not enter into any ground
-------------------
lease of any Property, or enter into any lease of any space in any improvements
located on a Property that contains any of the following provisions if such
provision is not, by its terms, expressly subordinate to the lien of all deeds
of trust encumbering such Property or approved by the Majority Banks as
hereinafter provided: (a) an option to purchase the Property on which the leased
premises are located, (b) a right of first refusal to purchase the Property on
which the leased premises are located, (c) a right on the part of the tenant to
self-insure, unless the tenant is a Fortune 500 Company, (d) an option to lease
space not located on the Property on which the leased premises are located, (e)
any agreement to extend or terminate the term of such Material Lease based on an
extension or termination of another lease of space not located on the Property
in which the leased premises are located, (f) an agreement by the lessor to
construct improvements for the tenant (other than (i) build-to-suit improvements
constructed on Entitled Land or (ii) ordinary tenant improvements to the leased
space located on the Property), or (g) any other provision that imposes a
financial obligation on the lessor's successor that is outside the scope of the
ordinary obligations of a passive lessor real property (but excluding
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obligations to construct (i) build-to-suit improvements on Entitled Land or (ii)
ordinary tenant improvements to the leased space located on a Property). The
Borrower may enter into any lease (including any "build-to-suit" lease) that is
not prohibited by this Section 7.2 without the prior consent of the
-----------
Administrative Agent or the Banks. The Borrower may at any time and from time
to time submit to the Administrative Agent a lease that includes one or more of
the foregoing provisions for approval of such provision(s) by the Majority
Banks. The Administrative Agent shall notify the Borrower within fifteen (15)
Business Days after the Administrative Agent's receipt of such lease as to
whether the Majority Banks approve or disapprove of such lease provision(s), and
upon the Administrative Agent's failure to respond within such fifteen (15)
Business Day period, the Borrower shall give a second notice to the
Administrative Agent and all of the Banks requesting approval or disapproval of
such lease provision(s), and the Administrative Agent's failure to respond
within ten (10) Business Days after receipt of such second notice shall be
deemed approval of such lease provision(s) by the Majority Banks. The Banks
agree not to unreasonably withhold their consent to any such lease provision(s)
(which the Banks may evaluate, for such purposes, in the context of both the
specific Property affected by such lease and all of the Properties considered as
a portfolio). Concurrently with its execution of a Material Lease of any
Property, the Borrower shall deliver to the Administrative Agent a copy of such
signed Material Lease, together with an estoppel certificate in the form of
Exhibit H signed by the tenant under such Material Lease. The Administrative
- ---------
Agent shall enter into a nondisturbance and attornment agreement, in form and
substance reasonably satisfactory to the Administrative Agent, with the tenant
under each Material Lease.
7.3 Consolidations and Mergers . The Borrower shall not merge,
--------------------------
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to or in favor of
any Person, except that the Borrower may merge or consolidate with another
Person provided that (i) the Borrower is the continuing or surviving corporation
and (ii) such merger or consolidation does not cause a Material Adverse Effect.
7.4 Limitation on Subordinated Indebtedness . The Borrower shall not
---------------------------------------
create or issue any subordinated bonds, debentures or other similar instruments
except any subordinated Indebtedness existing on the Closing Date.
7.5 Limitation on Preferred Shares . The Borrower shall not issue or
------------------------------
suffer to exist any preferred shares, except preferred shares issued prior to
the Closing Date.
7.6 Transactions with Affiliates . The Borrower shall not enter into any
----------------------------
transaction with any Affiliate of the Borrower that could reasonably be expected
to cause a Material Adverse Effect.
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7.7 Use of Proceeds . The Borrower shall not use any portion of the Loan
---------------
proceeds, directly or indirectly, (a) to purchase or carry Margin Stock, (b) to
repay or otherwise refinance indebtedness of the Borrower or others incurred to
purchase or carry Margin Stock, (c) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (d) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act.
7.8 Change in Business . The Borrower shall not (a) engage in any
------------------
material line of business substantially different from those lines of business
carried on by the Borrower on the date hereof (provided, however, that this
--------
Section 7.8 shall not prohibit the Borrower from engaging in any line of
- -----------
business so long as the Borrower's primary business focus remains real estate
related), or (b) change the primary use to which any Operating Property is
devoted.
7.9 Accounting Changes . The Borrower shall not make any significant
------------------
change in its accounting treatment or reporting practices, except as required or
permitted by GAAP.
7.10 Lease Amendments . The Borrower shall not amend or modify any lease
----------------
of any Property to include a provision that would require the consent of the
Majority Banks pursuant to Section 7.2.
-----------
7.11 Leasing or Management Office . The Borrower shall not use more than
----------------------------
5,000 square feet of any Property for management or leasing offices for such
Property and other properties owned by the Borrower, and shall not use any
portion of any Property for general corporate offices.
7.12 Management Agreements . The Borrower shall not enter into any
---------------------
agreement, written or oral, providing for the management, leasing or operation
of any portion of any Property unless such agreement is made fully subject and
subordinate to the Lien of the applicable Deed of Trust.
ARTICLE 8.
EVENTS OF DEFAULT
-----------------
8.1 Event of Default . Each of the following shall constitute an "Event
----------------
of Default":
(a) Non-Payment . The Borrower fails to pay (i) any amount of
-----------
principal of, or interest on, any Loan on the Maturity Date; or (ii) when and as
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required to be paid herein (other than on the Maturity Date), any amount of
principal of, or interest on, any Loan, and such failure is not cured within
three (3) Business Days after the date upon which written notice thereof is
given to the Borrower by the Administrative Agent; or (iii) any amount owing to
the Administrative Agent or the Banks under any Loan Document (other than
payments described in clauses (i) or (ii), above), within ten (10) days after
receipt of written notice; or
(b) Representation or Warranty . Any representation or warranty by
--------------------------
the Borrower made or deemed made herein, in any other Loan Document, or which is
contained in any certificate, document or financial or other statement by the
Borrower or any Responsible Officer, furnished at any time under this Agreement,
or in or under any other Loan Document, is incorrect in any material respect on
or as of the date made or deemed made; or
(c) Certain Specific Defaults . The Borrower fails to perform or
-------------------------
observe any term, covenant or agreement contained in any of Sections 6.3, 6.6,
------------------
6.9, 6.14, 6.15, 6.16, 6.17 or 6.18 (subject to the provisions of Section 2.6.3)
- ----------------------------------- -------------
or in Article 7 (other than Section 7.1), or the Borrower voluntarily creates
--------- -----------
any Lien on any Property in violation of Section 7.1; or
-----------
(d) Other Specific Defaults . The Borrower fails to perform or
-----------------------
observe any term, covenant or agreement contained in any of Sections 6.1 or 6.2,
-------------------
and such default shall continue unremedied for a period of five (5) days after
the date upon which written notice thereof is given to the Borrower by the
Administrative Agent;
(e) Other Defaults . The Borrower fails to perform or observe any
--------------
other term or covenant contained in this Agreement or any other Loan Document
(other than obligations described in subparagraphs (a), (b), (c) and (d),
above), and such default shall continue unremedied for a period of thirty (30)
days after the date upon which written notice thereof is given to the Borrower
by the Administrative Agent; provided that, if cure cannot reasonably be
--------
effected within such 30-day period, such failure shall not be an Event of
Default so long as the Borrower promptly commences cure (in any event, within
ten (10) days after receipt of such notice), thereafter diligently prosecutes
such cure to completion, and completes such cure within ninety (90) days after
receipt of such notice; or
(f) Insolvency; Voluntary Proceedings . The Borrower (i) ceases or
---------------------------------
fails to be Solvent, or generally fails to pay, or admits in writing its
inability to pay, its debts as they become due, subject to applicable grace
periods, if any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course for more than ten (10)
Business Days; (iii) commences any Insolvency Proceeding with respect to itself;
or (iv) takes any action to effectuate or authorize any of the foregoing; or
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(g) Involuntary Proceedings . (i) Any involuntary Insolvency
-----------------------
Proceeding is commenced or filed against the Borrower, or any writ, judgment,
warrant of attachment, execution or similar process, is issued or levied against
a substantial part of the Borrower's properties, and any such proceeding or
petition shall not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully bonded
within ninety (90) days after commencement, filing or levy; (ii) the Borrower
admits the material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief (or similar order under non-U.S. law) is
entered against the Borrower in any Insolvency Proceeding; or (iii) the Borrower
acquiesces in the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor), or other similar Person
for itself or a substantial portion of its property or business; or
(h) Monetary Judgments . One or more non-interlocutory judgments,
------------------
non-interlocutory orders, decrees or arbitration awards is entered against the
Borrower involving in the aggregate a liability (to the extent not covered by
independent third-party insurance as to which the insurer does not dispute
coverage) as to any single or related series of transactions, incidents or
conditions, of $25,000,000.00 or more, and the same shall remain unsatisfied,
unvacated and unstayed pending appeal for a period of sixty (60) days after the
entry thereof; or
(i) Non-Monetary Judgments . Any non-monetary judgment, order or
----------------------
decree is entered against the Borrower which does or would reasonably be
expected to have a Material Adverse Effect, and there shall be any period of
sixty (60) consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, shall not be in effect; or
(j) Adverse Change . There occurs a Material Adverse Effect.
--------------
8.2 Remedies . After the occurrence and during the continuance of any
--------
Event of Default, the Administrative Agent shall, at the request of, or may,
with the consent of, the Majority Banks,
(a) declare the commitment of each Bank to make Loans to be
terminated, whereupon such commitments shall be terminated; provided, however,
--------
that the Administrative Agent and the Banks shall continue to honor any
outstanding Letter of Credit;
(b) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Borrower;
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(c) require that the Borrower deposit with the Administrative Agent,
for the benefit of the Banks, on demand and as cash security for the Borrower's
obligations under the Loan Documents, an amount equal to the aggregate undrawn
amount of all then-outstanding Letters of Credit (and the Borrower hereby grants
to the Administrative Agent, as administrative agent for the Banks, a security
interest in any such amount deposited with the Administrative Agent, all
earnings thereon and all proceeds thereof, and as to such amounts the
Administrative Agent shall have the rights and remedies of a secured party under
the California UCC); provided, however, that upon the occurrence of any event
--------
specified in subsection (f) or (g) of Section 8.1 (in the case of clause (i) of
-----------
subsection (g) upon the expiration of the 90-day period mentioned therein) such
amounts shall automatically become due and payable without further act of the
Administrative Agent or any Bank; and
(d) exercise on behalf of itself and the Banks all rights and remedies
available to it and the Banks under the Loan Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
- -------- -------
(f) or (g) of Section 8.1 (in the case of clause (i) of subsection (g) upon the
-----------
expiration of the 90-day period mentioned therein), the obligation of each Bank
to make Loans and the obligation of BofA to issue Letters of Credit shall
automatically terminate and the unpaid principal amount of all outstanding Loans
and all interest and other amounts as aforesaid shall automatically become due
and payable without further act of the Administrative Agent or any Bank.
8.3 Rights Not Exclusive . The rights provided for in this Agreement and
--------------------
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE 9.
THE ADMINISTRATIVE AGENT
------------------------
9.1 Appointment and Authorization . Each Bank hereby irrevocably
-----------------------------
appoints, designates and authorizes the Administrative Agent to take such action
on its behalf under the provisions of this Agreement, each other Loan Document
and the Environmental Indemnity, and to exercise such powers and perform such
duties as are expressly delegated to it by the terms of this Agreement, any
other Loan Document or the Environmental Indemnity, together with such powers as
are reasonably incidental thereto and as further provided in the Co-Lender
Agreement described below.
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9.2 The Administrative Agent's Powers . Subject to the limitations set
---------------------------------
forth in the Loan Documents, the Environmental Indemnity and the Co-Lender
Agreement, the Administrative Agent's powers include, but are not limited to,
the power: (i) to administer, manage and service the Loans; (ii) to enforce the
Loan Documents and/or the Environmental Indemnity; (iii) to make all decisions
under the Loan Documents or the Environmental Indemnity in connection with the
day-to-day administration of the Loans, any inspections required by the Loan
Documents or the Environmental Indemnity, and other routine administration and
servicing matters; (iv) to collect and receive from the Borrower or any third
persons all payments of amounts due under the terms of the Loan Documents or the
Environmental Indemnity and to distribute the amounts thereof to the Banks; (v)
to collect and distribute or disburse all other amounts due under the Loan
Documents or the Environmental Indemnity, (vi) to grant or withhold consents,
approvals or waivers, and to make any other determinations in connection with
the Loan Documents or the Environmental Indemnity, and (vii) to exercise all
such powers as are incidental to any of the foregoing matters. The
Administrative Agent shall furnish to Banks copies of material documents,
including confidential ones, received from the Borrower regarding the Loans, the
Loan Documents, the Environmental Indemnity, the Collateral, any proposed new
Collateral and the transactions contemplated hereby and thereby. The
Administrative Agent shall have no responsibility with respect to the
authenticity, validity, accuracy or completeness of the information provided.
9.3 Limitation on the Administrative Agent's Duties . Notwithstanding
-----------------------------------------------
any contrary provision of any Loan Document or the Environmental Indemnity, the
Administrative Agent shall not have any duties or responsibilities except those
expressly set forth in the Loan Documents, the Environmental Indemnity or the
Co-Lender Agreement, nor shall the Administrative Agent have any fiduciary
relationship with any Bank, and no implied covenants, responsibilities, duties,
obligations or liabilities shall be read into this Agreement, any other Loan
Document, the Environmental Indemnity or the Co-Lender Agreement against the
Administrative Agent.
9.4 Acknowledgment of the Co-Lender Agreement . The Borrower
-----------------------------------------
acknowledges that the Banks have executed a Co-Lender Agreement to supplement
the Loan Documents with respect to the relationship of the Banks and the
Administrative Agent among themselves in connection with the Loans. The Co-
Lender Agreement is not a Loan Document.
9.5 Documentation Agent and Co-Agents . None of the Banks identified on
---------------------------------
the face page or the signature pages of this Agreement as a "Documentation
Agent" or a "Co-Agent" shall have any right, power, obligation, liability,
responsibility or duty under this Agreement or the other Loan Documents other
than those applicable to all Banks as such.
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9.6 Successor Administrative Agent, Documentation Agent and Co-Agents .
-----------------------------------------------------------------
The Administrative Agent, the Documentation Agent or any Co-Agent may, and at
the request of the Majority Banks shall, resign as Administrative Agent,
Documentation Agent or Co-Agent, as the case may be, upon thirty (30) days'
notice to the Banks. If the Administrative Agent resigns under this Agreement,
the Majority Banks shall appoint from among the Banks a successor administrative
agent. If no successor administrative agent is appointed prior to the effective
date of the resignation of the Administrative Agent, the Administrative Agent
may appoint, after consulting with the Banks, a successor administrative agent
from among the Banks. Any successor administrative agent shall be entitled to
any fee payable by the Borrower to BofA, in its capacity as Administrative
Agent, from and after the date on which such successor administrative agent is
appointed. If the Documentation Agent or a Co-Agent resigns under this
Agreement, the Administrative Agent shall elect either (a) to assume the rights
and obligations, if any, of such Documentation Agent or Co-Agent, as applicable,
and thereupon all references to such Documentation Agent or Co-Agent, as
applicable, shall be deemed references to the Administrative Agent, or (b) to
appoint a successor Documentation Agent or Co-Agent, as applicable, from among
the Banks. Upon its acceptance of the appointment as successor administrative
agent, documentation agent or co-agent hereunder, as the case may be, such
successor shall succeed to all of the rights, powers and duties of the retiring
Administrative Agent, Documentation Agent or Co-Agent, as the case may be, the
term "Administrative Agent," "Documentation Agent" or "Co-Agent", as the case
may be, shall mean such successor, and the appointment, powers and duties of
such retiring Administrative Agent, Documentation Agent or Co-Agent, as the case
may be, shall terminate. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of the Loan Documents or the
Environmental Indemnity regarding payment of costs and expenses and
indemnification of the Administrative Agent shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Administrative Agent
under this Agreement. If no successor administrative agent has accepted
appointment as Administrative Agent by the date which is thirty (30) days
following a retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become
effective, and the Banks shall perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Majority Banks appoint a
successor administrative agent in the manner set forth above. Upon replacement
of the Administrative Agent as provided in this Agreement, the former
Administrative Agent shall promptly deliver to the new Administrative Agent an
assignment of all beneficial interest in any Deed of Trust and any other
Collateral Documents (if before acquisition of title to the Collateral
encumbered thereby), or a quitclaim deed to and assignment of any such property
(if after acquisition of title to the Collateral encumbered thereby) and copies
of any books, records and documents related to the Loans and the Collateral to
which the Banks are entitled and which is then in the former Administrative
Agent's possession.
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ARTICLE 10.
MISCELLANEOUS
-------------
10.1 Amendments and Waivers . No amendment or waiver of any provision of
----------------------
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks (or by the Administrative Agent at
the written request of the Majority Banks) and the Borrower and acknowledged by
the Administrative Agent, and then any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided, however, that no such waiver, amendment or consent shall, unless in
- --------
writing and signed by all the Banks and the Borrower and acknowledged by the
Administrative Agent, do any of the following:
(a) increase, decrease or extend the Commitment of any Bank (or
reinstate any Commitment terminated pursuant to Section 8.2), or subject any
-----------
Bank to any additional obligation; or
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Banks (or any of them) hereunder or under any other Loan Document; or
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or any fees or other amounts payable hereunder or under any other
Loan Document; or
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Banks or any of
them to take any action hereunder; or
(e) amend this Section 10.1, Section 8.1 or any other provision of any
------------ -----------
Loan Document relating to an Event of Default, Section 2.13, or any provision of
------------
any Loan Document providing for consent or other action by all Banks; or
(f) release any material portion of the Collateral except as otherwise
may be provided in this Agreement or in the Collateral Documents or except where
the consent of the Majority Banks only is specifically provided for;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
-------- -------
writing and signed by the Administrative Agent in addition to the Majority Banks
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or all the Banks, as the case may be, affect the rights or duties of the
Administrative Agent under this Agreement, any other Loan Document or the
Environmental Indemnity, and (ii) the Fee Letter may be amended, or rights or
privileges thereunder waived, in a writing executed by the parties thereto.
10.2 Notices .
-------
10.2.1 All notices, requests and other communications shall be in
writing (including, unless the context expressly otherwise provides, by
facsimile transmission, provided that any matter transmitted by the Borrower by
facsimile (i) shall be immediately confirmed by a telephone call to the
recipient at the number specified on Schedule 10.2, and (ii) shall be followed
-------------
promptly by delivery of a hard copy original thereof) and mailed, faxed or
delivered, to the address or facsimile number specified for notices on Schedule
--------
10.2; or, as directed to the Borrower or the Administrative Agent, to such other
- ----
address as shall be designated by such party in a written notice to the other
parties, and as directed to any other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the
Administrative Agent.
10.2.2 All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article 2 or Article 9 shall not be effective until actually
--------- ---------
received by the Administrative Agent.
10.2.3 Any agreement of the Administrative Agent and the Banks
herein to receive certain notices by telephone or facsimile is solely for the
convenience and at the request of the Borrower. The Administrative Agent and
the Banks shall be entitled to rely on the authority of any Person purporting to
be a Person authorized by the Borrower to give such notice, and the
Administrative Agent and the Banks shall not have any liability to the Borrower
or other Person on account of any action taken or not taken by the
Administrative Agent or the Banks in reliance upon such telephonic or facsimile
notice. The Borrower's obligation to repay the Loans shall not be affected in
any way or to any extent by any failure by the Administrative Agent or the Banks
to receive written confirmation of any telephonic or facsimile notice or the
receipt by the Administrative Agent or the Banks of a confirmation which is at
variance with the terms understood by the Administrative Agent or the Banks to
be contained in the telephonic or facsimile notice.
10.3 No Waiver; Cumulative Remedies . No failure or delay by the
------------------------------
Administrative Agent or any Bank in exercising any right, remedy, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
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partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
10.4 Costs and Expenses . The Borrower shall:
------------------
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as the
Administrative Agent) within ten (10) days after demand (subject to Section
-------
4.1.5) for all reasonable costs and expenses incurred by BofA (including in its
- -----
capacity as the Administrative Agent) in connection with the development,
preparation, delivery and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including Attorney Costs incurred by BofA (including in its capacity as
the Administrative Agent) with respect thereto; and
(b) pay or reimburse the Administrative Agent, and each Bank within
ten (10) days after demand (subject to Section 4.1.5) for all costs and expenses
-------------
(including Attorney Costs) incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or any other Loan Document during the existence of an Event of Default
or after acceleration of the Loans (including in connection with any "workout"
or restructuring regarding the Loans, and including in any Insolvency Proceeding
or appellate proceeding); and
(c) pay or reimburse BofA (including in its capacity as the
Administrative Agent) or any successor administrative agent (including in its
capacity as the Administrative Agent) within five (5) Business Days after demand
(subject to Section 4.1.5) for all appraisal (including the reasonable allocated
-------------
cost of internal appraisal services), audit, environmental inspection and review
(including the allocated cost of such internal services), search and filing
costs, fees and expenses, incurred or sustained by BofA (including in its
capacity as the Administrative Agent) in connection with the matters referred to
under subsections (a) and (b) of this Section.
10.5 Indemnity .
---------
10.5.1 Whether or not the transactions contemplated hereby are
consummated, the Borrower shall indemnify, defend and hold the Agent-Related
Persons, and each Bank and each of its respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person")
------------------
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses or disbursements
(including Attorney Costs) of any kind or nature whatsoever that may at any time
(including at any time following repayment of the Loans or following the
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termination, resignation or replacement of the Administrative Agent or the
replacement of any Bank) be imposed on, incurred by or asserted against any such
Indemnified Person and that in any way relates to or arises out of (a) this
Agreement or any document contemplated by or referred to herein, (b) the
transactions contemplated hereby, or (c) any action taken or omitted by any such
Indemnified Person under or in connection with any of the foregoing, including
with respect to any investigation, litigation or proceeding (including any
Insolvency Proceeding or appellate proceeding) related to or arising out of this
Agreement or the Loans or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that the Borrower shall have no obligation
- ------------------------ --------
hereunder to any Indemnified Person with respect to Indemnified Liabilities
resulting solely from (i) the gross negligence or willful misconduct of such
Indemnified Person, (ii) any breach or this Agreement or any other Loan Document
by such Indemnified Person, or (iii) any event or condition relating to a
Property that occurs after such Indemnified Person takes title to such Property.
The agreements in this Section shall survive payment of all other Obligations,
and the termination of all obligations of the Banks to the Borrower under the
Loan Documents.
10.5.2 The Borrower shall defend each such Indemnified Person using
legal counsel reasonably satisfactory to such Indemnified Person, at the sole
cost and expense of the Borrower. All amounts owing under this Section 10.5
------------
shall be paid within thirty (30) days after demand.
10.5.3 Each Indemnified Person shall use reasonable efforts to
notify the Borrower promptly of any Indemnified Liabilities; provided, however,
--------
that an Indemnified Person's failure to notify the Borrower shall not affect the
Borrower's obligations under this Section 10.5 except to the extent that the
------------
Borrower is materially prejudiced thereby. Upon demand by any Indemnified
Person, the Borrower shall defend any investigation, action or proceeding
involving any Indemnified Liabilities which is brought or commenced against any
Indemnified Person, whether alone or together with the Borrower or any other
person, all at the Borrower's own cost and by counsel to be approved by the
Indemnified Person in the exercise of its reasonable judgment. Such Indemnified
Person may participate in and direct such defense, and such Indemnified Person
shall cooperate with the Borrower in all reasonable respects in connection with
such proceeding. Subject to the limitations set forth in this Section 10.5.3,
--------------
each Indemnified Person may elect to defend itself, at the Borrower=s cost, in
connection with any such investigation, action or proceeding, and the Borrower
shall have no right to participate in or direct any such defense. No
Indemnified Person shall settle any such proceeding unless such Indemnified
Person has, except in case of emergency, given the Borrower ten (10) days= prior
written notice of such settlement; provided, however, that nothing contained
--------
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<PAGE>
herein shall require any Indemnified Person to obtain the Borrower=s consent to
any such settlement in order to enter into such settlement or to enforce the
indemnity set forth in this Section 10.5. In connection with any investigation,
------------
action or proceeding covered by this Section 10.5 against more than one
------------
Indemnified Person, all such Indemnified Persons shall be represented by the
same legal counsel selected by the Indemnified Persons; provided, however, that
--------
if such legal counsel determines in good faith that representing all such
Indemnified Persons would or could result in a conflict of interest under laws
or ethical principles applicable to such legal counsel, or that a defense or
counterclaim is available to an Indemnified Person that is not available to all
such Indemnified Persons, then to the extent reasonably necessary to avoid such
a conflict of interest or to permit unqualified assertion of such a defense or
counterclaim, each Indemnified Person shall be entitled to separate
representation by legal counsel selected by that Indemnified Person.
10.6 Assignments, Participations, etc.
--------------------------------
10.6.1 Any Bank may, with the written consent of the Borrower
(except during the existence of an Event of Default, when the Borrower's consent
is not required) and the Administrative Agent, which consents shall not be
unreasonably withheld or delayed, at any time assign and delegate to one or more
Eligible Assignees (each an "Assignee") all, or any ratable part of all, of the
--------
Loans, the Commitment and the other rights and obligations of such Bank under
the Loan Documents and the Environmental Indemnity, in a minimum amount of
$20,000,000.00 and integral multiples of $1,000,000.00 in excess thereof;
provided, however, that BofA shall retain for its own account not less than
- --------
$50,000,000.00 of such Loans, Commitment and other rights and obligations;
provided further, however, that if a Bank other than BofA assigns less than all
- ----------------
of its Loans, Commitment and other rights and obligations to an Assignee, such
Bank shall retain for its own account not less than $25,000,000.00 of such
Loans, Commitments and other rights and obligations; and provided further,
----------------
however, that the Borrower and the Administrative Agent may continue to deal
solely and directly with the assigning Bank in connection with the interest so
assigned to an Assignee until (i) the assigning Bank and Assignee shall have
delivered to the Borrower and the Administrative Agent written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee; (ii) the assigning Bank and its
Assignee shall have delivered to the Borrower and the Administrative Agent an
Assignment and Acceptance in the form of Exhibit E (an "Assignment and
--------- --------------
Acceptance"); and (iii) the assigning Bank or Assignee has paid to the
- ----------
Administrative Agent a processing fee in the amount of $5,000.00.
10.6.2 From and after the date on which the conditions set forth in
Section 10.6.1 are met and the Administrative Agent notifies the assigning Bank
- --------------
that it has received (and provided its consent with respect to) an executed
Assignment and Acceptance and payment of the above-referenced processing fee,
(i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
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<PAGE>
Assignment and Acceptance, shall have the rights and obligations of a Bank under
the Loan Documents and the Environmental Indemnity, and (ii) the assigning Bank
shall, to the extent that it has assigned its rights and obligations under this
Agreement and the other Loan Documents pursuant to such Assignment and
Acceptance, relinquish its rights and (so long as the Assignee is not an
Affiliate or a Subsidiary of the assigning Bank or of a Person of which the
assigning Bank is an Affiliate or a Subsidiary) be released from its obligations
under the Loan Documents.
10.6.3 Within five (5) Business Days after its receipt of notice by
the Administrative Agent that the Administrative Agent has received an executed
Assignment and Acceptance and payment of the processing fee, and provided that
it consents to such assignment in accordance with Section 10.6.1, the Borrower
--------------
shall execute and deliver to the Administrative Agent, new Notes evidencing such
Assignee's assigned Loans and Commitment and, if the assigning Bank has retained
a portion of its Loans and its Commitment, replacement Notes in the principal
amount of the Loans retained by the assigning Bank (such Notes to be in exchange
for, but not in payment of, the Notes held by such Bank). Immediately upon the
Administrative Agent's receipt of the executed Assignment and Acceptance and the
processing fee, this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce the Commitment of the assigning Bank pro
---
tanto.
- -----
10.6.4 Any Bank may, at any time, sell to one or more commercial
banks or other Persons that are not Affiliates of the Borrower (each a
"Participant") participation interests in any Loans, the Commitment of that Bank
- ------------
and the other interests of that Bank (the "originating Bank") under this
Agreement and the other Loan Documents; provided, however, that (i) the amount
-------- -------
of any such participation interest shall be not less than $20,000,000.00 and
shall be in integral multiples of $1,000,000.00 in excess thereof, (ii) the
originating Bank shall retain for its own account not less than $25,000,000.00
of the Loans, the Commitment and the other interests of such originating Bank
under this Agreement and the other Loan Documents, (iii) the originating Bank's
obligations under this Agreement shall remain unchanged, (iv) the originating
Bank shall remain solely responsible for the performance of such obligations,
(v) the Borrower and the Administrative Agent shall continue to deal solely and
directly with the originating Bank in connection with the originating Bank's
rights and obligations under this Agreement and the other Loan Documents, and
(vi) no Bank shall transfer or grant any participation interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Banks
as described in the first proviso to Section 10.1. In the case of any such
----- ------- ------------
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<PAGE>
participation, the Participant shall not have any rights under this Agreement,
or any of the other Loan Documents, and all amounts payable by the Borrower
hereunder shall be determined as if such Bank had not sold such participation.
10.6.5 Notwithstanding any other provision in this Agreement, any
Bank may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and the Note it holds
in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Regulation 31 CFR ' 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
10.7 Successors and Assigns . The provisions of this Agreement shall be
----------------------
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Administrative Agent and each Bank, and except for the
limitations on assignments by the Administrative Agent and each Bank under
Section 10.6.
- ------------
10.8 Confidentiality . Each Bank agrees to maintain the confidentiality
---------------
of all financial statements, cash flow reports, projections, environmental
reports and appraisals provided to it by the Borrower, or by the Administrative
Agent on the Borrower's behalf, under this Agreement or any other Loan Document,
and neither a Bank nor any of its Affiliates shall use any such information
other than in connection with this Agreement and the other Loan Documents or the
enforcement thereof, or in connection with other business now or hereafter
existing or contemplated with the Borrower, except to the extent such
information (a) was or becomes generally available to the public other than as a
result of disclosure by any Bank, or (b) was or becomes available on a non-
confidential basis from a source other than the Borrower, provided that such
source is not bound by a confidentiality agreement with the Borrower known to
such Bank; provided, however, that any Bank may disclose such information (i)
-------- -------
pursuant to any requirement of any Governmental Authority to which such Bank is
subject or in connection with an examination of such Bank by any such authority;
(ii) pursuant to subpoena or other court process; (iii) when required to do so
in accordance with the provisions of any applicable Requirement of Law; (iv) to
the extent reasonably required in connection with any litigation or proceeding
relating to the Loans to which the Administrative Agent, any Bank or their
respective Affiliates may be party; (v) to the extent reasonably required in
connection with the exercise of any remedy hereunder or under any other Loan
Document; (vi) to such Bank's independent auditors and other professional
advisors; (vii) to any Participant or Assignee, actual or potential, provided
that such Person agrees in writing to keep such information confidential to the
same extent required of the Banks hereunder; (viii) as to any Bank or its
Affiliate, as expressly permitted under the terms of any other document or
agreement regarding confidentiality to which the Borrower is party or is deemed
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a party with such Bank or such Affiliate; and (ix) to its Affiliates, provided
that such Affiliates agree in writing to be bound by the terms of this Section
-------
10.8.
- ----
10.9 Set-off . NO BANK SHALL EXERCISE, OR ATTEMPT TO EXERCISE, ANY RIGHT
-------
OF SET-OFF, BANKER'S LIEN, OR THE LIKE, AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY
OF THE BORROWER HELD OR MAINTAINED BY THE BANK WITHOUT THE PRIOR WRITTEN CONSENT
OF THE ADMINISTRATIVE AGENT AND THE MAJORITY BANKS.
10.10 Notification of Addresses, Lending Offices, Etc . Each Bank shall
-----------------------------------------------
notify the Administrative Agent in writing of any changes in the address to
which notices to the Bank should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Administrative
Agent shall reasonably request.
10.11 Counterparts . This Agreement may be executed in any number of
------------
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of which, taken together, shall be deemed to constitute but
one and the same instrument.
10.12 Severability . The illegality or unenforceability of any provision
------------
of this Agreement or any instrument or agreement required hereunder shall not,
to the fullest extent permitted by applicable law, in any way affect or impair
the legality or enforceability of the remaining provisions of this Agreement or
any instrument or agreement required hereunder.
10.13 No Third Parties Benefited . This Agreement is made and entered
--------------------------
into for the sole protection and legal benefit of the Borrower, the Banks, the
Administrative Agent and the Agent-Related Persons, and their permitted
successors and assigns, and except as otherwise provided in Section 10.5 in the
------------
case of an Indemnified Person, no other Person shall be a direct or indirect
legal beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any of the other Loan Documents.
10.14 Governing Law and Jurisdiction .
------------------------------
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE
--------
ADMINISTRATIVE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL
LAW.
(b) SUBJECT TO THE PROVISIONS OF SECTION 10.15, ANY LEGAL ACTION OR
-------------
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PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE
NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT
AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
--------------------
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.
10.15 Reference and Arbitration .
-------------------------
10.15.1 Judicial Reference. In any judicial action between or among
------------------
the parties in any way based on, arising out of or relating to this Agreement,
the other Loan Documents or any Loan (including any action or cause of action
based on or arising from an alleged tort), all decisions of fact and law shall
at the request of any party be referred to a referee in accordance with
California Code of Civil Procedure Sections 638 et seq. The parties shall
-- ---
designate to the court a referee or referees selected under the auspices of the
American Arbitration Association ("AAA") in the same manner as arbitrators are
selected in AAA-sponsored proceedings. The presiding referee of the panel, or
the referee if there is a single referee, shall be an active attorney or retired
judge. Judgment upon the award rendered by such referee or referees shall be
entered in the court in which such proceeding was commenced in accordance with
California Code of Civil Procedure Sections 644 and 645.
10.15.2 Mandatory Arbitration. After all Deeds of Trust and any
---------------------
other real property security have been released, fully reconveyed or
extinguished, any controversy or claim between or among the parties in any way
based on, arising out of or relating to this Agreement, the other Loan Documents
or any Loan (including any controversy or claim based on or arising from an
alleged tort) shall at the request of any party be determined by arbitration.
The arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the AAA. The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
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not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
10.15.3 Real Property Collateral. Notwithstanding the provisions of
------------------------
Section 10.15.2, no controversy or claim shall be submitted to arbitration
- ---------------
without the consent of all parties if, at the time of the proposed submission,
such controversy or claim arises from or relates to an obligation to the
Administrative Agent or the Banks that is secured by real property collateral.
If all parties do not consent to submission of such a controversy or claim to
arbitration, the controversy or claim shall be determined by reference as
provided in Section 10.15.1.
---------------
10.15.4 Provisional Remedies, Self-Help and Foreclosure-. No
------------------------------------------------
provision of this Section 10.15 shall limit the right of any party to this
-------------
Agreement to exercise self-help remedies such as set off, foreclosure against or
sale of any real or personal property collateral or security, or to obtain
provisional or ancillary remedies (including provisional remedies such as claim
and delivery and ancillary remedies such as the issuance of temporary
restraining orders and preliminary injunctions pending submission of any action
or cause of action to judicial reference or arbitration as otherwise required
hereunder) from a court of competent jurisdiction before, after, or during the
pendency of any arbitration or other proceeding. The exercise of a remedy does
not waive the right of any party to resort to arbitration or reference. At the
Administrative Agent's option, foreclosure under a Deed of Trust or mortgage may
be accomplished either by exercise of the power of sale under the Deed of Trust
or mortgage or by judicial foreclosure.
10.16 Entire Agreement; Amendment and Restatement . This Agreement,
-------------------------------------------
together with the other Loan Documents, embodies the entire agreement and
understanding among the Borrower, the Banks and the Administrative Agent, and
amends, restates and supersedes in its entirety the Existing Loan Agreement and
all other prior or contemporaneous agreements and understandings of such
Persons, verbal or written, relating to the subject matter hereof and thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the date first above written.
"Borrower"
CATELLUS DEVELOPMENT CORPORATION,
a Delaware corporation
By ___________________________________
___________________________________
[Printed Name and Title]
"Administrative Agent"
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Administrative Agent
By ___________________________________
___________________________________
[Printed Name and Title]
"Documentation Agent"
THE FIRST NATIONAL BANK OF CHICAGO,
as Documentation Agent
By ___________________________________
___________________________________
[Printed Name and Title]
S-1
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"Banks"
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By ___________________________________
___________________________________
[Printed Name and Title]
Commitment: $77,500,000.00
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank
By ___________________________________
___________________________________
[Printed Name and Title]
Commitment: $33,000,000.00
THE BANK OF NOVA SCOTIA,
SAN FRANCISCO AGENCY,
as a Co-Agent and a Bank
By ___________________________________
___________________________________
[Printed Name and Title]
Commitment: $30,000,000.00
THE FIRST NATIONAL BANK OF BOSTON,
as a Co-Agent and a Bank
By ___________________________________
___________________________________
[Printed Name and Title]
Commitment: $30,000,000.00
S-2
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UNION BANK OF CALIFORNIA, N.A.,
as a Co-Agent and a Bank
By ___________________________________
___________________________________
[Printed Name and Title]
Commitment: $30,000,000.00
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as a Bank
By ___________________________________
___________________________________
[Printed Name and Title]
Commitment: $12,500,000.00
S-3
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EXHIBIT 4.3
LOAN AGREEMENT
by and between
CATELLUS FINANCE 1, L.L.C.,
a Delaware limited liability company
and
PRUDENTIAL MORTGAGE CAPITAL COMPANY, INC.,
a Delaware corporation
Dated as of October 26, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS............................................1
1.1 Defined Terms..............................................1
1.2 Exhibits and Schedules Incorporated........................7
ARTICLE II LOAN...................................................7
2.1 Loan.......................................................7
2.2 Interest Rate; Payment of Interest.........................7
2.3 Loan Documents.............................................7
2.4 Closing Date...............................................7
2.5 Anticipated Repayment Date.................................7
2.6 Maturity Date..............................................7
2.7 Full Repayment and Reconveyance............................7
2.8 Limitation on Borrower's Liability.........................7
2.9 Prepayment.................................................8
2.10 Defeasance.................................................8
2.11 Assignment and Assumption of Interest in Borrower;
Transfer of Properties.....................................8
2.12 Substitution of Properties.................................9
2.13 Build to Suit Properties..................................13
2.14 Letters of Credit - Leasing...............................14
2.15 Expansion Rights..........................................15
2.16 GATX-Woodridge Property...................................17
ARTICLE III CONDITIONS OF LENDER'S OBLIGATION TO FUND LOAN........19
3.1 Conditions Precedent......................................19
(a) Representations and Warranties True at Closing...19
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
(b) No Default or Event of Default...................19
(c) Performance......................................19
(d) Loan Documents...................................19
(e) Zoning Compliance; Certificates of Compliance....19
(f) Hazardous Materials..............................19
(g) Property Inspection and Report...................20
(h) Earthquake Report................................20
(i) Title Insurance..................................20
(j) Survey...........................................20
(k) UCC-3 Certificate; Litigation and Bankruptcy
Searches.........................................21
(l) Documents........................................21
(m) Insurance........................................21
(n) Appraisal........................................21
(o) Consents.........................................21
(p) Financial Statements.............................21
(q) Payment of Fees and Expenses.....................21
(r) Leases...........................................21
(s) Management Agreements............................22
(t) Cash Management Agreement........................22
(u) Reserve Accounts.................................22
(v) Enforceability Opinions of Borrower's Counsel....22
(w) Bankruptcy Nonconsolidation Opinion..............23
(x) No Material Adverse Change.......................23
(y) [Intentionally Deleted]..........................23
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TABLE OF CONTENTS
(continued)
Page
(z) Funding of Deposits..............................24
ARTICLE IV INSURANCE.............................................24
4.1 Insurance.................................................24
ARTICLE V REPRESENTATIONS AND WARRANTIES........................27
5.1 Warranties of Borrower....................................27
(a) Organization and Existence.......................27
(b) Authorization....................................28
(c) Valid Execution and Delivery.....................28
(d) Enforceability...................................28
(e) No Defenses......................................28
(f) Defense of Usury.................................28
(g) No Conflict/Violation of Law.....................28
(h) Compliance with Applicable Laws and Regulations..28
(i) Consents Obtained................................29
(j) No Litigation....................................29
(k) Title............................................29
(l) Permitted Exceptions.............................30
(m) First Lien.......................................30
(n) ERISA............................................30
(o) Contingent Liabilities...........................30
(p) No Other Obligations.............................30
(q) Fraudulent Conveyance............................30
(r) Investment Company Act...........................31
(s) Access/Utilities.................................31
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TABLE OF CONTENTS
(continued)
Page
(t) Taxes Paid.......................................31
(u) Single Tax Lot...................................31
(v) Special Assessments..............................31
(w) Flood Zone.......................................31
(x) Seismic Exposure.................................31
(y) Misstatements of Fact............................32
(z) Condition of Improvements........................32
(aa) No Insolvency or Judgment........................32
(bb) No Condemnation..................................32
(cc) No Labor or Materialmen Claims...................32
(dd) No Purchase Options..............................32
(ee) Leases...........................................33
(ff) Appraisal........................................33
(gg) Boundary Lines...................................33
(hh) Survey...........................................34
(ii) Forfeiture.......................................34
(jj) No Broker........................................34
(kk) Conviction of Criminal Acts......................34
(ll) Security Agreement...............................34
(mm) Homestead........................................34
ARTICLE VI ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES...........34
6.1 Representations and Warranties............................34
6.2 Notice of Violations Under Environmental Laws.............36
6.3 Transportation of Hazardous Substances....................36
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TABLE OF CONTENTS
(continued)
Page
6.4 Compliance with Environmental Laws........................36
6.5 Notice to Lender..........................................36
6.6 Indemnification...........................................37
6.7 Hazardous Substances Audit................................38
6.8 Maintenance Program.......................................38
6.9 Existing Remediation and Monitoring Programs..............39
ARTICLE VII ADDITIONAL REPRESENTATIONS AND WARRANTIES AND
COVENANTS OF BORROWER.................................39
7.1 Expenses..................................................39
7.2 Compliance with Loan Documents............................39
7.3 Representations, Warranties and Covenants with Respect to
Indebtedness, Operations and Fundamental Changes
of Borrower; Maintenance of Separate Existence............39
7.4 Payment of Taxes..........................................42
7.5 Litigation................................................42
7.6 Indemnification of Lender.................................42
7.7 Change in Position........................................43
7.9 Further Assurances........................................43
7.10 Assignment................................................43
7.11 Management Agreements.....................................43
ARTICLE VIII REPORTING COVENANTS...................................44
8.1 Financial Statements and Books and Records................44
8.2 Representations and Warranties............................45
ARTICLE IX CASH MANAGEMENT AGREEMENT; RESERVE AND IMPOUND
ACCOUNTS..............................................45
9.1 Cash Management Agreement.................................45
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TABLE OF CONTENTS
(continued)
Page
9.2 Tax and Insurance Impound Account.........................45
9.3 Repair and Remediation Reserve............................46
9.4 Replacement Reserve; Tenant Improvements and Leasing
Commissions Reserve.......................................48
9.5 Environmental Reserve.....................................50
9.6 Prepaid Rent Reserve......................................51
9.7 Interest Payable by Lender................................51
9.8 Pledge of Security Interest in Impound and Reserve
Accounts..................................................51
ARTICLE X DEFAULTS AND REMEDIES.................................53
10.1 Events of Default.........................................53
10.2 Acceleration Upon Event of Default; Remedies..............55
10.3 Further Remedies..........................................55
10.4 Repayment of Funds Advanced...............................55
10.5 Rights Cumulative, No Waiver..............................55
ARTICLE XI MISCELLANEOUS PROVISIONS..............................56
11.1 No Third Parties Benefited................................56
11.2 Notices...................................................56
11.3 Payment of Costs; Reimbursement to Lender.................56
11.4 Relationship of Parties...................................57
11.5 Delay Outside Lender's Control............................58
11.6 Attorneys' Fees...........................................58
11.7 Loan Sales and Securitization; Disclosure of Information..58
11.8 Certain Rights of Lender..................................59
11.9 Waiver; Discontinuance of Proceedings.....................59
11.10 Application of the Proceeds of the Note...................59
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TABLE OF CONTENTS
(continued)
Page
11.11 Tax Service...............................................60
11.12 Severability..............................................60
11.13 Heirs, Successors and Assigns.............................60
11.14 Time......................................................60
11.15 Headings..................................................60
11.16 Governing Law.............................................60
11.17 Consent to Jurisdiction...................................61
11.18 Integration: Interpretation...............................61
11.19 Joint and Several Liability...............................61
11.20 Counterparts..............................................61
11.21 Advertising...............................................61
11.22 Maximum Interest..........................................61
11.23 WAIVER OF RIGHT TO TRIAL BY JURY..........................62
EXHIBIT A - LIST OF PROPERTIES..............................................A-1
EXHIBIT B - FORM OF PROMISSORY NOTE.........................................B-1
EXHIBIT C - DOCUMENTS C-1
EXHIBIT D - FORM OF CERTIFICATION...........................................D-1
EXHIBIT E - FORM OF TENANT ESTOPPEL.........................................E-1
EXHIBIT F - FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT...........F-1
EXHIBIT G Legal Description of GATX-Woodridge Property.....................G-1
SCHEDULE 1 FAIR MARKET VALUES, NOI AND ALLOCATED LOAN AMOUNTS..............S1-1
SCHEDULE 2 MAJOR TENANTS/LEASES............................................S2-1
SCHEDULE 3 Reserve Calculations for Cash Management Periods................S3-1
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TABLE OF CONTENTS
(continued)
Page
Schedule 4 Deferred Maintenance.............................................S4-1
SCHEDULE 5.1(w) Flood Zones...........................................S5.1(w)-1
SCHEDULE 5.1(ee)(ii) Lease Defaults..............................S5.1(ee)(ii)-1
SCHEDULE 5.1(ee)(iii) Rent Paid More than 30 Days in Advance....S5.1(ee)(iii)-1
SCHEDULE 5.1(ee)(v) Tenants Not in Occupancy.................. ...S5.1(ee)(v)-1
SCHEDULE 5.1(ee)(ix) Tenant Affiliated Leases.....................S5.(ee)(ix)-1
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EXHIBIT 4.3
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is executed as of October 26,
1998, by and between CATELLUS FINANCE 1, L.L.C., a Delaware limited liability
company ("Borrower") and PRUDENTIAL MORTGAGE CAPITAL COMPANY, INC., a Delaware
corporation ("Lender").
RECITALS
A. Borrower is the owner in fee simple of certain real properties
(collectively, the "Land") and all present and future improvements thereon (but
with respect to certain ground leased properties, Borrower's interest to the
improvements may be limited to a conditional future interest) (collectively, the
"Improvements") more particularly described in Exhibit A hereto (the Land and
the Improvements are collectively referred to as the "Properties").
B. Borrower has applied to Lender for a loan to be made to Borrower and
to be secured by the Properties and Lender is willing to make the loan to
Borrower upon the terms and conditions hereinafter set forth and in full
reliance upon the representations, warranties and covenants made by Borrower in
this Agreement.
NOW, THEREFORE, Borrower and Lender in consideration of the mutual
covenants hereinafter set forth and intending to be legally bound hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. The following capitalized terms generally used in
this Agreement shall have the meanings defined or referenced below. Certain
other capitalized terms used only in specific Sections of this Agreement are
defined in such Sections.
"Agreement" means this Loan Agreement as hereafter amended,
supplemented, replaced, modified or amended and restated from time to time.
"Allocated Loan Amount" means the principal amount of the Loan
allocated by Lender as Lender shall determine as to each individual Property
included within the Property Pool and as set forth on Schedule 1 attached
hereto, as revised from time to time to reflect any Properties added pursuant to
a Substitution.
"Anticipated Repayment Date" means the date set forth in Section 2.5 of
this Agreement.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978 (11 USC ss.
101-1330) as hereinafter amended or recodified.
"Borrower" means Catellus Finance 1, L.L.C., a Delaware limited
liability company.
"Business Day" shall mean any day other than a Saturday, Sunday, legal
holiday or other day on which commercial banks in California or New York are
authorized or required by law to
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close. All references in this Agreement to a "day" or a "date" shall be to a
calendar day unless specifically referenced as a Business Day.
"Cash Management Agreement" means that certain Cash Management
Agreement of even date herewith executed by and among Borrower, Lender, and
Manager.
"Closing Date" means the date Lender releases or authorizes the escrow
to release the Loan proceeds to Borrower.
"Collateral" means all of the personal property collateral as described
in the Mortgages.
"Construction Letters of Credit" has the meaning given to such term in
Section 2.13 of this Agreement.
"DCR" means Duff & Phelps Credit Rating Co.
"Default" means an event or circumstance which with the passage of time
or the giving of notice or both, would constitute an Event of Default.
"Default Interest Rate" has the meaning given to such term in Section
1.07 of the Note.
"Defeasance Period" has the meaning given to such term in Section 1.03
of the Note.
"DSCR" means the ratio of the Underwritten Net Cash Flow to annual debt
service on the Loan, as determined by the Lender.
"Environmental Indemnity Agreement" means that certain Hazardous
Substances Indemnity Agreement of even date herewith executed by Borrower and
Guarantor, for the benefit of Lender.
"Environmental Laws" has the meaning given to such term in Section 6.1
of this Agreement.
"Environmental Reports" has the meaning given to such terms in Section
6.1 of this Agreement.
"Event of Default" has the meaning given to such term in Section 10.1
of this Agreement.
"Extended Term Rate" has the meaning given to such term in Section
4.03(b) of the Note.
"FMV" means the appraised value of a Property, from time to time, as
determined by a current third-party MAI appraisal reasonably satisfactory to
Lender. Such MAI appraisal must be dated no more than six (6) months prior to
the applicable FMV determination date and must be prepared by Cushman &
Wakefield or other nationally recognized appraisal company.
"Governmental Authority" means any domestic or foreign national, state
or local government, any political subdivision thereof, any department, agency,
authority or bureau of
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any of the foregoing, or any other entity lawfully exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including the Federal Deposit Insurance Corporation, the Federal
Reserve Board, the Comptroller of the Currency, any central bank or any
comparable authority.
"Governmental Rule" means any law, rule, regulation, ordinance, order,
code interpretation, judgment, decree, directive, guidelines, policy or similar
form of decision of any Governmental Authority.
"Gross Income" means all income actually received pursuant to any
Lease, except security deposits, rents paid more than thirty (30) days in
advance and not ratably allocable to the period under measurement, interest
income and refunds.
"Ground Leased Properties" means Properties owned in fee simple by
Borrower and leased by Borrower to a tenant pursuant to a ground lease as more
particularly identified on Exhibit A attached hereto.
"Guarantor" means Catellus Development Corporation, a Delaware
corporation.
"Hazardous Substances" has the meaning given to such term in Section
6.1 of this Agreement.
"Impound Account" has the meaning given to such term in Section 9.2 of
this Agreement.
"Improvements" means all the improvements as described in the
Mortgages.
"Indemnity and Guaranty Agreement" means that certain Indemnity and
Guaranty Agreement dated of even date herewith executed by Guarantor in favor of
Lender.
"Independent Director" has the meaning given to such term in Section
7.3(x) of this Agreement.
"Initial Term Interest Rate" has the meaning given to such term in
Section 4.03(c) of the Note.
"Leases" has the meaning given to such term in Section 3.1(r) of this
Agreement.
"Lender" means Prudential Mortgage Capital Company, Inc., a Delaware
corporation, its successors and/or assigns, including, but not limited to, a
trustee for certificateholders in connection with a Securitization, which
trustee would thereupon be a "Lender" for purposes of this Agreement.
"Lender's Office" means (a) initially, Lender's office located at 100
Mulberry Street, Gateway Center Four, 9th Floor, Newark, New Jersey 07102-4069,
Attention: Shane Tucker, SVP, and (b) subsequently, such other office designated
as such in writing by Lender to Borrower.
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"Loan" means the principal sum that Lender agrees to lend and Borrower
agrees to borrow pursuant to the terms and conditions of this Agreement and the
Loan Documents, which amount is THREE HUNDRED SEVENTY-THREE MILLION AND
00/100THS DOLLARS ($373,000,000.00), and as evidenced by the Note.
"Loan Commitment" means the Loan Commitment dated August 28, 1998,
executed by Lender and accepted by Borrower and Guarantor on August 28, 1998.
"Loan Documents" means those documents, as hereafter amended,
supplemented, replaced, modified or amended and restated, properly executed and
in recordable form, if necessary, listed in Exhibit C as Loan Documents (and
solely for purposes of Borrower's and Guarantor's representations and warranties
contained herein and, as applicable, in the Other Related Documents), and any
other documents evidencing or securing the Loan (excluding the Other Related
Documents except as provided above).
"Lock-out Period" has the meaning given to such term in Section 1.02(a)
of the Note.
"Management Agreements" has the meaning given to such term in Section
3.1(s) of this Agreement.
"Manager" has the meaning given to such term in Section 3.1(s) of this
Agreement.
"Major Tenants" has the meaning given to such term in Section 3.1(r) of
this Agreement.
"Maturity Date" means November 11, 2028.
"Minimum Coverage Ratio" has the meaning given to such term in Section
9.1 of this Agreement.
"Monthly Payment Amount" has the meaning given to such term in Section
1.01(b) of the Note.
"Moody's" means Moody's Investors Service, Inc.
"Mortgages" means those Mortgages, Assignment of Leases and Rents,
Security Agreement and Fixture Filing of even date herewith executed by
Borrower, as mortgagor, for the benefit of Lender, as mortgagee, and those Deeds
of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing
of even date herewith executed by Borrower, as trustor, for the benefit of
Lender, as beneficiary, encumbering the Properties, as hereafter amended,
supplemented, replaced, modified or amended and restated.
"Net Cash Flow" has the meaning given to such term in the Cash
Management Agreement.
"NOI" means, except as otherwise provided in the last paragraph of
Section 2.12 below, the annual Gross Income realized from ongoing and continuing
operations for a given Property or Properties, as applicable, for the twelve
(12) month period prior to the Closing Date or such other applicable twelve (12)
month period, as reasonably determined by Lender, less all
4
<PAGE>
necessary and ordinary operating expenses (both fixed and variable) for
such twelve (12) month period, including, without limitation, utilities,
administrative, cleaning, landscaping, security, repairs and maintenance, ground
rent payments, management fees (computed at the higher of the actual management
fees or at 3 1/2% of Gross Income), replacement reserves, real estate and other
taxes, assessments and insurance, but excluding any deduction for federal, state
and other income taxes, debt service expenses (except for assessment bonds),
depreciation or amortization of capital expenditures, and other similar non-cash
items. For purposes of determining NOI, ordinary operating expenses which have
been prepaid will nonetheless be treated as a cost to be incurred. Documentation
and calculation of NOI shall be certified by an officer of Borrower and shall be
reasonably satisfactory to Lender.
"Note" means that certain Promissory Note of even date herewith and in
the form of Exhibit B to this Agreement, in the original principal amount of the
Loan, executed by Borrower in favor of Lender, as hereafter amended,
supplemented, replaced, modified or amended and restated.
"Other Related Documents" means those documents, as hereafter amended,
supplemented, replaced, modified or amended and restated, properly executed and
in recordable form, if necessary, listed in Exhibit C as Other Related
Documents.
"Payment Date" has the meaning given to such term in Section 1.01(b) of
the Note.
"Permitted Exceptions" has the meaning given to such term in Section
3.1(i) of this Agreement.
"Permitted Investments" has the meaning given to such term in the Cash
Management Agreement.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
entity, party or government (whether territorial, national, federal, state,
county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Properties" means the Properties described in Exhibit A (excluding as
of the date hereof the Gillette Property and the GATX-Stockton Property as such
terms are defined in Section 2.13 of this Agreement until such time as such
Properties are included under the Mortgages, together with the Improvements
thereon and such other real properties as may from time to time be added in the
Property Pool.
"Property" means any one of the Properties in the Property Pool from
time to time.
"Property Condition Report" has the meaning given to such term in
Section 3.1(g) of this Agreement.
"Property Pool" shall mean all of the Properties from time to time
serving as security for the Loan.
5
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"Prudential" means Prudential Mortgage Capital Company, Inc., a
Delaware corporation, and/or any affiliated or related entity.
"Rating Agencies" means the nationally recognized statistical rating
organizations from time to time rating the securities issued in connection with
the Securitization of the Loan or any portion thereof, which are expected to be
Moody's and DCR. Requirements of the Rating Agencies under this Agreement shall
be deemed to mean the requirements of Moody's and DCR or such other Rating
Agency, as applicable.
"Rating Confirmation," with respect to the matter in question, shall
mean that as a condition thereto the Rating Agencies shall have confirmed in
writing that (i) such investment, replacement or action shall not result, in and
of itself, in a reduction, withdrawal or qualification of any rating then
assigned to any outstanding securities (if the Securitization has occurred), or
(ii) such investment, replacement or action would not result, in and of itself,
in a reduction, withdrawal or qualification of any rating for proposed
securities then under consideration by the Rating Agencies (if the
Securitization has not yet occurred); provided that if the Securitization has
not taken (or as certified by Lender, will not take) the form of a transaction
rated by the Rating Agencies, then "Rating Confirmation" shall instead mean that
the matter in question shall be subject to the prior approval of the Lender,
which approval shall not be unreasonably withheld or delayed unless otherwise
provided.
"Replaced Properties" has the meaning given to such term in Section
2.12 of this Agreement.
"Replacement Reserve" has the meaning given to such term in Section
9.4(a) of this Agreement.
"Reserves" has the meaning given to such term in Section 9.8 of this
Agreement.
"Secured Obligations" has the meaning given to such term in the
Mortgages.
"Securitization" has the meaning given to such term in Section 11.7 of
this Agreement.
"Substitute Property" has the meaning given to such term in Section
2.12 of this Agreement.
"Substitution" has the meaning given to such term in Section 2.12 of
this Agreement.
"TI/LC Reserve" has the meaning given to such term in Section 9.4(b) of
this Agreement.
"Title Policies" has the meaning given to such term in Section 3.1(i)
of this Agreement.
"Underwritten Net Cash Flow" means aggregate NOI from the Property or
the Properties less deductions for normalized capital expenditures and capital
expenditures reserves (but without duplication of replacement reserves as
described in the NOI definition), tenant improvement costs and leasing
commissions, and any reserves established with respect thereto.
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Underwritten Net Cash Flow shall be determined by Lender pursuant to its
customary practices and consistently applied for "CMBS" loans similar to the
Loan.
"Yield Maintenance Charge" has the meaning given to such term in
Section 1.02(c) of the Note.
1.2 Exhibits and Schedules Incorporated. All exhibits and
schedules attached hereto, are hereby incorporated into this Agreement.
ARTICLE II
LOAN
2.1 Loan. By and subject to the terms of this Agreement, Lender agrees
to lend and Borrower agrees to borrow the principal sum of THREE HUNDRED
SEVENTY-THREE MILLION AND 00/100THS DOLLARS ($373,000,000.00), said sum to be
evidenced by the Note. The Note shall be secured by, among other things, the
Mortgages and the Cash Management Agreement.
2.2 Interest Rate; Payment of Interest. Borrower shall pay interest on
the principal balance of the Loan outstanding from time to time under the Note
at the rate and in accordance with the terms set forth in the Note.
2.3 Loan Documents. Borrower shall deliver to Lender concurrently with
this Agreement each of the Loan Documents, properly executed and in recordable
form, as applicable.
2.4 Closing Date. The date of this Agreement and of the other Loan
Documents is for reference purposes only. The delivery and transfer to Lender of
the security under the Loan Documents and of Borrower's and Lender's obligations
under the Loan Documents shall be effective on the Closing Date.
2.5 Anticipated Repayment Date. The Anticipated Repayment Date of the
Loan shall be November 11, 2008.
2.6 Maturity Date. On the Maturity Date, all outstanding principal,
together with all accrued and unpaid interest and all other sums due and owing
under the Note and under this Agreement and the other Loan Documents shall be
repaid in full. All payments due under this Agreement at the Maturity Date shall
be paid in immediately available funds.
2.7 Full Repayment and Reconveyance. Upon receipt of all sums owing and
outstanding under the Loan, Lender shall cause the Properties and the related
Collateral to be released from the lien of the Mortgages and the other Loan
Documents; provided, however, that Lender shall have received all escrow,
closing and recording costs, the costs of preparing and delivering such
reconveyance and any sums then due and payable under the Loan Documents.
7
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2.8 Limitation on Borrower's Liability. Borrower shall have no personal
liability for the repayment of the Loan or performance under the Loan Documents
except as expressly provided in Section 1.05 of the Note, which provisions are
incorporated herein by reference.
2.9 Prepayment. Borrower may not prepay the Loan in whole or in part
except as otherwise expressly provided in the Note.
2.10 Defeasance. Borrower may cause all or a portion of the Properties
to be released from the lien of the Mortgages in accordance with the provisions
of Section 1.03 of the Note.
2.11 Assignment and Assumption of Interest in Borrower; Transfer of
Properties. The obligations of Borrower under this Agreement and the other Loan
Documents may not be assigned by Borrower or assumed by any third party. The
receipt of loan payments, the cashing of such payment checks, or such similar
acts by Lender shall not constitute a waiver of this prohibition. None of the
Properties, nor any direct or indirect interest therein, nor in Borrower, may be
transferred, except that, as long as no Default or Event of Default has occurred
and is continuing, there shall be a one-time right to transfer 100% of the
beneficial interest in Borrower (the "REIT Transfer") to a REIT (the "REIT
Transferee"), provided that and immediately subsequent to such transfer, the
REIT Transferee shall have a book value net worth of no less than
$150,000,000.00 or a market value equity of no less than $150,000,000.00 as
reasonably determined by Lender based on asset values established by third-party
MAI appraisals of the Properties acceptable to Lender in its reasonable
discretion less all existing liabilities and debts of the REIT Transferee, and
Guarantor shall reaffirm (and shall not be released from) its guarantor
obligations and liabilities under any guaranty or indemnity agreement executed
by Guarantor in connection with the Loan and the REIT Transferee executes new
guaranty and indemnity agreements substantially in the form of the Other Related
Documents. In addition, the following conditions to the REIT Transfer must be
satisfied: (a) Guarantor owns at least 51% of the economic interest in the REIT
Transferee at the time of the REIT Transfer and the REIT Transferee is managed
and controlled directly or indirectly by Guarantor and shall continue to be so
owned, managed and controlled, (b) Guarantor expressly covenants in writing that
so long as any part of the Loan remains outstanding it shall continue to own at
least 51% of the economic interest in the REIT Transferee and shall continue to
manage and directly or indirectly control the REIT Transferee, (c) at the time
of the REIT Transfer, the Loan shall have a ratio of (i) aggregate NOI from the
Properties for the prior twelve (12) month period (adjusted by Lender to the
extent Lender reasonably determines that such aggregate NOI will not continue
for the next twelve (12) months) to (ii) annual debt service on the Loan, of no
less than 1.65:1.00 and Lender reasonably believes that the loan-to-value ratio
of the Loan is no higher than 72.5%, and (d) the Rating Agencies are provided
with an opinion of counsel acceptable to the Rating Agencies (or to Lender if
the Loan has not been securitized) providing that as a result of such transfer,
Borrower remains a single-purpose, bankruptcy remote entity. Borrower shall also
deliver such other documents, certificates and opinions as required by the
Rating Agencies or the Lender, including, but not limited to, a
non-consolidation opinion acceptable to the Rating Agencies and Lender. In
addition to a $100,000 (the "Base Review Fee") non-refundable processing fee for
the REIT Transfer and for any transfer requiring Lender's consent or Rating
Confirmation, Borrower shall pay (in addition to the Base Review Fee, where
applicable) the fees and expenses relating to the review and processing of all
transfers (other than incidental share transfers in Guarantor), including, but
not limited to, the reasonable costs of Lender's
8
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outside legal counsel and Rating Agency fees, cost and expenses (including,
without limitation, legal expenses). Whether or not the proposed transfer is
approved, Lender will retain the Base Review Fee and Borrower shall remain
liable for all other fees and expenses. Following such a permitted assumption of
the Loan, Borrower or the approved assignee shall have no further right to
assign the Loan.
Notwithstanding the foregoing, transfers of shareholder interests in Guarantor
shall be permitted unless such transfer causes a "Change of Control" in which
case, prior to Securitization, Lender's prior written consent shall be required
(which may include consideration of the impact such transfer will have on the
Rating Agencies review, analysis and concerns in connection with a
Securitization) and, after the Securitization, Lender shall require a Rating
Confirmation and it shall be a further pre-condition to the transfer that causes
a Change in Control that Prudential (so long as Prudential holds a majority of
the face value of the securities issued in connection with the Securitization)
provides its prior written consent. Borrower acknowledges and agrees that
Prudential's decision to approve or disapprove of any transfer shall be in
Prudential's sole and absolute discretion. For purposes of this Section 2.11, a
------------
"Change of Control" shall be deemed to occur in the event that any one or more
of the following events shall occur: (a) more than 45% of the legal or
beneficial voting shareholder interests in Guarantor are acquired in one
transfer or over time, in related transfers to or at the direction of one or
more affiliated Persons or their designees, (b) during any consecutive eighteen
(18) month period, individuals who at the beginning of such period constituted
the board of directors of Guarantor (together with any new directors whose
election to such board of directors or whose nomination for election was made or
approved by a vote of the majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of Guarantor then in office, or
(c) the stockholders of Guarantor approve a merger or consolidation (unless
Guarantor is the surviving entity) or liquidation, dissolution or the sale of
substantially all of Guarantor's assets.
The failure to obtain Lender's prior written consent to any transfer where
Lender's prior written consent is required hereunder shall give Lender the
right, at Lender's sole option, to declare an Event of Default, to accelerate
the Loan and to declare the Loan immediately due and payable.
2.12 Substitution of Properties. From and after the date twelve (12)
months after the Closing Date, Borrower from time to time (not to exceed six (6)
occasions) may offer to Lender as collateral for the Loan (a "Substitution") one
or more substitute properties (each, a "Substitute Property" and, collectively,
"Substitute Properties"; each Substitute Property to be considered a Property
for all purposes of this Agreement) as replacements for Properties ("Replaced
Properties"), subject to there then being no Default or Event of Default
(excepting non-monetary defaults relating solely to the Replaced Property,
including, but not limited to, a breach of one or more representations or
warranties, but not excepting any default relating to financial statements or
their delivery or representations or warranties in respect thereof) and subject
further to the satisfaction of all the conditions set forth below with respect
to each Substitution and to Borrower making the representations and warranties
in Section 5.1 hereof as to each Substitute Property and to Borrower satisfying
the closing conditions of Section 3.1 hereof as to each Substitute Property. Any
proposed Substitution shall be submitted by Borrower to Lender in writing,
together with copies of all reports and other due diligence materials necessary
to enable
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Lender to ascertain compliance with the conditions below, at least
ninety (90) days prior to the proposed date of Substitution. No Substitute
Property may qualify as a Replaced Property and, after giving effect to the
Substitution, no Property may share its tax parcel with any property not secured
by the applicable Mortgage. No Property may be substituted if it includes
property which is needed to comply with a tenant's expansion right from an
adjoining Property onto such Property unless all of the Properties related to
the tenant's expansion right are contemporaneously substituted.
(a) For each Substitution, the Substitute Property or
Substitute Properties must have an aggregate NOI of not less than the greater of
(i) the aggregate NOI of the Replaced Property or Properties as of the Closing
Date as set forth on Schedule 1 attached hereto, and (ii) the aggregate NOI of
the Replaced Property or Replaced Properties for the immediately preceding 12
month period;
(b) For each Substitution, the Substitute Property or
Substitute Properties must have an aggregate FMV of not less than the greater of
(i) the FMV of the Replaced Property or Replaced Properties as of the Closing
Date as set forth on Schedule 1 attached hereto, and (ii) the FMV of the
Replaced Property or Replaced Properties immediately prior to the Substitution;
(c) As evidenced by estoppel certificates reasonably
acceptable to Lender and the Rating Agencies, all tenants in each Substitute
Property that lease more than 20,000 s.f. (or whose rent constitute greater than
thirty percent (30%) of the Gross Income for the Substitute Property) must be
occupying their space, open for business and paying rent (after any free rent,
credit or rent abatement periods) and not in arrears more than 30 days, and all
free rent or rental grace periods shall have expired, and the tenants shall not
be in bankruptcy (provided, however, the impact of any tenant not qualifying
under this subparagraph (c) would be the disqualification of the income
associated with that tenant for purposes of calculating NOI, or establishing FMV
for the affected Substitute Property, not the elimination of the property as a
potential Substitute Property);
(d) With respect to each Substitute Property, leases affecting
at least 90% of the net rentable area must have average remaining terms of five
(5) years or more, as of the date of Substitution;
(e) Borrower must hold fee title to the Substitute Properties
and the Substitute Properties must be free of all encumbrances, easements and
other title exceptions (except those expressly permitted by Lender in its
reasonable discretion);
(f) Borrower must continue to be a bankruptcy-remote single
purpose entity and, immediately prior to each such Substitution, Borrower shall
deliver bankruptcy (including, but not necessarily limited to,
non-consolidation) and other legal opinions as reasonably required by Lender;
(g) Borrower must deliver an environmental report for each
Substitute Property in form, findings and substance acceptable to Lender in its
reasonable discretion and the Rating Agencies;
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(h) Borrower must (i) deliver to Lender and the Rating
Agencies an engineering report (including, but not limited to, analysis of
seismic risk for any Substitute Property situated in a seismic zone, and which
analysis must show that the Substitute Property does not have a probable maximum
loss percentage that exceeds the probable maximum loss percentage of the
Replaced Property and in no event shall such Substitute Property have a probable
maximum loss of more than 15%) in form, findings and substance acceptable to
Lender and the Rating Agencies in their reasonable discretion, and (ii) deposit
125% of estimated deferred maintenance cost (if any) into a reserve account with
Lender where the estimated cost of such deferred maintenance exceeds $100,000
per Substitute Property;
(i) Each Substitute Property must comply with all title, land
use, legal, environmental and insurance requirements provided in the Loan
Documents, and Lender must receive title insurance, surveys, casualty insurance,
and other due diligence items, all acceptable to Lender in its reasonable
discretion; and with respect to the remaining Properties encumbered by the
applicable Mortgage, Borrower shall provide Lender with title insurance
endorsements reasonably acceptable to Lender to the effect that such release
will not impair the priority of such Mortgage on the remaining Properties
encumbered by the Mortgage;
(j) After giving effect to the Substitution, not more than
sixty (60%) percent of the rentable square footage of the Property Pool would be
located in Los Angeles, Riverside, San Bernardino and Orange Counties in
California;
(k) The Rating Agencies must have confirmed in writing that
such Substitution would not result in a downgrade, qualification, or withdrawal
of the ratings of the securities issued pursuant to any Securitization. Except
as provided in Subsection 2.12 (m) and Section 2.15 below, however, Rating
Agency confirmation shall not be so required if all of the following conditions
are satisfied:
(i) The Replaced Property's Allocated Loan Amount is
not among that of the top ten (10) Properties ranked by Allocated Loan Amount
as set forth on Schedule 1 attached hereto;
(ii) The Allocated Loan Amount of the Replaced Property
is less than five percent (5%) of the then-current principal amount of the
Loan immediately preceding the proposed Substitution; and
(iii) After giving effect to the proposed Substitution,
the aggregate Allocated Loan Amount for all Substitute Properties substituted
since the Closing Date is less than 15% of the original principal amount of
the Loan for all Properties as of the Closing Date.
If the Substitution is to occur prior to the Securitization, the Substitution is
subject to Lender's prior written consent. Borrower acknowledges and agrees that
Lender's decision to approve or disapprove of any Substitution shall be in
Lender's reasonable discretion, which may include consideration of the impact
such Substitution will have on the Rating Agencies review, analysis and concerns
in connection with a Securitization.
(l) The Substitute Property must be income producing and
developed property and similar in quality, nature and property type to the
Replaced Property ("Like for
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Like") (except for the Property at 224 South Michigan Avenue, Chicago,
Illinois and the Properties known as Home Depot, Pak N' Save and Kmart, all
located in Emeryville, California (identified as Properties numbered 67, 69, 70
and 71, respectively, on Exhibit A attached hereto) for which Substitute
Properties may be either industrial, office (except office Properties may not be
substituted for retail Properties), research & development or grocery anchored
retail properties);
(m) Notwithstanding the "Like for Like" provisions of
Subsection 2.12 (l), above, up to 30% of the Allocated Loan Amounts of the
Ground Leased Properties and the "credit tenant properties" (i.e., those
Properties substantially leased to a tenant whose credit is rated BBB- or better
by one of the Rating Agencies) may be replaced by other Substitute Properties,
provided in all such Substitutions (i.e., notwithstanding any provision in the
Loan Documents to the contrary), Rating Confirmation is obtained.
(n) Borrower shall deliver certain other closing documents as
may be described in the applicable private placement memorandum or other
disclosure documents and shall execute required Loan Documents (including, but
not limited to, such mortgages, deeds of trust, and UCC-1 financing statements
as may be necessary to encumber the Substitute Properties in a manner consistent
with the other Properties in the Property Pool) and revisions thereto and to
deliver other documents, opinions and certificates reasonably required by
Lender;
(o) At the time of each Substitution request, Borrower shall
pay a non-refundable Substitution servicing fee of $15,000 per building per
Substitute Property;
(p) Upon giving effect to the Substitution, the aggregate
Allocated Loan Amount of the Replaced Properties as of the Closing Date shall
not exceed thirty percent (30%) of the principal amount of the Loan as of the
Closing Date; and
(q) After giving effect to the Substitution, and unless Rating
Confirmation is otherwise obtained, there shall remain in the Property Pool a
minimum total of at least ninety-five (95) Properties less the number of
Properties which were released pursuant to a Partial Defeasance in accordance
with Section 1.03 of the Note.
(r) Borrower shall deliver to Lender and the Rating Agencies
an opinion of counsel for Borrower or Lender, at Borrower's expense, in form and
substance and delivered by counsel reasonably satisfactory to Lender and the
Rating Agencies, that the Substitution will not cause the Trust (as defined in
the Note) to (i) fail to qualify as a "real estate mortgage investment conduit"
(a "REMIC"), within the meaning of Section 860D of the Internal Revenue Code of
1986, as amended from time to time or any successor statute (the "Code"), or
(ii) be subject to any "prohibited transaction" tax as defined in Section 860F
of the Code.
Borrower shall pay all fees, costs and expenses, including, but not limited to,
legal fees, incurred by Lender and the Rating Agencies, in connection with the
matters set forth in this Section 2.12.
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For purposes of this Section 2.12, the definition of NOI as set forth in Section
-------
1.1 above, shall be used, except that (x) the applicable twelve (12) month
- ---
period referred to in said definition shall be the twelve (12) month period
prior to the Substitution and (y) stabilized occupancy, as
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reasonably determined by Lender, shall be assumed for the purposes of
calculating operating expenses.
With respect to any Substitution, no more than two (2) Replaced Properties may
be substituted for any one (1) Substitute Property unless Rating Confirmation is
obtained. In the event that the Substitution involves one (1) Replaced Property
for one (1) Substitute Property, the Substitute Property shall be assigned the
Allocated Loan Amount of the Replaced Property. In the event that the
Substitution involves more Replaced Properties than Substitute Properties, or
more Substitute Properties than Replaced Properties, than the total Allocated
Loan Amounts of the Replaced Properties shall be reallocated proportionately
among the Substitute Properties based on the FMV of the Substitute Properties at
the time of Substitution and as adjusted by Lender in its reasonable discretion
based on DSCR of the Substitute Properties.
Notwithstanding anything in this Section 2.12, Section 2.15 or Section 2.16 to
the contrary, in determining whether the conditions for a Substitution or a
Release, as applicable, have been satisfied under this Section 2.12 (or under
Section 3.1 to the extent incorporated herein), Section 2.15, or under Section
2.16, if at the time the Substitution or Release occurs the Loan is held by a
REMIC or by an entity that qualifies for treatment as a "grantor trust" under
the Code, all conditions contained herein (or under Section 3.1 to the extent
incorporated herein), Section 2.15 or under Section 2.16, which provide for the
exercise of discretion by the Lender (i.e., by requiring that documents or other
items be "reasonably acceptable to the Lender" or "acceptable to the Lender in
its reasonable discretion" or "acceptable to Lender in its sole discretion", or
through use of words with similar import) shall be construed as permitting the
Lender to reject a document or other item only if such document or other item
fails to satisfy generally-applicable underwriting standards for securitized
commercial mortgage loans, determined at the time such Substitution or Release
occurs.
2.13 Build to Suit Properties. With respect to each of the Gillette
build-to-suit property in Romeoville, Illinois (identified as Property #54 on
Exhibit A attached hereto and herein the "Gillette Property") and the GATX
property in Stockton, California (identified as Property #52 on Exhibit A
attached hereto and herein the "GATX-Stockton Property"), Borrower shall provide
to Lender on the Closing Date, irrevocable, unconditional letters of credit in
the amount of $16,400,000 for the Gillette Property (the "Gillette Letter of
Credit") and $13,600,000 for the GATX-Stockton Property (the "GATX-Stockton
Letter of Credit" and together with the Gillette Letter of Credit, the
"Construction Letters of Credit"), which Construction Letters of Credit must be
from an issuer, must have an account party and expiry date (which must provide
that, prior to its expiration from time to time, it shall be automatically
extended for another term if the Return Conditions have not yet been satisfied
at such time), and in all other respects must be in form and substance,
acceptable to Lender and the Rating Agencies. Without limiting the foregoing,
the issuer of the Construction Letters of Credit as well as the Leasing Letters
of Credit (as defined below) must be and continue to be from issuers rated at
least "A" by DCR and at least "Aa2" by Moody's, or, if not rated by DCR and
Moody's, correspondingly by at least two (2) Rating Agencies, or otherwise
acceptable to DCR and Moody's. If there is no Event of Default, and provided the
following conditions (including there being no Event of Default, the "Return
Conditions") are satisfied prior to December 31, 1999 or, with respect to the
Gillette Letter of Credit, prior to March 31, 2000 (the "Return Dates") in the
event the tenant under the Gillette Property lease exercises its option to have
the additional improvements constructed pursuant to
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Section 18 of the lease on the Gillette Property, the applicable
Construction Letter of Credit shall be returned upon (a) completion of
construction related to such respective property, as evidenced by a certificate
of occupancy acceptable to Lender, (b) acceptance and occupancy of the
respective property by the tenants thereof, (c) commencement of rent payments by
the tenants (after the expiration of any free rent, credit or grace period), (d)
receipt of an estoppel certificate and, if requested by Lender, a subordination,
non-disturbance agreement, from the tenants thereof in form and substance
reasonably acceptable to Lender, (e) Lender obtaining a valid first mortgage
lien on the respective property which would be cross-defaulted and
cross-collateralized with the other Properties in the Property Pool, (f) title
to the respective property shall be vested in Borrower, (g) title insurance
endorsements and other reasonable evidence that all streets and roads reasonably
necessary for access to and full use, occupancy and operation of the respective
property have been completed, have been dedicated and accepted by the
appropriate municipal authority and are open and available, and (h) delivery to
Lender of acceptable title insurance (which shall provide, among other things,
affirmative coverage as to mechanics' liens and that such property does not
share its tax parcel with any other property), survey, property insurance, legal
opinions and such other certificates, opinions and documents reasonably
requested by Lender, including, but not limited to, third party engineering,
environmental and MAI appraisals (if not previously delivered), and payment to
Lender and the Rating Agencies of all fees, costs and expenses (including, but
not limited to, legal fees and expenses) incurred by Lender and the Rating
Agencies in respect of the matters set forth in this Section. In the event the
Return Conditions are not or will not be satisfied as to either or both of the
respective properties on or prior to the respective Return Date, Borrower shall
have the option to make a Substitution with respect to the applicable property
in accordance with Section 2.12 above to the same extent as if the applicable
property were in the Property Pool, and such Substitution shall reduce the
number of remaining Substitutions available to Borrower accordingly. A
Substitution exercised pursuant to this Section shall require Rating
Confirmation. Borrower must exercise such option by providing written notice to
Lender at least one-hundred (100) days prior to the applicable Return Date. If
Borrower fails to timely exercise its Substitution option or fails to fully
satisfy all of the requirements for a Substitution in accordance with Section
2.12 above after exercising its option at least ten (10) Business Days prior to
the applicable Return Date, Borrower shall make a partial prepayment of the Loan
in an amount equal to: (i) 125% of the Allocated Loan Amount for the applicable
Properties, plus (ii) a Yield Maintenance Charge (as defined in the Note). If
Borrower fails to make such prepayment prior to the applicable Return Date,
Lender shall be entitled to draw on the respective Construction Letter of Credit
and apply the proceeds thereof to the Loan and to the Yield Maintenance Charge.
Borrower agrees that in the event the amount of a Construction Letter of Credit
is insufficient to satisfy the amount due in connection with such partial
prepayment as set forth in clauses (i) and (ii) above, Borrower shall
immediately pay to Lender additional funds to satisfy such shortfall. If the
letters of credit described in Sections 2.13 and 2.14 are not extended, Lender
may draw upon them to avoid their expiration. Similarly, the letters of credit
described in Sections 2.13 and 2.14 may be drawn upon in the event that the
requisite issuer ratings as hereinabove set forth are not maintained and the
letters of credit described in Sections 2.13 and 2.14 are not promptly replaced
after written notice from Lender (with replacements acceptable to Lender and the
Rating Agencies).
2.14 Letters of Credit - Leasing . With respect to each of the Union
City, California property located at 2900 Faber Street (identified as Property
#5 on Exhibit A attached hereto and herein the "Union City Property") and the
Tustin, California property (identified as Property #44
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on Exhibit A attached hereto and herein the "Tustin Property"), Borrower
shall provide to Lender on the Closing Date, irrevocable, unconditional letters
of credit in the amount of $2,500,000 for the Union City Property (the "Union
City Letter of Credit") and $1,100,000 for the Tustin Property (the "Tustin
Letter of Credit" and together with the Union City Letter of Credit, the
"Leasing Letters of Credit"), which Leasing Letters of Credit must be from an
issuer, must have an account party and expiry date, and in all other respects
must be in form and substance, acceptable to Lender and the Rating Agencies.
Each Leasing Letter of Credit must have a term of no less than twelve (12)
months, and must provide that prior to its expiration it shall be automatically
extended for one or more terms of another twelve (12) months each if the Leasing
Return Conditions have not yet been satisfied at such time. If there is no Event
of Default, and provided the following conditions (including there being no
Event of Default, the "Leasing Return Conditions") are satisfied prior to March
1, 2000 or, if Borrower, at Lender's option, is required to extend the terms of
either or both Leasing Letters of Credit for an additional term of twelve (12)
months, prior to March 1, 2001 (as applicable, the "Leasing Return Dates"),
provided that all of the Leasing Return Conditions shall have been satisfied
prior to such extended date, the applicable Leasing Letter of Credit shall be
returned upon (a) the leasing to unaffiliated third parties of no less than
ninety percent (90%) of the space at the respective Property, with a lease term
of no less than five (5) years (taking into account termination options, if
any), and at rents no less than the then prevailing market rental rate for the
area in which the Property is situated, (b) acceptance and occupancy of the
respective Property by the tenants thereof, (c) commencement of rent payments by
the tenants (after the expiration of any free rent, credit or grace period), (d)
receipt of an estoppel certificate from the tenants thereof in form and
substance reasonably acceptable to Lender and the Rating Agencies, and (e)
payment to Lender and the Rating Agencies of all fees, costs and expenses
(including, but not limited to, legal fees and expenses) incurred by Lender and
the Rating Agencies in respect of the matters set forth in this Section. In the
event the Leasing Return Conditions are not or will not be satisfied as to
either or both of the respective Properties on or prior to the Leasing Return
Date, Borrower shall have the option to make a Substitution with respect to the
applicable property subject to and in accordance with Section 2.12 above and
such Substitution shall reduce the number of remaining Substitutions available
to Borrower accordingly. Borrower must exercise such option by providing written
notice to Lender at least one-hundred (100) days prior to the applicable Leasing
Return Date. If Borrower fails to exercise its Substitution option or fails to
fully satisfy all of the requirements for a Substitution in accordance with
Section 2.12 above after exercising its option at least ten (10) Business Days
prior to the applicable Leasing Return Date, Borrower shall make a partial
prepayment of the Loan in an amount equal to: (i) 125% of the Allocated Loan
Amount for the applicable Properties, plus (ii) a Yield Maintenance Charge (as
defined in the Note). If Borrower fails to make such prepayment prior to the
applicable Leasing Return Date, Lender shall be entitled to draw on the
respective Leasing Letter of Credit and apply the proceeds thereof to the Loan
and to the Yield Maintenance Charge. Borrower agrees that in the event the
amount of a Leasing Letter of Credit is insufficient to satisfy the amount due
in connection with such partial prepayment as set forth in clauses (i) and (ii)
above, Borrower shall immediately pay to Lender additional funds to satisfy such
shortfall.
2.15 Expansion Rights.
(a) If any tenant under a Lease exercises its option as
presently set forth in its lease to lease additional land and/or improvements
(the "Expansion Land" and the portion of
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each of such Properties excluding the Expansion Land is hereinafter the
"Remaining Property") presently constituting a portion of any of those
Properties designated on Exhibit A hereto as IL1970104 (Gillette/IL), CA0712430
(Pepsi/Ontario, CA), CA0010612 (Office Depot/Fremont, CA) and IL1970335
(GATX/IL) (collectively, the "Expansion Properties") and to have Borrower
construct thereon additional improvements (such improvements being hereinafter
referred to as the "Expansion Improvements", and the Expansion Land and the
Expansion Improvements being hereinafter referred to as the "Expansion
Premises"), Borrower shall have the right, exercised by written notice to
Lender, to have the Expansion Premises considered Substitute Properties and to
have Properties designated by Borrower released from the Property Pool as if
such Properties were Replaced Properties (subject to the limitations, exceptions
and conditions set forth below in this Section 2.15(a) and Section 2.12 above)
provided (i) no Event of Default exists as of the date of the Substitution, (ii)
the Expansion Improvements have been completed as evidenced by a certificate of
occupancy reasonably acceptable to Lender, (iii) the Expansion Improvements have
been accepted and occupied by the tenant thereof, (iv) commencement of rent
payments by the tenant (after the expiration of any free rent, credit or grace
period) has occurred, (v) Lender has received an estoppel certificate from the
tenant thereof in form and substance reasonably acceptable to Lender, (vi) title
to the Expansion Improvements shall be vested in Borrower, (vii) Borrower
delivers to Lender title insurance endorsements or other evidence reasonably
acceptable to Lender that all mechanics and materialmen have been paid in
connection with the construction and that no mechanics' liens exist with respect
to the Expansion Premises and (viii) Lender shall have received a Rating
Confirmation in respect of the Substitution involving the Expansion Premises.
Borrower shall have the right to exercise the option granted in this Section
with respect to the Expansion Premises of one or more tenants in a single
Substitution; provided, however, that all Substitutions under this Section shall
reduce the number of remaining Substitutions available to Borrower accordingly.
The terms and conditions for Substitution set forth in Section 2.12 hereof shall
apply with respect to Substitutions applicable to Expansion Premises.
Determination of NOI and FMV, and the allocation thereof as between the
Expansion Premises and the balance of the Property of which the Expansion
Premises are a part, shall be made by Lender exercising reasonable discretion.
(b) If any tenant with the option to lease Expansion Land
waives its option, or the option is otherwise terminated or expires, which
waiver, termination or expiration is evidenced by a tenant estoppel reasonably
acceptable to Lender, Borrower shall have the right, exercised by written notice
to Lender, to have the Expansion Land considered a potential Replaced Property
and to have such Expansion Land designated by Borrower released from the
Property Pool as if such Expansion Land was a Replaced Property (subject to the
limitations, exceptions and conditions set forth below in this Section 2.15(b),
2.15(c) below and Section 2.12 above) provided (i) no Event of Default exists as
of the date of the Substitution, (ii) Lender shall have received a Rating
Confirmation in respect of the Substitution involving the Expansion Land, and
(iii) Section 2.12(l) shall not be applicable; however, the Substitute
Properties must be income producing industrial, office/research and development
or grocery anchored retail properties. Borrower shall have the right to exercise
the option granted in this Section with respect to the Expansion Land of one or
more tenants in a single Substitution; provided, however, that all Substitutions
under this Section shall reduce the number of remaining Substitutions available
to Borrower accordingly. The terms and conditions for Substitution set forth in
Section 2.12 hereof shall apply with respect to Substitutions applicable to
Expansion Land. Determination of NOI, FMV and the Allocated Loan Amount, and the
allocation thereof
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<PAGE>
as between the Expansion Land and the balance of the Property of which the
Expansion Land is a part, shall be made by Lender exercising reasonable
discretion.
(c) The Remaining Property and/or Borrower shall be in
compliance with the following as an additional condition precedent to
Substitutions applicable to Expansion Land:
(i) The Remaining Property shall comply with all
applicable zoning, land use and similar laws, rules, regulations and ordinances
of all Governmental Authorities having or claiming jurisdiction thereover, and
all other applicable laws, with each such determination assuming the separate
ownership and operation of the Remaining Property;
(ii) Borrower must provide evidence reasonably
acceptable to Lender that (1) all zoning and subdivision approvals of
Governmental Authorities having jurisdiction as necessary to create legally
identifiable tracts of real property, and separate tax and zoning lots for all
real property taxes, have been granted in respect of the Remaining Property; and
(2) from and after the Substitution of the Replaced Property, no acts relating
to development, further subdivision, construction or use on the Replaced
Property can affect in any respect the compliance of the Remaining Property with
all Governmental Rules;
(iii) Borrower must provide evidence reasonably
satisfactory to Lender that, following any such Substitution, the Remaining
Property shall have available to it all necessary utility and other services for
the development, use, occupancy and operation of the Remaining Property, and
adequate, free, unimpeded and unencumbered access for pedestrian and vehicular
ingress and egress onto all adjacent public roads;
(iv) Borrower must provide Lender with an updated
survey of the Remaining Property, reasonably satisfactory to Lender,
prepared by a registered land surveyor for the state in which the Remaining
Property is located, and certified to the Lender, its successors and assigns,
and the title insurer in form reasonably acceptable to Lender, containing metes
and bounds legal descriptions of the Remaining Property;
(v) Borrower provides Lender with an opinion of
counsel reasonably satisfactory to Lender, which opinion shall be in form
and substance reasonably satisfactory to Lender, or other evidence reasonably
satisfactory to Lender, that the lien of the applicable Mortgage is and
continues to constitute a valid lien on the Remaining Property; and
(vi) Borrower shall procure from the title insurer
insuring the lien of the Mortgages an endorsement to Lender's title
insurance policy reasonably acceptable to Lender which shall provide, inter
alia, that the lien and priority of the applicable Mortgage on the Remaining
Property shall be unaffected as a result of the release of the Replaced
Property.
2.16 GATX-Woodridge Property. Upon satisfaction of the following terms
and conditions, Lender shall release from the Mortgages (the "Release") that
certain parcel (the "Outparcel") consisting of a portion of the Property known
as the GATX-Woodridge Property (identified as Property #53 on Exhibit A hereto),
which Outparcel is further described on Exhibit G hereto:
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(a) The Outparcel is not required to be included within the
GATX-Woodridge Property for purposes of any Governmental Rule or necessary or
appropriate to satisfy or facilitate the requirements or terms of any Lease;
(b) The Outparcel is simultaneously with the Release being
transferred (the "Conveyance") to a third party, including, without limitation,
Guarantor;
(c) Borrower shall have given to Lender a written request for
the Release accompanied by all evidence, information and other items required by
this Section, not less than sixty (60) days prior to the desired Release date;
(d) Each of the Outparcel and the remaining portion of the
GATX-Woodridge Property (the "Remaining GATX-Woodridge Property"), including,
but not limited to, all improvements thereon, and the Release and the Conveyance
shall be in compliance with all applicable zoning, land use and other
Governmental Rules of all Governmental Authorities, with each assuming that the
result of the Conveyance is the separate ownership and operation of the
Outparcel and the Remaining GATX-Woodridge Property (collectively, the "GATX
Properties");
(e) Following the Release the Remaining GATX-Woodridge
Property will retain the Allocated Loan Amount of the GATX-Woodridge Property;
(f) Borrower provides Lender with evidence reasonably
acceptable to Lender that (i) all zoning and subdivision approvals of
Governmental Authorities have been granted so that each of the GATX Properties
constitute separate legal and real estate tax parcels and lots, and (ii) from
and after the Release, no acts relating to development, subdivision,
construction or use on the Outparcel can affect in any respect the compliance of
the Remaining GATX-Woodridge Property with all applicable Governmental Rules;
(g) Borrower provides evidence reasonably satisfactory to
Lender that, following the Release, the Remaining GATX-Woodridge Property shall
have available to it all necessary utility and other services for the
development, use, occupancy and operation of the Remaining GATX-Woodridge
Property, and adequate, free, unimpeded and unencumbered access for pedestrian
and vehicular ingress and egress onto all adjacent public roads at such
locations as are reasonably necessary for the development, use, occupancy and
operation of the Remaining GATX-Woodridge Property;
(h) Borrower provides Lender with an updated survey of the
Remaining GATX-Woodridge Property reasonably satisfactory to Lender, prepared by
a registered Illinois land surveyor and certified to Lender, its successors and
assigns, and the title insurer in form reasonably acceptable to Lender,
containing (i) only such encroachments, exceptions and state of facts as are (A)
set forth in the Title Policy insuring the applicable Mortgage or (B) approved
by Lender in writing in its reasonable discretion; and (ii) metes and bounds
legal descriptions of each of the Outparcel and the Remaining GATX-Woodridge
Property;
(i) Borrower shall procure from the Title Company insuring the
lien of the applicable Mortgage an endorsement to Lender's title insurance
policy reasonably acceptable to Lender which shall provide, inter alia, that the
lien and priority of the applicable Mortgage on the
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Remaining GATX-Woodridge Property shall be unaffected as a result of the
Release of the Outparcel and continues to constitute a valid first lien,
together with such other matters as Lender shall reasonably require;
(j) No Event of Default exists under the Loan Documents;
and
(k) Borrower pays all of Lender's fees and expenses
(including, without limitation, attorneys' fees and expenses) incurred in
connection with the Release of such Outparcel.
ARTICLE III
CONDITIONS OF LENDER'S OBLIGATION TO FUND LOAN
3.1 Conditions Precedent. Lender's obligation to fund the Loan
hereunder is subject to the fulfillment to Lender's satisfaction of each of the
following conditions precedent:
(a) Representations and Warranties True at Closing. The
representations and warranties contained in Article V of this Agreement or
otherwise made by or on behalf of Borrower in any of the Loan Documents or in
any certificate, written statement or other writing given in connection with the
Loan (including, but not limited to, all financial and operating statements),
taken as a whole, shall be true and correct on and as of the Closing Date with
the same effect as if made at such time.
(b) No Default or Event of Default. There shall exist no
Default or Event of Default, as defined in this Agreement.
(c) Performance. Borrower shall have performed and complied
with all agreements and conditions contained herein required to be performed and
complied with by Borrower prior to or on the Closing Date.
(d) Loan Documents. Lender shall have received all Loan
Documents, Other Related Documents, instruments, policies, and forms of evidence
or other materials required or requested by Lender under the terms of this
Agreement or any of the Loan Documents.
(e) Zoning Compliance; Certificates of Compliance. Borrower
shall have delivered to Lender, and Lender shall have received and approved the
following items: (i) zoning compliance letters from the proper zoning authority
or other evidence reasonably acceptable to Lender as to each Property's
compliance with zoning or use restriction laws; and (ii) copies of a certificate
of occupancy acceptable to Lender and such other evidence of completion
reasonably acceptable to Lender in accordance with the applicable building laws
pertaining to each Property.
(f) Hazardous Materials. With respect to each of the
Properties, Lender shall have received a Phase I environmental assessment report
and such other additional reports (including, without limitation, a Phase II
environmental assessment report) requested by Lender based on the findings of
the Phase I environmental assessment report from a licensed engineer acceptable
to Lender, all in form and substance satisfactory to Lender in its sole
discretion.
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(g) Property Inspection and Report. Lender shall have received
and approved from a professional building inspector acceptable to Lender,
reports (the "Property Condition Report") stating that each of the Properties is
structurally sound and is in good order and repair, and setting forth
recommendations of remedial repairs, capital improvements and replacements which
should be undertaken.
(h) Earthquake Report. Lender shall have received and approved
from licensed engineers acceptable to Lender, reports with respect to the
Properties designated by Lender stating the maximum probable loss to such
Property resulting from seismic events. The reports should include, but shall
not be limited to, a soil analysis, structural analysis, and soil-structure
interaction analysis, proximity to known faults and seismic history.
(i) Title Insurance. Borrower shall have delivered to Lender
surveys acceptable to Lender and lender's A.L.T.A. extended coverage policies of
title insurance with Form 1 coverage, together with such endorsements and
reinsurance as required by Lender (such policies, endorsements and reinsurance
being hereinafter referred to as the "Title Policies"), in the amount of the
Loan and issued by First American Title Insurance Company (the "Title Company"),
fully paid and in form and substance reasonably satisfactory to Lender, insuring
that Borrower is the owner of the Properties in fee simple, and that the
Mortgages are valid first liens on the Properties in favor of Lender, free and
clear of all liens, encumbrances and exceptions to title whatsoever, other than
(i) current real property taxes not delinquent, and (ii) such exceptions to
title which appear in the final Title Policies accepted by Lender in connection
with the closing of the Loan (excepting therefrom all pre-printed and/or
standard exceptions) or as are otherwise approved in writing by Lender
(collectively, the "Permitted Exceptions"). The Title Policies shall effect full
coverage against losses arising out of encroachments on boundary, setback lines
or easements, against losses from existing mechanics' or materialmen's liens and
subsequent mechanics' and materialmen's liens which may gain priority over the
Mortgages and against such other losses with respect to which Lender may request
coverage, and shall be issued without any creditors' rights exception, general
survey exception, or general exception as to rights of parties in possession.
The title insurance policy shall include, in addition to all coverages required
by Lender after review of title matters, the following endorsements (if
available in the jurisdiction of the Property) or coverages: ALTA Form 9
comprehensive endorsements; ALTA Form 3.1 zoning completed structure (with
parking) endorsement; omission of creditors' rights exclusion; damage to
improvements situated on easements (similar to CLTA 103.1 and 103.3); access
endorsement (similar to CLTA Form 103.7); contiguity endorsement (similar to
CLTA Form 116.4), Aggregation Endorsement (ALTA Form 12), First Loss
Endorsement, and where appropriate; separate tax lot endorsement; survey
reading, and land same as survey endorsement (similar to CLTA Form 116.1);
Subdivision Map Act (CLTA 116.7); usury endorsement; variable rate loan
endorsement; mechanic's lien coverage; gap coverage; tie-in coverage, a waiver
of arbitration; and such other endorsements as Lender may require.
(j) Survey. Borrower shall have furnished to Lender four (4)
copies of a survey with respect to each of the Properties (i) prepared and dated
not more than two (2) months prior to the Closing Date by a registered surveyor
reasonably satisfactory to Lender, (ii) certified as correct and otherwise
meeting the detailed survey requirements set forth in Attachment 2 of the Loan
Commitment, and (iii) sufficient to allow the Title Company to issue the Title
Policy without a general survey exception.
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(k) UCC-3 Certificate; Litigation and Bankruptcy Searches.
Lender shall have received a Certificate(s) of the Secretary of State of each
state in which the Properties are located responding to a UCC-3 Request(s) for
Information and certifying that there is not on file with the Secretary of
State's Office any effective financing statements, statements of assignments,
federal or state tax liens, attachment liens or other security interests
perfectible by the filing of a UCC-1 financing statement with respect to
Borrower, Guarantor, the Collateral or the Properties. Lender shall also have
received litigation and bankruptcy searches with respect to Borrower and
Guarantor in each county in which any of the Properties are located as Lender
shall require.
(l) Documents. Lender shall have received from Borrower, such
certificates, opinions and other documents as Lender may reasonably request and
as are consistent with the provisions of this Agreement and the other Loan
Documents, including, but not limited to, documents evidencing the organization,
existence and authority of Borrower and Guarantor, and the authority of the
persons executing this Agreement and the other Loan Documents to execute the
same for and on behalf of Borrower and Guarantor.
(m) Insurance. Borrower shall have delivered to Lender an
original ACORD 27 (Evidence of Property Insurance) and an ACORD 25 (Certificate
of Insurance) or other Lender approved equivalent listing all coverages and
policies of insurance for the Properties as required by Article IV of this
Agreement.
(n) Appraisal. Lender shall have received a third-party MAI
appraisal of each of the Properties satisfactory to Lender in its sole
discretion.
(o) Consents. Borrower shall have furnished to Lender evidence
reasonably satisfactory to Lender establishing that Borrower has obtained or
will apply for in a timely manner and in the ordinary course of business all
consents, permits and approvals from any and all Governmental Authorities having
jurisdiction over Borrower and/or the Properties, which are required in
connection with the Properties.
(p) Financial Statements. Lender shall have received
originally signed and dated, audited annual financial statements for Guarantor
dated as of December 31, 1997 and unaudited monthly financial statements for
Guarantor dated as of September 30, 1998.
(q) Payment of Fees and Expenses. Borrower shall have paid to
Lender on or before the Closing Date all fees and the expenses required by
Lender in connection with the Loan as provided in the Loan Commitment.
(r) Leases. Borrower shall have provided Lender with copies of
all leases, concessions, licenses, occupancy agreements, and the like in effect
with respect to the Properties (the "Leases"), and any amendments and lease
guarantees thereto, and a schedule (certified by Borrower to be complete and
correct) setting forth the income, rents, prepaid rentals, security deposits,
guarantees or evidence of security or guarantee paid or given in connection
therewith, expiration dates, extension options and all other information
pertaining to such leases as Lender shall require. Borrower shall cause all
tenants, concessionaires, licensees, occupants, and the like to provide estoppel
certificates and, if required by Lender, shall obtain lease
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subordination/attornment agreements (which certificates and agreements shall be
in form and substance acceptable to Lender in its sole discretion). Borrower and
Guarantor shall have exercised (i) their best commercially reasonable efforts to
cause to be provided to Lender estoppel certificates (in the form set forth as
Exhibit E hereto and made a part hereof) acceptable to Lender from all tenants
in respect of the Properties, and (ii) in any event, cause to be provided to
Lender and the Rating Agencies estoppel certificates acceptable to Lender and
the Rating Agencies in respect of the leased premises set forth on Schedule 2
attached hereto and made a part hereof (collectively, the "Major Tenants") and
from tenants other than the Major Tenants which represent at least seventy
percent (70%) of the rentable improved square footage (exclusive of the square
footage attributable to the Major Tenants). Notwithstanding the foregoing, in
connection with that certain Property located in Chicago, Illinois (identified
as Property #67 on Exhibit A), Borrower shall deliver estoppels from Tenants
representing not less than 50% of the net rentable space of such Property. With
respect to all remaining tenants, Borrower shall furnish an estoppel for such
tenants' occupancy. In addition, Borrower and Guarantor shall have exercised
their best commercially reasonable efforts to cause to be provided to Lender
Subordination, Non-Disturbance and Attornment Agreements in the form set forth
as Exhibit F attached hereto and made a part hereof, from certain tenants as
designated in writing by Lender. All present Leases and all amendments,
modifications or terminations of any Leases, shall be subject to Lender's
approval.
(s) Management Agreements. Borrower shall have provided Lender
with copies of all management agreements in effect at the Properties (the
"Management Agreements"), which shall be in form and substance reasonably
acceptable to Lender and with managers (collectively, the "Manager") acceptable
to Lender. Borrower shall cause the Manager to consent to the assignment by
Borrower of the Management Agreements to Lender, and to subordinate the
Management Agreements (and all payments thereunder) to the Loan Documents,
pursuant to an agreement in form and substance acceptable to Lender.
(t) Cash Management Agreement. Borrower shall have executed
and delivered the Cash Management Agreement to Lender and Borrower shall have
complied with all of the requirements set forth in the Cash Management
Agreement.
(u) Reserve Accounts. Borrower shall have established all of
the impound and reserve accounts with Lender as required in Article IX.
(v) Enforceability Opinions of Borrower's Counsel. Borrower
shall furnish Lender (or cause to be furnished at Borrower's expense) an opinion
of legal counsel from attorneys admitted to practice in each and all of the
respective states in which any of the Properties are located and shall also
furnish an opinion from an attorney admitted to practice in the State of New
York (which shall be the State governing the contractual obligations hereunder
and under the Loan Documents, except as otherwise specifically provided in the
Loan Documents), each of whom shall be retained by Borrower and acceptable to
Lender, which opinions shall be in form and substance acceptable to Lender. Said
opinions shall be dated as of the Closing Date, and shall cover, without
limitation, the following matters:
(i) the due organization, valid legal existence and good
standing of Borrower and Guarantor;
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(ii) the due authorization, execution, delivery,
validity, binding effect and enforceability of the Loan Documents, guaranties,
and indemnification agreements (including, without limitation, choice of law)
in accordance with their terms; (iii) that the Loan complies with applicable
usury laws;
(iv) the existence of, or the nonexistence of, any
requirement for any consent of any governmental authority in connection
with the execution, delivery or performance of the Loan Documents, guaranties,
and indemnification agreements;
(v) the fact that the Loan Documents, guaranties, and
indemnification agreements and the execution thereof and the performance of the
obligations thereunder do not conflict with or violate any applicable laws,
agreements or restrictions;
(vi) that the Mortgages are in form sufficient to
create a lien on the Properties in favor of the trustee thereunder for the
benefit of Lender as beneficiary and the security agreement contained in each
Mortgage is in form sufficient to create a lien to the Collateral in favor of
Lender; and
(vii) such other matters incident to the Loan as
Lender may request.
(w) Bankruptcy Nonconsolidation Opinion. Borrower shall
furnish an opinion of counsel acceptable to Lender, dated as of the Closing
Date, that the assets of Borrower (and its partners or members and, if
applicable, any affiliated Manager) will not be substantially consolidated with
the assets of any other affiliated person or entity, including, without
limitation, Guarantor or any partner or member of Borrower, if any, in the event
of a bankruptcy or insolvency proceeding of any such person or entity.
(x) No Material Adverse Change. Borrower shall have delivered
to Lender written certification, dated as of the Closing Date, and Lender shall
be independently satisfied, as to the following matters: (i) from and after the
date of any inspection of the Properties acceptable to Lender, no portion
thereof shall (1) have been damaged and not repaired to Lender's satisfaction,
(2) have been taken in condemnation or other like proceedings, or (3) have
become the subject of any pending condemnation proceeding or litigation; (ii)
the Properties have not been impaired and the values of the Properties have not
been reduced and are free from settling and other structural defects; (iii) from
and after the date of the Loan application, neither Borrower nor any general
partner, member, shareholder or principal of Borrower, nor any Guarantor nor any
Property, has been involved in any action or proceeding (criminal or civil)
which materially and adversely affects the Properties or Borrower's (or
Guarantor's, as applicable) ability to repay the Loan (in each case as
determined by Lender), or any bankruptcy, reorganization, insolvency or similar
proceeding; and (iv) from and after the date of the most recent financial
statements for such person or entity delivered to Lender, no material adverse
change has occurred with respect to Borrower, Guarantor or any other person
(provided, however, if the Guarantor incurs debt unrelated to the Properties, no
adverse change shall be deemed to have occurred).
(y) [Intentionally Deleted].
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(z) Funding of Deposits. All amounts required to be deposited
by Borrower under the Loan Documents have been deposited and are held by or on
behalf of Lender, and there are no deficiencies with respect thereto.
ARTICLE IV
INSURANCE
4.1 Insurance. Borrower shall, at Borrower's expense, maintain in force
and effect on each Property in the Property Pool at all times the following
insurance:
(a) Insurance against loss or damage to each Property by fire,
windstorm, tornado and hail and against loss and damage by such other, further
and additional risks as may be now or hereafter embraced by an "all-risk" or
"special form" form of insurance policy. The amount of such insurance shall be
not less than one hundred percent (100%) of the full replacement cost (insurable
value) of the Improvements (as established by an MAI appraisal) situated on such
Property, without reduction for depreciation, provided, however, that such
insurance may be carried under blanket insurance policies approved by Lender
covering the Properties and other properties with liability limits of less than
the aggregate replacement cost of all Improvements as long as Lender has
reasonably determined that the amount of such insurance is adequate under the
circumstances. Full replacement cost, as used herein, means, with respect to
each of the Improvements, the cost of replacing such Improvements without regard
to deduction for depreciation, exclusive of the cost of excavations, foundations
and footings below the lowest basement floor. Borrower shall also maintain
insurance against loss or damage to such furniture, furnishings, fixtures,
equipment and other items (whether personalty or fixtures) included in such
Property and owned by Borrower from time to time, to the extent applicable, in
the amount of the cost of replacing the same. The maximum deductible for any
Property covered by such policy shall be $100,000.00, or as consented to by
Lender, such consent not to be unreasonably withheld.
(b) Commercial General Liability Insurance against claims for
personal injury, bodily injury, death and property damage occurring on, in or
about each of the Properties in amounts not less than $1,000,000.00 per
occurrence and $2,000,000.00 in the aggregate plus umbrella coverage in an
amount not less than $100,000,000.00. During any construction on the respective
Property, Borrower's general contractor for such construction shall also provide
the insurance, on a primary basis only, as required in this Subsection (b).
Lender hereby retains the right to periodically review the amount of said
liability insurance being maintained by Borrower and to require an increase in
the amount of said liability insurance should Lender deem an increase to be
reasonably prudent under then existing circumstances.
(c) Boiler and machinery insurance is required if steam
boilers or other pressure-fired vessels are in operation at the Property.
Minimum liability coverage per accident must equal the replacement cost
(insurable value) of the Improvements housing such boiler or pressure-fired
machinery.
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(d) If the Improvements or any part thereof are situated in an
area now or subsequently designated by the Federal Emergency Management Agency
("FEMA") as a special flood hazard area (Zone A or Zone V), flood insurance in
an amount equal to the minimum amount required, under the terms of coverage, to
compensate for any damage or loss on a replacement basis (or the unpaid balance
of the Allocated Loan Amount for such Property if replacement cost coverage is
not available for the type of building insured). The flood insurance requirement
will be waived if: (A) although a portion of the land may be in the Special
Flood Hazard Area, no portion of the Improvements situated on such land are in
the Special Flood Hazard Area; or (B) Lender receives a letter from FEMA stating
that its maps have been amended so that the Property is no longer in a Special
Flood Hazard Area. In the event there occurs, from time to time, any loss on any
property which is not part of the Property Pool and which loss reduces the
annual aggregate coverage available for claim payments under Borrower's blanket
insurance policies, Borrower agrees that it shall repurchase, from time to time,
the amount of insurance necessary to provide the required coverages under this
Article IV within thirty (30) days after the occurrence of such loss.
(e) During the period of any construction, renovation or
alteration of the Improvements which exceeds the lesser of 10% of the principal
amount of the Allocated Loan Amount for such Property or $500,000.00, at
Lender's request, a completed value, "All Risk" Builder's Risk form, or "Course
of Construction" insurance policy in non-reporting form, in an amount approved
by Lender, may be required. During the period of any construction of any
addition to the existing Improvements, a completed value, "All Risk" Builder's
Risk form or "Course of Construction" insurance policy in non-reporting form, in
an amount approved by Lender, shall be required. These requirements may be met
by an endorsement to the policy described in Section 4.1(a). In the event there
occurs, from time to time, any loss on any property which is not part of the
Property Pool and which loss reduces the annual aggregate coverage available for
claim payments under Borrower's blanket insurance policies, Borrower agrees that
it shall repurchase, from time to time, the amount of insurance necessary to
provide the required coverages under this Article IV within thirty (30) days
after the occurrence of such loss.
(f) When required by any applicable Governmental Authority or
Governmental Rule, Worker's Compensation and Employer's Liability Insurance
covering all persons subject to the workers' compensation laws of the state in
which the applicable Property is located.
(g) Rent loss insurance in amounts sufficient to compensate
Borrower for all income losses incurred from insured perils during a period of
not less than eighteen (18) months. The amount of coverage shall be adjusted
annually to reflect any increase in the current rent levels payable during the
succeeding twelve-(12) month period. In addition, Borrower shall maintain rent
loss insurance of not less than $10,000,000, with no annual aggregate, to
compensate Borrower for all income loss incurred from earthquake loss (whether
or not Borrower maintains earthquake insurance) during a period of not less than
eighteen (18) months.
(h) Sinkhole, Mine Subsidence and/or Earthquake insurance
shall be required in the amount of $50,000,000 for those Properties (including
all other real property owned by Borrower and encumbered by other deeds of trust
or mortgages securing the Loan) located within
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California, to the extent that such coverage is available at commercially
reasonable rates. The earthquake insurance policy shall have a deductible of not
more than five percent (5%) or such greater amount as may be commercially
reasonable under the then-existing circumstances. Lender agrees that Borrower
shall not be required to carry earthquake insurance with respect to the Ground
Leased Properties.
(i) Environmental insurance, which shall not be required as of
the Closing Date but if subsequently required for any of the Properties, must be
from a carrier and in form and substance satisfactory to Lender and the Rating
Agencies and must provide protection for preexisting, but undetected,
environmental contamination, as well as for liabilities resulting from
contamination that occurs during the policy term.
(j) Such other insurance on the Property or on any replacements
or substitutions thereof or additions thereto as may from time to time be
required by Lender against other insurable hazards or casualties which at the
time are commonly insured against in the case of property similarly situated,
due regard being given to the height and type of buildings, their
construction, location, use and occupancy.
(1) All such insurance shall (i) be with insurers
fully licensed and authorized to do business in the state within which such
Property is located (other than insurers providing coverage for loss as a result
of earthquake in California) and who have and maintain a rating of (A) at least
"A" if rated by DCR, and if not rated by DCR, then similarly rated by two
nationally recognized statistical rating agencies, and (B) at least "A2" if
rated by Moody's; (ii) contain the complete address of the Property (or a
complete legal description); (iii) be for terms of at least one year; (iv) be
subject to the reasonable approval of Lender as to insurance companies, amounts,
content, forms of policies, method by which premiums are paid and expiration
dates; and (v) include EXACTLY the following standard, non-contributory,
mortgagee clause naming:
Prudential Mortgage Capital Company, Inc.,
its successors and assigns ATIMA
c/o Prudential Mortgage Loan Servicing
P.O. Box 10387
Van Nuys, California 91401,
(A) as an additional insured under all liability (primary and excess liability)
insurance policies, (B) as the first mortgagee on all property insurance
policies, and (C) as the lender's loss payee on all loss of rents or loss of
business income insurance policies.
Borrower shall deliver to Lender evidence that said insurance
policies have been obtained as required above and certified copies of such
insurance policies and original certificates of insurance signed by an
authorized agent of the applicable insurance companies evidencing such insurance
satisfactory to Lender. Borrower shall renew all such insurance and
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deliver to Lender certificates evidencing such renewals at least twenty
(20) days before any such insurance shall expire and deliver originals or
certified copies of the insurance policies within sixty (60) days of the
effective date of such policies. Borrower further agrees that each such
insurance policy: (i) shall provide for at least thirty (30) days' prior written
notice to Lender prior to any policy reduction or cancellation for any reason;
(ii) shall contain an endorsement or agreement by the insurer that any loss
shall be payable to Lender in accordance with the terms of such policy
notwithstanding any act or negligence of Borrower which might otherwise result
in forfeiture of such insurance; (iii) shall waive all rights of subrogation
against Lender; and (iv) may be in the form of a blanket policy. The blanket
policy must properly identify and fully protect the applicable Properties as if
a separate policy were issued for 100% of replacement cost at the time of loss
and otherwise meet all of Lender's applicable insurance requirements set forth
in this Article IV. Borrower represents that it has, and covenants that it shall
maintain throughout the term of the Loan, an ordinance or law coverage
endorsement for any Property or Improvements which constitute a legal
non-conforming use under applicable building, zoning or land use laws or
ordinances, which endorsement will contain Coverage A: "Loss Due to Operation of
Law" (with a minimum liability limit equal to Replacement Cost With Agreed Value
Endorsement established at no less than 150% of the Allocated Loan Amount for
such Property), Coverage B: "Demolition Cost" and Coverage C: "Increased Cost of
Construction" coverages. The delivery to Lender of the insurance policies (if
required by Lender) or the certificates of insurance as provided above shall
constitute an assignment of all proceeds payable under such insurance policies
relating to such Properties by Borrower to Lender as further security for the
Loan and to be applied or disbursed as provided in the Mortgages. In the event
of foreclosure of the applicable Mortgage, or other transfer of title to the
subject Property in extinguishment in whole or in part of the Loan, all right,
title and interest of Borrower in and to all proceeds payable under such
policies then in force concerning the subject Property shall thereupon vest in
the purchaser at such foreclosure, or in Lender or other transferee in the event
of such other transfer of title. Approval of any insurance by Lender shall not
be a representation of the solvency of any insurer or the sufficiency of any
amount of insurance. In the event Borrower fails to provide, maintain, keep in
force or deliver and furnish to Lender the policies of insurance required by
this Article IV or evidence of their renewal as required herein, Lender may, but
shall not be obligated to, procure such insurance and Borrower shall pay all
amounts advanced by Lender therefor, together with interest thereon at the
Default Interest Rate from and after the date advanced by Lender until actually
repaid by Borrower, promptly upon demand by Lender. Any amounts so advanced by
Lender, together with interest thereon, shall be secured by the Mortgages and by
all of the other Loan Documents securing all or any part of the Loan. Lender
shall not be responsible for nor incur any liability for the insolvency of the
insurer or other failure of the insurer to perform, even though Lender has
caused the insurance to be placed with the insurer after failure of Borrower to
furnish such insurance. If Borrower shall obtain insurance for the Properties in
addition to that required by Lender, Borrower agrees that it shall name Lender
as an additional insured on such additional insurance and shall provide Lender
with complete copies of all policies evidencing such insurance.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Warranties of Borrower. Borrower, for itself and its successors and
assigns, does hereby represent, warrant and covenant to and with Lender, its
successors and assigns, that:
(a) Organization and Existence. Borrower is duly organized and
validly existing as a limited liability company in good standing under the laws
of the State of Delaware and in all other jurisdictions in which any Property is
located or in which Borrower is transacting business. Borrower has the power and
authority to execute, deliver and perform the obligations imposed on it under
the Loan Documents and to consummate the transactions contemplated by the Loan
Documents.
(b) Authorization. Borrower has taken all necessary actions
for the authorization of the borrowing on account of the Loan, and for the
execution and delivery of the Loan Documents, including, without limitation,
that those members of Borrower whose approval is required by the terms of
Borrower's organizational documents have duly approved the transactions
contemplated by the Loan Documents and have authorized execution and delivery
thereof by the respective signatories. To the best of Borrower's knowledge, no
other consent by any local, state or federal agency is required in connection
with the execution and delivery of the Loan Documents.
(c) Valid Execution and Delivery. All of the Loan Documents
requiring execution by Borrower have been duly and validly executed and
delivered by Borrower.
(d) Enforceability. All of the Loan Documents constitute
valid, legal and binding obligations of Borrower and are fully enforceable
against Borrower in accordance with their terms by Lender and its successors,
transferees and assigns, subject only to bankruptcy laws, creditors' rights, and
general principles of equity.
(e) No Defenses. The Note, the Mortgages and the other Loan
Documents are not subject to any right of rescission, set-off, counterclaim or
defense, nor would the operation of any of the terms of the Note, the Mortgages
or any of the other Loan Documents, or the exercise of any right thereunder,
render such documents unenforceable, in whole or in part, or subject to any
right of rescission, set-off, counterclaim or defense, including the defense of
usury.
(f) Defense of Usury. Borrower knows of no facts that would
support a claim of usury to defeat or avoid its obligation to repay the
principal of, interest on, and other sums or amounts due and payable under, the
Loan Documents.
(g) No Conflict/Violation of Law. The execution, delivery and
performance of the Loan Documents by Borrower will not cause or constitute a
default under or conflict with the organizational documents of Borrower, any
Guarantor or any general partner or managing member of Borrower or any
Guarantor. The execution, delivery and performance of the obligations imposed on
Borrower under the Loan Documents will not cause Borrower to be in default,
including after due notice or lapse of time or both, under the provisions of any
agreement, judgment or order to which Borrower is a party or by which Borrower
is bound.
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(h) Compliance with Applicable Laws and Regulations. All of
the Improvements and the use of the Properties by Borrower comply with, and
shall remain in compliance with, all applicable statutes, rules, regulations and
private covenants now or hereafter relating to the ownership, construction, use
or operation of the Properties, including all applicable statutes, rules and
regulations pertaining to requirements for equal opportunity,
anti-discrimination, fair housing, environmental protection, zoning (including,
without limitation, parking requirements) and land use, and no notices of
violation or non-compliance have been issued by any Governmental Authority
relating to any of the foregoing that remain outstanding. All of the
Improvements comply with, and shall remain in compliance with, applicable
health, fire and building codes. There is no evidence of any illegal activities
relating to controlled substances on any of the Properties. All certifications,
permits, licenses and approvals, including, without limitation, certificates of
completion and occupancy permits required for the legal use, occupancy and
operation of the Properties as currently conducted have been obtained and are in
full force and effect. All of the Improvements comply with all material
requirements of any applicable zoning and subdivision laws and ordinances, and
no Improvements (other than the Improvements located at 210 Fallon Street,
Oakland, California (identified as Property #73 on Exhibit A attached hereto),
the Improvements located at 324 West Blueridge, Orange, California (identified
as Property #42 on Exhibit A attached hereto), the Improvements located at 12865
Ann Street, Santa Fe Springs, California (identified as Property #77 on Exhibit
A attached hereto), the Improvements located at 1200 Edinger Avenue, Tustin,
California (identified as Property #44 on Exhibit A attached hereto), the
Improvements located at 14352 Franklin Avenue, Tustin, California (identified as
Property #45 on Exhibit A attached hereto), the Improvements located at 1311
East Valencia, Tustin, California (identified as Property #64 on Exhibit A
attached hereto), the Improvements located at 1361 Valencia, Tustin, California
(identified as Property #65 on Exhibit A attached hereto), the Improvements
located at 15222 Del Amo, Tustin, California (identified as Property #66 on
Exhibit A attached hereto), the Improvements located at 1100 Edinger St.,
Tustin, California (identified as Property #72 on Exhibit A attached hereto) and
for which Properties Borrower has law and ordinance insurance coverage),
constitute a legal nonconforming use under any of such laws and ordinances.
(i) Consents Obtained. All consents, approvals,
authorizations, orders or filings with any court or governmental agency or body,
if any, required for the execution, delivery and performance of the Loan
Documents by Borrower have been obtained or made.
(j) No Litigation. There are no pending actions, suits or
proceedings, arbitrations or governmental investigations against any of the
Properties, Borrower, or Guarantor, an adverse outcome of which would materially
affect Borrower's performance under the Note, the Mortgages, or the other Loan
Documents.
(k) Title. Borrower has good, marketable and indefeasible fee
simple title to all of the Land and all Improvements thereon (but subject to the
terms of the leases for the Ground Leased Properties which may limit Borrower's
interest to certain Improvements to a conditional future interest), subject only
to the Permitted Exceptions. Except for the Permitted Exceptions, the possession
of each of the Properties is peaceful and undisturbed and title thereto is not
disputed or questioned to the best of Borrower's knowledge. Further, Borrower
has full power and lawful authority to grant, bargain, sell, convey, assign,
transfer, encumber and mortgage its interest in the Properties under the Loan
Documents. Borrower will preserve its
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interest in and title to the Properties and will warrant and defend the
same to Lender against any and all claims whatsoever and will warrant and defend
the validity and priority of the lien and security interest created under the
Loan Documents against the claims of all persons and parties whomsoever, subject
to the Permitted Exceptions. The foregoing warranty of title shall survive the
foreclosure of the applicable Mortgage and shall inure to the benefit of and be
enforceable by Lender in the event Lender acquires title to such Property
pursuant to any foreclosure.
(l) Permitted Exceptions. The Permitted Exceptions do not and
will not materially and adversely affect (1) the ability of Borrower to pay in
full the principal and interest on the Note in a timely manner or (2) the use of
the applicable Property for the use currently being made thereof, the operation
of the applicable Property as currently being operated or the value of the
applicable Property other than as reflected in the appraisals of the Properties.
(m) First Lien. Except with respect to the Gillette Property
and to the GATX-Stockton Property, upon the execution by Borrower and the
recording of the Mortgages, and upon the execution and filing of UCC-1 financing
statements or amendments thereto, Lender will have a valid first lien on each of
the Properties and a valid first security interest in all Collateral, subject to
no liens, charges or encumbrances other than the Permitted Exceptions. No
Property secures any indebtedness or obligation other than as created under or
pursuant to the Loan Documents and for taxes and assessments not yet delinquent.
(n) ERISA. Borrower has made and shall continue to make all
required contributions to all employee benefit plans, if any, and Borrower has
no knowledge of any material liability which has been incurred by Borrower which
remains unsatisfied for any taxes or penalties with respect to any employee
benefit plan or any multi-employer plan, and each such plan has been
administered in compliance with its terms and the applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and any
other federal or state law.
(o) Contingent Liabilities. Borrower has no known material
contingent liabilities.
(p) No Other Obligations. Borrower has no material financial
obligation under any indenture, mortgage, loan agreement or other agreement or
instrument to which Borrower is a party or by which Borrower or any of the
Properties is otherwise bound, other than obligations incurred in the ordinary
course of the operation of such Property and other than obligations under the
Mortgages and the other Loan Documents.
(q) Fraudulent Conveyance. Borrower (i) has not entered into
the Loan or any Loan Document with the actual intent to hinder, delay, or
defraud any creditor and (ii) received fair value in exchange for its
obligations under the Loan Documents. Giving effect to the Loan contemplated by
the Loan Documents, the fair saleable value of the Borrower's assets exceed and
will, immediately following the execution and delivery of the Loan Documents,
exceed Borrower's total liabilities, including, without limitation,
subordinated, unliquidated, disputed or contingent liabilities. The fair
saleable value of Borrower's assets is and will, immediately following the
execution and delivery of the Loan Documents, be greater than Borrower's
probable liabilities, including the maximum amount of its contingent liabilities
or its debts as
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such debts become absolute and matured. Borrower's assets do not and,
immediately following the execution and delivery of the Loan Documents will not,
constitute unreasonably small capital to carry out its business as conducted or
as proposed to be conducted. Borrower does not intend to, and does not believe
that it will, incur debts and liabilities (including, without limitation,
contingent liabilities and other commitments) beyond its ability to pay such
debts as they mature (taking into account the timing and amounts to be payable
on or in respect of obligations of Borrower).
(r) Investment Company Act. Borrower is not: (i) an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended; (ii) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended; or (iii)
subject to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.
(s) Access/Utilities. Each of the Properties has adequate
rights of access to public ways and is served by adequate water, sewer, sanitary
sewer and storm drain facilities. All public utilities necessary to the
continued use and enjoyment of each of the Properties as presently used and
enjoyed are located in the public right-of-way abutting such Property, and all
such utilities are connected so as to serve such Property without passing over
other property or, if such utilities must cross other property, Borrower holds
easements for such utilities that are insured by the Title Policy insuring the
lien of the Mortgage on the Property. Except for the Gillette Property and the
GATX-Stockton Property, all streets, roads, highways, bridges and waterways
necessary for access to and full use, occupancy, operation and disposition of
the Land and the Improvements have been completed, have been dedicated and
accepted by the appropriate municipal authority and are open and available to
the land and the Improvements without further condition or cost to Borrower.
(t) Taxes Paid. Borrower has filed or has caused to be filed
all federal, state, county and municipal tax returns required to have been filed
by Borrower, and has paid, or has caused to be paid, all taxes which have become
due pursuant to such returns or to any notice of assessment received by Borrower
, and Borrower has no knowledge of any basis for additional assessment with
respect to such taxes. Further, each of the Properties is free from delinquent
water charges, sewer rents, taxes and assessments.
(u) Single Tax Lot. Except as disclosed in the Title Policies,
each Property consists of a single lot or multiple tax lots; other than the
GATX-Woodridge Property, no portion of said tax lot(s) covers property other
than the applicable Property or a portion of the applicable Property and no
portion of such Property lies in any other tax lot.
(v) Special Assessments. To Borrower's knowledge, there are no
pending or, proposed special or other assessments for public improvements or
otherwise affecting any of the Properties, nor, to the knowledge of Borrower,
are there any contemplated improvements to any of the Properties that may result
in such special or other assessments.
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(w) Flood Zone. Except as disclosed in Schedule 5.1(w), none
of the Improvements are located in a special flood hazard area as defined by the
Federal Insurance Administration.
(x) Seismic Exposure. Each Property is either not located in
Zone 3 or Zone 4 of the "Seismic Zone Map of the U.S." or all assumptions and
assessments of the applicable Improvements set forth in the seismic study of
such Improvements submitted to Lender are true and correct in all material
respects and show a probable maximum loss (as a percentage of the current
building replacement cost and based on a 50 year building life expectancy
period) of less than 15%, with the exception of Properties #68, #69, #70 and #71
as identified on Exhibit A attached hereto.
(y) Misstatements of Fact. No statement of fact made in the
Loan Documents contains any untrue statement of a material fact or omits to
state any material fact necessary to make statements contained herein or therein
not misleading. There is no material fact presently known to Borrower which has
not been disclosed which adversely affects, nor as far as Borrower can foresee,
might adversely affect the business, operations or condition (financial or
otherwise) of Borrower.
(z) Condition of Improvements. To the knowledge of the
Borrower, and except as disclosed in the Property Condition Reports or otherwise
disclosed in writing to Lender: none of the Properties has been damaged by fire,
water, wind or other cause of loss which damage has not been fully restored; all
of the Improvements are structurally sound, in good repair and free of defects
in materials and workmanship and have been constructed and installed in
substantial compliance with the plans and specifications relating thereto; and
all major building systems located within the Improvements, including, without
limitation, the heating and air conditioning systems and the electrical and
plumbing systems, are in good working order and condition.
(aa) No Insolvency or Judgment. Neither Borrower, any member
of Borrower, nor Guarantor is currently (i) the debtor in any completed or
pending bankruptcy, reorganization or insolvency proceeding; or (ii) the subject
of any judgment unsatisfied of record or docketed in any court of the state in
which any of the Properties are located or in any other court located in the
United States. The proposed Loan will not render Borrower or any member of
Borrower insolvent. As used in this Agreement, the term "insolvent" means that
the sum total of all of an entity's liabilities (whether secured or unsecured,
contingent or fixed, or liquidated or unliquidated) is in excess of the value of
all such entity's non-exempt assets, i.e., all of the assets of the entity that
are available to satisfy claims of creditors.
(bb) No Condemnation. No part of any property subject to the
Loan Documents has been taken in condemnation or other like proceeding to an
extent which would impair the value of such Property, the Mortgages or the Loan
or the usefulness of such property for the purposes contemplated by the loan
application relating to the Loan, nor is any proceeding pending, or to
Borrower's knowledge, threatened or contemplated for the partial or total
condemnation or taking of any of the Properties.
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(cc) No Labor or Materialmen Claims. All parties furnishing
labor and materials to the Properties have been paid in full with respect to all
amounts currently due and payable and, except for such liens or claims insured
against by the policies of title insurance to be issued in connection with the
Loan, there are no mechanics', laborers' or materialmen's liens or claims
outstanding for work, labor or materials affecting any of the Properties,
whether prior to, equal with or subordinate to the lien of the applicable
Mortgage.
(dd) No Purchase Options. Except as set forth in the Leases,
no tenant, person, party, firm, corporation or other entity has an option to
purchase any of the Properties, any portion thereof or any interest therein.
(ee) Leases.
(i) Borrower has delivered a true, correct and
complete schedule (such schedule, together with any attached exhibits, the
"Rent Roll") of all Leases affecting the Properties as of the date thereof,
which accurately and completely sets forth in all material respects for each
such Lease, the following: the name of the tenant, the lease expiration date,
extension and renewal provisions, the base, additional and percentage rent
payable, the security deposit held thereunder, the square footage, the building
name, and suite location.
(ii) Each Lease constitutes the legal, valid and
binding obligation of Borrower and, to the best of Borrower's knowledge and
belief, is enforceable against the tenant thereof. To the best of Borrower's
knowledge, except as disclosed in Schedule 5.1(ee)(ii), no default exists, or
with the passing of time or the giving of notice or both would exist, under any
Lease which would, in the aggregate, have a material adverse effect on Borrower
or the Property.
(iii) Except as disclosed in Schedule 5.1(ee)(iii),
no tenant under any Lease has, as of the date hereof, paid base rent more
than thirty (30) days in advance, and the rents under such Leases have not been
waived, released, or otherwise discharged or compromised.
(iv) Other than the Gillette Property and the
GATX-Stockton Property, all work to be performed by Borrower under the
Leases has been substantially performed, all contributions to be made by
Borrower to the tenants thereunder have been made and all other conditions
precedent to each such tenant's obligations thereunder have been satisfied.
(v) Except as disclosed in Schedule 5.1(ee)(v), each
tenant under a Lease has entered into occupancy of
the demised premises.
(vi) Borrower has delivered to Lender true, correct
and complete copies of all leases described in the Rent Roll.
(vii) To the best of Borrower's knowledge and belief,
each tenant is free from bankruptcy, reorganization or arrangement
proceedings or a general assignment for the benefit of creditors.
(viii) No Lease provides any party with the right to
obtain a lien upon any of the Properties superior to
the lien of the Mortgages.
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(ix) No tenant under any Lease, except as disclosed in
Schedule 5.1(ee)(ix), is affiliated with Guarantor.
(ff) Appraisal. Other than the Gillette Property and the
GATX-Stockton Property, all requirements and conditions of the appraisals of the
Properties submitted to Lender, upon which the values of the Properties were
conditioned, have been fully satisfied.
(gg) Boundary Lines. Except as disclosed in the Title
Policies, all of the Improvements which were included in determining the
appraised value of the Properties lie wholly within the boundaries and building
restriction lines of the applicable Property, and no improvements on adjoining
properties encroach upon such Property, and no easements or other encumbrances
upon such Property encroach upon any of the Improvements, so as to affect the
value or marketability of such Property except those which are insured against
by title insurance.
(hh) Survey. Each of the surveys of the Properties delivered
to Lender in connection with the Loan, has been performed by a duly licensed
surveyor or registered professional engineer in the jurisdiction in which the
relevant Property is situated, is certified to Lender, its successors and
assigns, and the title insurance company, and is materially in accordance with
the most current minimum standards for title surveys as determined by the
American Land Title Association, with the signature and seal of a licensed
engineer or surveyor affixed thereto, and does not fail to reflect any material
matter affecting such Property or the title thereto. All curb cuts, driveways
and traffic signals shown on the survey delivered to Lender are existing and
have been fully approved by the appropriate governmental authority.
(ii) Forfeiture. There has not been and shall never be
committed by Borrower nor, to Borrower's knowledge, has there been any other
person in occupancy of or involved with the operation or use of any of the
Properties, any act or omission affording the federal government or any state or
local government the right of forfeiture as against any of the Properties or any
part thereof or any monies paid in performance of Borrower's obligations under
any of the Loan Documents.
(jj) No Broker. No financial advisors, brokers, underwriters,
placement agents, agents or finders have been dealt with by Borrower in
connection with the Loan.
(kk) Conviction of Criminal Acts. Neither Borrower nor
Guarantor has ever been convicted of a crime and neither is currently the
subject of any pending or, to Borrower's knowledge, threatened criminal
investigation or proceeding.
(ll) Security Agreement. There are no security agreements or
financing statements affecting any of the Properties other than (i) as disclosed
in writing to Lender prior to the date hereof and (ii) the security agreements
and financing statements created in favor of Lender.
(mm) Homestead. None of the Properties form a part of any
property owned, used or claimed by Borrower as a residence or business homestead
and are exempt from forced sale under the laws of the State in which any of the
Properties are located. Borrower hereby disclaims and renounces each and every
claim to all or any portion of any Property as a
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homestead. Each Property is used and occupied for commercial purposes in
accordance with all applicable laws.
ARTICLE VI
ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES
6.1 Representations and Warranties. Borrower hereby represents and
warrants to Lender that, as of the date hereof, and except as disclosed in the
environmental assessment reports for the Properties delivered to Lender (the
"Environmental Reports") (but without limiting Borrower's liability with respect
thereto): (a) to the best of Borrower's knowledge, information and belief, none
of Borrower nor any of the Properties nor any tenant at any of Properties nor
the operations conducted thereon is in direct or indirect violation of any
local, state or federal law, rule or regulation or common law duty pertaining to
human health, natural resources or the environment, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (42 U.S.C. ss.9601 et seq.) as same may be amended "CERCLA"), the
Resource Conservation and Recovery Act of 1976 (42 U.S.C. ss.6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. ss.1251 et seq.), the Clean Air
Act (42 U.S.C. ss.7401 et seq.), the Emergency Planning and
Community-Right-to-Know Act (42 U.S.C. ss.11001 et seq.), the Endangered Species
Act (16 U.S.C. ss.1531 et seq.), the Toxic Substances Control Act (15 U.S.C.
ss.2601 et seq.), the Occupational Safety and Health Act (29 U.S.C. ss.651 et
seq.) and the Hazardous Materials Transportation Act (49 U.S.C. ss.1801 et
seq.), regulations promulgated pursuant to said laws, all as amended from time
to time (collectively, the "Environmental Law" or "Environmental Laws"); (b) no
hazardous, toxic or harmful substances, wastes, materials, pollutants or
contaminants (including, without limitation, asbestos or asbestos-containing
materials, lead based paint, polychlorinated biphenyls, petroleum or petroleum
products or byproducts, flammable explosives, radioactive materials, infectious
substances, radon gas or raw materials which include hazardous constituents) or
any other substances or materials which are included under or regulated by
Environmental Laws (collectively, "Hazardous Substances") are located on, in or
under or have been handled, generated, stored, processed or disposed of on or
released or discharged from any of the Properties (including underground
contamination), except for those substances used and/or disposed of by Borrower
or any tenant in the ordinary course of their respective businesses and in
compliance with all Environmental Laws; (c) none of the Properties are subject
to any private or governmental lien or judicial or administrative notice or
action arising under Environmental Laws; (d) to Borrower's knowledge,
information or belief, there is no pending nor threatened litigation arising
under Environmental Laws affecting Borrower or any of the Properties; there are
no and have been no existing or closed underground storage tanks or other
underground storage receptacles for Hazardous Substances or landfills or dumps
on any of the Properties; (e) Borrower has received no notice of, and to the
best of Borrower's knowledge, there exists no investigation, action, proceeding
or claim by any agency, authority or unit of government or by any third party
which could result in any liability, penalty, sanction or judgment under any
Environmental Laws with respect to any condition, use or operation of any of the
Properties, nor does Borrower know of any basis for an investigation, action,
proceeding or claim; (f) Borrower has received no notice of and, to the best of
Borrower's knowledge, there has been no claim by any party that any use,
operation or condition of any of the Properties has caused any nuisance or any
other liability or adverse condition on any other property, nor does Borrower
know of any
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basis for such an investigation, action, proceeding or claim; and (g) to
the best of Borrower's knowledge, radon is not present at any of the Properties
in excess or in violation of any applicable thresholds or standards or in
amounts that require under applicable law disclosure to any tenant or occupant
of or invitee to any of the Properties or to any governmental agency or the
general public. Borrower further represents and warrants that all Environmental
Reports meet the requirements of the American Society for Testing and Materials,
and if any such report revealed any circumstance or condition with respect to
any Property that rendered such Property in violation of any Environmental Law,
then (1) the same has been remediated in all material respects, (2) sufficient
funds have been escrowed for purposes of effecting such remediation or (3)
Borrower is currently taking action with respect to such circumstances or
conditions as have been recommended by the Environmental Report or are required
by the applicable governmental regulatory authority (including implementation of
an operations and maintenance plan).
6.2 Notice of Violations Under Environmental Laws. Except as disclosed
in the Environmental Reports (but without limiting Borrower's liability with
respect thereto), Borrower has not received nor to the best of Borrower's
knowledge, information and belief has there been issued with respect to any of
the Properties, any notice, notification, demand, request for information,
citation, summons, or order in any way relating to any actual, alleged or
potential violation or liability arising under Environmental Laws.
6.3 Transportation of Hazardous Substances. None of the Properties, nor
to the best of Borrower's knowledge, information and belief any property to
which Borrower has, in connection with the maintenance or operation of the
Properties, directly or indirectly transported or arranged for the
transportation of any Hazardous Substances, is listed or, to the best of
Borrower's knowledge, information and belief, proposed for listing on the
National Priorities List promulgated pursuant to CERCLA, on CERCLIS (as defined
in CERCLA) or on any similar federal or state list of sites requiring
environmental investigation or clean-up.
6.4 Compliance with Environmental Laws. Borrower shall comply with all
applicable Environmental Laws. Borrower shall keep or cause each of the
Properties to be kept free from Hazardous Substances (except those substances
used and/or disposed of by Borrower or any tenant in the ordinary course of
their respective businesses in compliance with all Environmental Laws) and in
compliance with all Environmental Laws. Borrower shall not itself, and shall not
allow any tenant under any Lease to, install or use any underground storage
tanks in violation of Environmental Laws, and in all Leases executed after the
Closing Date, shall expressly prohibit the use, generation, handling, storage,
production, processing and disposal of Hazardous Substances by all tenants in
quantities or conditions that would violate or give rise to any obligation to
take remedial or other action under any applicable Environmental Laws. Borrower
shall enforce such prohibitions against any Tenant under any Lease. Without
limiting the generality of the foregoing, Borrower shall not install in the
Improvements or permit to be installed in the Improvements any asbestos or
asbestos-containing material.
6.5 Notice to Lender. Borrower shall promptly notify Lender if Borrower
shall become aware of (a) the actual or potential existence of any Hazardous
Substances on any of the Properties other than those occurring in the ordinary
course of Borrower's or any tenant's business which do not violate Environmental
Laws, (b) any direct or indirect violation of any Environmental Laws, (c) any
lien, action or notice affecting any of the Properties or Borrower
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resulting from any violation or alleged violation of or liability or
alleged liability under any Environmental Laws, (d) the institution of any
investigation, inquiry or proceeding concerning Borrower or any of the
Properties pursuant to any Environmental Laws or otherwise relating to Hazardous
Substances affecting Borrower or any of the Properties, or (e) the discovery of
any occurrence, condition or state of facts which would render any
representation or warranty contained in this Article VI incorrect in any
material respect if made at the time of such discovery. Immediately upon receipt
of same, Borrower, shall deliver to Lender copies of any and all requests for
information, complaints, citations, summonses, orders, notices, reports or other
communications, documents or instruments in any way relating to any actual,
alleged or potential violation or liability of any nature whatsoever arising
under Environmental Laws and relating to any of the Properties or to Borrower.
Borrower shall remedy or cause to be remedied in a timely manner (and in any
event within the time period required by applicable Environmental Laws) any
violation of Environmental Laws. Without limiting the foregoing, Borrower shall,
promptly and regardless of the source of the contamination or threat to the
environment or human health, at its own expense, take all actions as shall be
necessary or prudent, for the clean-up of any and all portions of the affected
Property or other affected property, including, without limitation, all
investigative, monitoring, removal, containment and remedial actions in
accordance with all applicable Environmental Laws (and in all events in a manner
satisfactory to Lender) and shall further pay or cause to be paid, at no expense
to Lender, all clean-up, administrative and enforcement costs of applicable
governmental agencies which may be asserted against the affected Property. In
the event Borrower fails to do so, Lender may, but shall not be obligated to,
cause the affected Property or other affected property to be freed from
Hazardous Substances in conformance with Environmental Laws and any and all
costs and expenses incurred by Lender in connection therewith, together with
interest thereon at the Default Interest Rate from the date incurred by Lender
until actually paid by Borrower, shall be immediately paid by Borrower on demand
and shall be secured by the Mortgages and by all of the other Loan Documents
securing all or any part of the Loan; and Borrower hereby grants to Lender and
its agents and employees access to the Properties and a license to remove any
items deemed by Lender to be Hazardous Substances and to do all things Lender
shall deem necessary to bring the Properties into conformance with Environmental
Laws.
6.6 Indemnification. Borrower covenants and agrees, at Borrower's sole
cost and expense, to indemnify, defend (at trial and appellate levels, and with
attorneys, consultants and experts acceptable to Lender), and hold Lender
harmless from and against any and all liens, damages (including, without
limitation, punitive or exemplary damages), losses, liabilities (including,
without limitation, strict liability), obligations, settlement payments,
penalties, fines, assessments, citations, directives, claims, litigation,
demands, defenses, judgments, suits, proceedings, costs, disbursements or
expenses of any kind or of any nature whatsoever (including, without limitation,
reasonable attorneys', consultants' and experts' fees and disbursements actually
incurred in investigating, defending, settling or prosecuting any claim,
litigation or proceeding) which may at any time be imposed upon, incurred by or
asserted against Lender or any of the Properties, and arising directly or
indirectly from or out of: (a) any violation or alleged violation of, or
liability or alleged liability under, any Environmental Law with respect to
Borrower or any of the Properties; (b) the presence, release or threat of
release of or exposure to any Hazardous Substances on, in, under or affecting
any Property or any portion of such Property and/or any surrounding areas,
regardless of whether or not caused by or within the control of Borrower; (c)
any transport, treatment, recycling, storage, disposal or arrangement
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therefor of Hazardous Substances whether on the Property, originating from
the Property, or otherwise associated with Borrower or any operations conducted
on the Property at any time; (iv) the failure by Borrower to comply fully with
the terms and conditions of this Article VI; (v) the breach of any
representation or warranty contained in this Article VI; (vi) the enforcement of
this Article VI, including, without limitation, the cost of assessment,
investigation, containment, removal and/or remediation of any and all Hazardous
Substances from any Property or any portion of such Property or any surrounding
areas, the cost of any actions taken in response to the presence, release or
threat of release of any Hazardous Substances on, in, under or affecting any
portion of a Property or any surrounding areas to prevent or minimize such
release or threat of release so that it does not migrate or otherwise cause or
threaten danger to present or future public health, safety, welfare or the
environment, and costs incurred to comply with Environmental Laws in connection
with any Property or any portion of such Property or any surrounding areas. The
indemnity set forth in this Section 6.6 shall also include any diminution in the
value of the security afforded by the Properties or any future reduction in the
sales price of the Properties by reason of any matter set forth in this Article
VI. The foregoing indemnity shall specifically not include any such costs
relating to Hazardous Substances which are initially placed on, in or under any
of the Properties after foreclosure or other taking of title to such Properties
by Lender or its successor or assigns. Lender's rights under this Section 6.6
shall survive payment in full of the Loan, taking of title to the Properties by
Lender or its successors or assigns and foreclosure of the Mortgages, and shall
be in addition to all other rights of Lender under the Mortgages, the Note and
the other Loan Documents.
6.7 Hazardous Substances Audit. Upon Lender's request, at any time
after the occurrence of an Event of Default or at such other time as Lender has
reasonable grounds to believe that Hazardous Substances are or have been
released, stored or disposed of on any Property in violation of Environmental
Laws, or on property contiguous with such Property, or that such Property may be
in violation of the Environmental Laws, Borrower shall perform or cause to be
performed, at Borrower's sole cost and expense and in scope, form and substance
satisfactory to Lender, an inspection or audit of such Property prepared by a
hydrogeologist or environmental engineer or other appropriate consultant
approved by Lender indicating the presence or absence of Hazardous Substances on
such Property, the compliance or non-compliance status of such Property and the
operations conducted thereon with applicable Environmental Laws, or an
inspection or audit of such Property prepared by an engineering or consulting
firm approved by Lender indicating the presence or absence of friable asbestos
or substances containing asbestos on such Property. If Borrower fails to provide
reports of such inspection or audit within forty-five (45) days after such
request, Lender may order the same, and Borrower hereby grants to Lender and its
employees and agents access to such Property and an irrevocable license to
undertake such inspection or audit. The cost of such inspection or audit,
together with interest thereon at the Default Interest Rate from the date
incurred by Lender until actually paid by Borrower, shall be immediately paid by
Borrower on demand and shall be secured by the Mortgages and by all of the other
Loan Documents securing all or any part of the Loan.
6.8 Maintenance Program. Borrower covenants and agrees to maintain and
adhere to all operations and maintenance programs presently in place at any of
the Properties (the "Maintenance Program") with respect to asbestos containing
materials ("ACM's"), consistent with "Guidelines for Controlling
Asbestos-Containing Materials in Buildings" (USEPA, 1985)
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and other relevant guidelines, and any such Maintenance Program will
continuously remain in effect until the Loan secured hereby is repaid in full.
In furtherance of the foregoing, Borrower shall inspect and maintain all ACM's
on a regular basis and ensure that all ACM's shall be maintained in a condition
that prevents exposure of residents to ACM's at all times. Without limiting the
generality of the preceding sentence, Lender may require (a) periodic notices or
reports to Lender in form, substance and at such intervals as Lender may
specify, (b) an amendment to such Maintenance Program to address changing
circumstances, laws or other matters, (c) at Borrower's sole expense,
supplemental examination of any Property by consultants specified by Lender, and
(d) variation of the Maintenance Program in response to the reports provided by
any such consultants.
6.9 Existing Remediation and Monitoring Programs. Without limiting any
of Borrower's other representations, warranties or covenants in this Article VI,
Borrower covenants that it shall continue to timely comply with the terms and
provisions of the existing remediation and monitoring programs with respect to
the Properties located at the Emeryville, California Property (identified as
Properties #69, #70 and #71 on Exhibit A attached hereto) (ground water
contamination); 4790 West Pico Boulevard, Los Angeles, California (identified as
Property #74 on Exhibit A attached hereto) (methane gas); 1310 University
Avenue, Berkeley, California (identified as Property #68 on Exhibit A attached
hereto) (asbestos O&M plan); 1200 Edinger Avenue, Tustin, California (identified
as Property #44 on Exhibit A attached hereto) (asbestos O&M plan); 224 South
Michigan Avenue, Chicago, Illinois (identified as Property #67 on Exhibit A
attached hereto) (asbestos O&M plan); and 9401 Corbin Avenue, Lot #43,
Northridge, California (identified as Property #101 on Exhibit A attached
hereto) (environmental remediation). Notwithstanding the terms and provisions
contained in any remediation and monitoring program with respect to such
Properties, as between Borrower and Lender, Borrower shall remain responsible
for complying with all Environmental Laws and indemnifying Lender for any
losses, claims and expenses as set forth in this Article VI. In connection with
the Property located at 9401 Corbin Avenue, Lot # 43, Northridge, California,
Borrower shall also establish the Environmental Reserve as set forth in Section
9.5 below.
ARTICLE VII
ADDITIONAL REPRESENTATIONS AND WARRANTIES
AND COVENANTS OF BORROWER
7.1 Expenses. Borrower shall pay on the Closing Date or within ten (10)
Business Days after Lender's demand therefor, as appropriate: (a) all of
Lender's fees, costs and expenses in connection with the Loan, including,
without limitation, Lender's legal fees, expenses and disbursements, the costs
of appraisals, environmental studies, engineering reports, title insurance,
surveys, mortgage recording taxes and fees, filing and other recording fees and
charges, inspection fees, credit report fees, environmental report charges,
taxes, tax and insurance fees and escrow fees and all other usual and customary
loan closing expenses (collectively, "Expenses"); (b) all Expenses incurred in
connection with the enforcement or satisfaction by Lender of any of Borrower's
obligations under this Agreement or the other Loan Documents; and (c) all
Expenses incurred in the successful prosecution or defense of any action in any
way related to any of the Loan Documents, including, without limitation, any
action for declaratory relief; together with interest thereon until paid, at the
Default Rate. Lender shall provide to Borrower copies of
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invoices, statements or other records documenting such amounts to the extent
available to Lender.
7.2 Compliance with Loan Documents. Borrower will duly observe and
perform in all material respects the Secured Obligations.
7.3 Representations, Warranties and Covenants with Respect to
Indebtedness, Operations and Fundamental Changes of Borrower; Maintenance of
Separate Existence. Borrower represents, warrants and covenants as of the date
hereof and until such time as the Loan is paid in full, that Borrower:
(a) will not, nor will any partner, limited or general, member
or shareholder thereof, as applicable, amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation,
by-laws, operating agreement, articles of organization, or other formation
agreement or document, as applicable, in any material term or manner, or in a
manner which adversely affects Borrower's existence as a single purpose entity;
(b) will not liquidate or dissolve (or suffer any liquidation
or dissolution), or enter into any transaction of merger or consolidation or
acquire by purchase or otherwise all or substantially all the business or assets
of, or any stock or other evidence of beneficial ownership of any entity;
(c) has not and will not guarantee, pledge its assets for the
benefit of, or otherwise become liable on or in connection, with any obligation
of any other person or entity;
(d) does not own and will not own any asset other than (i) the
Properties, (ii) Collateral and (iii) other incidental personal property
necessary for the operation of the Properties;
(e) is not engaged and will not engage, either directly or
indirectly, in any business other than the ownership, leasing, management and
operation of the Properties;
(f) will not enter into any contract or agreement with any
general partner, principal, affiliate or member of Borrower, as applicable, or
any affiliate of any general partner, principal or member of Borrower, except
upon terms and conditions that are intrinsically fair and substantially similar
to those that would be available on an arms-length basis with third parties
other than an affiliate;
(g) has not incurred and will not incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any obligation), other
than (i) the Loan, and (ii) advances or trade payables or accrued expenses
incurred in the ordinary course of business of operating the Properties; and has
not incurred and will not incur any debt secured (senior, subordinate or pari
passu) by the Properties;
(h) has not made and will not make any loans or advances to
any third party (including, but not limited to, any affiliate) except to tenants
of the Properties for tenant improvements, repairs or furniture, fixtures and
equipment (which loans shall constitute Collateral);
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(i) is solvent and is able to pay its debts from its assets as
the same become due and that the Loan and the transactions contemplated by this
Agreement will not cause Borrower to be insolvent;
(j) has done or caused to be done and will do all things
necessary to preserve its existence;
(k) will conduct and operate its business in its own name and
as presently conducted and operated;
(l) will maintain financial statements, books and records and
bank accounts separate from those of its affiliates, including, without
limitation, its general partners or members, as applicable ;
(m) will be, and at all times will hold itself out to the
public as, a legal entity separate and distinct from any other entity
(including, without limitation, any affiliate, general partner or member, as
applicable, or any affiliate of any general partner or member of the Borrower,
as applicable);
(n) will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations;
(o) will not seek the dissolution or winding up, in whole or
in part, of the Borrower;
(p) shall maintain its principal executive office and
telephone and facsimile numbers separate from that of any affiliate and shall
conspicuously identify such office and numbers as its own and shall use its own
stationery, invoices and checks which reflect its address, telephone number and
facsimile number, as appropriate (which, however, may be within the premises of
and leased from an affiliate so long as overhead for such shared office space is
allocated fairly and reasonably);
(q) will not commingle the funds and other assets of Borrower
with those of any general partner, member, affiliate, principal or any other
person;
(r) has and will maintain its assets in such a manner that it
is not unreasonably costly or difficult to segregate, ascertain or identify its
individual assets from those of any affiliate or any other person;
(s) does not and will not hold itself out to be responsible
for the debts or obligations of any other person;
(t) will not do any act which would make it impossible to
carry on the ordinary business of Borrower;
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(u) will not possess or assign any of the Properties or
incidental personal property necessary for the operation of the Properties for
other than a business or company purpose;
(v) will not sell, encumber or otherwise dispose of all or
substantially all of the Properties or incidental personal property necessary
for the operation of the Properties;
(w) will not hold title to Borrower's assets other than in
Borrower's name;
(x) will be managed by a board of directors, which board will
govern the operations of the Borrower; at least two (2) of the directors shall
serve as an "Independent Director," whose consent shall be required for, among
other things and as expressly provided in Borrower's formation documents, any
merger, consolidation, dissolution or bankruptcy of Borrower, and for any sale
or transfer of all or substantially all of the assets of Borrower. "Independent
Director" shall mean a person who is not, and has not within the past 5 years
been (i) an officer, director, employee or 10% stockholder of, or any affiliate
of, Borrower or Guarantor (other than a person who would otherwise be
disqualified under this clause (i) solely as a result of serving as an
independent director of another entity that is an affiliate of Borrower or
Guarantor), (ii) a member of the immediate family of any such person or of any
affiliate of Borrower or Guarantor or (iii) a professional retained by Borrower
or Guarantor (other than such person's retention as an Independent Director of
Borrower); and
(y) will not institute proceedings to be adjudicated bankrupt
or insolvent; or consent to the institution of bankruptcy or insolvency
proceedings against it; or file a petition seeking, or consent to,
reorganization or relief under any applicable federal or state law relating to
bankruptcy; or consent to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Borrower or a
substantial part of Borrower's property; or make any assignment for the benefit
of creditors; or admit in writing its inability generally, to pay its debts as
they become due; or take any action in furtherance of any such action.
7.4 Payment of Taxes. Borrower will pay, or cause to be paid pursuant
to the provisions of Section 9.2 below, all taxes, assessments, or other
governmental charges levied upon any of the Properties or its other assets, or
in respect of its income before the same become delinquent, except that it will
have the right to contest the assessment and payment of such taxes, assessments
and other charges in the manner provided in the Mortgages.
7.5 Litigation. Borrower will give Lender prompt written notice of (a)
any litigation or claims of any kind which, to its knowledge, might subject
Borrower to any liability which may materially and adversely affect Borrower's
ability to repay the Loan, whether covered by insurance or not, and in any event
any litigation in which the plaintiffs' claims exceed $500,000 and (b) all
complaints and charges filed by any governmental agency materially adversely
affecting any of the Properties or the Collateral, or exercising supervision or
control of Borrower, or its business or assets.
7.6 Indemnification of Lender. Borrower hereby agrees to defend,
protect, indemnify and hold Lender, its directors, officers, employees, agents,
successors and assigns (including,
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without limitation, any participants in the Loan), harmless from and
against any and all losses, liabilities, fines, claims, actions, judgments,
costs, expenses or damages, to the extent such losses, liabilities, fines,
claims, actions, judgments, costs, expenses or damages do not arise out of
Lender's willful misconduct or gross negligence (as finally determined by a
court of competent jurisdiction) asserted against Lender by any person, entity
or Governmental Authority arising out of or in connection with Borrower's
ownership or use of any of the Properties, including, but not limited to, any
liens (i.e., judgments, mechanics' and materialmen's liens, or otherwise),
charges and encumbrances filed against any Property, and from any claims and
demands for damages or injury, including claims for property damage, personal
injury or wrongful death, arising out of or in connection with any accident or
fire or other casualty on the Properties or any nuisance made or suffered
thereon, including, without limitation, in any case, reasonable attorneys' fees,
costs and expenses as aforesaid, whether at pretrial, trial or appellate level,
and such indemnity shall survive payment in full of the Loan. Lender will be
entitled to appear in any action or proceeding to defend itself against such
claims, and all costs incurred by Lender in connection therewith, including
reasonable attorney's fees, shall be paid by Borrower to Lender upon request.
Lender shall, at its option, and subject to Borrower's reasonable prior written
approval, be entitled to settle or compromise any asserted claim against it, and
such settlement shall be binding upon Borrower for purposes of this
indemnification. Payment thereof by Lender or the payment by Lender of any such
judgment or claim successfully perfected against Lender shall bear interest at
the Default Interest Rate and shall be payable within ten (10) Business Days
after Lender's demand therefor. Lender shall provide copies of invoices,
statements or other records documenting such amounts to the extent available to
Lender.
7.7 Change in Position. Borrower agrees immediately to inform Lender of
any material adverse change in the financial condition of Borrower and/or any
transfer of ownership of any material assets of Borrower or any change in the
location of Borrower's principal executive office.
7.8 Secondary Financing. Secondary financing of any type encumbering
any Property or the Collateral, or any portion thereof, is prohibited without
the prior written consent of Lender, which consent shall be in Lender's absolute
discretion.
7.9 Further Assurances. Borrower shall, on the request of Lender and at
the expense of Borrower: (a) promptly correct any defect, error or omission
which may be discovered in the contents of this Agreement or in the contents of
any of the other Loan Documents; (b) promptly execute, acknowledge, deliver and
record or file such further instruments (including, without limitation, further
mortgages, deeds of trust, security deeds, security agreements, financing
statements, continuation statements and assignments of rents or leases) and
promptly do such further acts as may be necessary to carry out the purposes of
this Agreement and the other Loan Documents and to subject to the liens and
security interests hereof and thereof any property intended by the terms hereof
and thereof to be covered hereby and thereby, including specifically, but
without limitation, any renewals, additions, substitutions, replacements or
appurtenances to the Properties; (c) promptly execute, acknowledge, deliver,
procure and record or file any document or instrument (including specifically,
without limitation, any financing statement) deemed advisable by Lender to
protect, continue or perfect the liens or the security interests hereunder
against the rights or interests of third persons; and (d) promptly furnish to
Lender, upon Lender's request, a duly acknowledged written statement and
estoppel certificate
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addressed to such party or parties as directed by Lender and in form and
substance supplied by Lender, setting forth all amounts due under the Note,
stating whether any Default or Event of Default has occurred hereunder, stating
whether any offsets or defenses exist against the Loan and containing such other
matters as Lender may reasonably require.
7.10 Assignment. Without the prior written consent of Lender, Borrower
shall not assign Borrower's interest under any of the Loan Documents, or in any
monies due or to become due thereunder, and any assignment without such consent
shall be void.
7.11 Management Agreements. Borrower shall not modify, amend or
terminate any Management Agreement without the prior written consent of Lender.
In the event a Manager elects to terminate its services under the Management
Agreement as may be permitted in such Management Agreement, within thirty (30)
days following such termination Borrower shall enter into a new Management
Agreement in form and substance reasonably acceptable to Lender and the Rating
Agencies and with a manager acceptable to Lender and the Rating Agencies.
ARTICLE VIII
REPORTING COVENANTS
8.1 Financial Statements and Books and Records. Borrower shall keep
accurate books and records of account of each Property and its own financial
affairs sufficient to permit the preparation of financial statements therefrom
in accordance with generally accepted accounting principles, consistently
applied. Borrower is and shall continue to provide Lender with reporting
information which complies with the Commercial Real Estate Secondary Market and
Securitization Association Standards and in electronic format and such other
format as Lender may require. Lender and its duly authorized representatives
shall have the right to examine, copy and audit Borrower's records and books of
account at all reasonable times. The cost of such examination and audit shall be
at the expense of Lender, (x) unless there exists an Event of Default or (y) at
such other time as Lender has reasonable grounds to believe that Borrower's
financial statements are inaccurate or incomplete and such audit discloses a
material inaccuracy. Borrower agrees that it shall furnish to Lender its audited
balance sheet, dated as of October 1, 1998, on or before October 28, 1998, which
balance sheet Borrower presently anticipates will be, and when completed, must
be, consistent with the Properties' financial information previously delivered
to Lender in connection with the closing of the Loan. Prior to a Securitization
of the Loan, Borrower shall furnish to Lender and the Rating Agencies, upon
request from time to time, monthly operating statements and a current Rent Roll
(containing all of the information set forth in Section 5.1(ee)(i), above) for
each Property and, to the extent the tenant or tenants of such Property are
required to report sales, monthly sales reports for each retail Property.
Throughout the Loan term, Borrower shall also furnish to Lender and the Rating
Agencies (a) unaudited quarterly financial statements and operating statements
for the Properties together with unaudited annual financial and operating
statements for the twelve (12) months ending with such quarter, collectively,
(b) quarterly current Rent Rolls (containing all of the information set forth in
Section 5.1(ee)(i), above) for each Property, (c) to the extent the tenant or
tenants of such Property are required to report sales, current quarterly sales
reports for each retail Property, and (d) audited annual financial and operating
statements for all of the Properties, collectively, prepared by a `Big Six'
accounting firm or other independent certified public
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accountant acceptable to Lender. Such annual financial statements shall
include, without limitation, (i) a balance sheet, (ii) a statement of income and
expenses reflecting the actual and complete results of the operation of each
Property for the prior fiscal year, and (iii) a statement of cash flow, each in
reasonable detail. Such financial statements shall be prepared in accordance
with generally accepted accounting principles, consistently applied. The
quarterly statements must be delivered to Lender within forty-five (45) days
following the respective quarter and the annual statements must be delivered to
Lender within ninety (90) days of the year end. In addition, upon Lender's or
the Rating Agencies' request from time to time, Borrower shall furnish or cause
to be furnished current annual financial statements on the Guarantor in a form
reasonably satisfactory to Lender, and on any person or entity having a direct
ownership interest in the Borrower, together with such other information
concerning the financial condition or operation of the Borrower and/or the
Property and/or Guarantor as may be reasonably requested by Lender. If any of
the aforementioned materials are not furnished to Lender within the applicable
time periods or Lender is dissatisfied with the contents of any of the foregoing
and has notified Borrower of its dissatisfaction, in addition to any other
rights and remedies of Lender contained herein, Lender shall have the right, but
not the obligation, to obtain the same by means of an audit by an independent
certified public accountant selected by Lender, in which event Borrower agrees
to pay, or to reimburse Lender for, any expense of such audit if such audit
discloses a material inaccuracy from the materials furnished by Borrower and
further agrees to provide all necessary information to said accountant and to
otherwise cooperate in the making of such audit.
8.2 Representations and Warranties. Borrower agrees that all financial
statements to be delivered to Lender pursuant to this Article VIII shall: (a) be
complete and correct in all material respects; (b) present fairly the financial
condition of the party, including all material liabilities; and (c) be prepared
in accordance with generally accepted accounting principles, consistently
applied. Borrower shall be deemed to warrant and represent that, as of the date
of delivery of any such financial statement, no Properties have been sold,
transferred, assigned, mortgaged, pledged or encumbered since the date of such
financial statement, except as disclosed by Borrower in a writing delivered to
Lender. Borrower agrees that all Rent Rolls and other information to be
delivered to Lender pursuant to this Article VIII shall not contain any material
misrepresentation or omission of a material fact.
ARTICLE IX
CASH MANAGEMENT AGREEMENT; RESERVE AND IMPOUND ACCOUNTS
9.1 Cash Management Agreement. Borrower and Lender shall enter into a
Cash Management Agreement (the "Cash Management Agreement") which will govern
the collection and distribution of revenues as generated from the Properties
throughout the term of the Loan. Pursuant to the Cash Management Agreement,
Borrower will establish separate accounts (the "Cash Management Accounts") with
a bank (the "Clearing Bank") designated by Borrower and acceptable to Lender
through which all rents and other receipts from the Properties (collectively the
"Revenues") will be cleared. All cash held in accounts under the Cash Management
Agreement which are under the dominion and control of the Lender or any other
accounts held by or on Lender's behalf and established pursuant to the Loan
Documents, shall be held in Permitted Investments. Until the earliest to occur
of (1) the date ("CS Event 1") three (3) months
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prior to the Anticipated Repayment Date, (2) the date upon which the Lender
determines that the ratio of (a) Net Cash Flow for the immediate preceding
12-month period from ongoing and continuous operations of the Properties to (b)
the annual debt service on the Loan, has fallen below 1.15:1.00, as determined
by Lender (the "Minimum Coverage Ratio") (and Borrower fails to post Additional
Collateral as provided in the Cash Management Agreement) ("CS Event 2") or (3)
an Event of Default under the Loan Documents ("CS Event 3") (each, a "Sweep
Event"), the Clearing Bank will transfer all receipts daily from Lender's
controlled account into Borrower's account pursuant to the provisions of the
Cash Management Agreement. The period following a Cash Sweep Event shall be
referred to as the "Cash Management Period".
9.2 Tax and Insurance Impound Account. Borrower shall establish and
maintain at all times throughout the term of the Loan an impound account (the
"Impound Account") with Lender for payment of real estate taxes and assessments
and insurance on all the Properties and as additional security for the Loan.
Borrower shall, on the Closing Date, make an initial deposit in the Impound
Account reasonably determined by Lender to be necessary to ensure that there
will be on deposit with Lender an amount which, when added to the monthly
payments subsequently required to be deposited with Lender hereunder on account
of real estate taxes, assessments and insurance premiums, will result in there
being on deposit with Lender in the Impound Account an amount sufficient to pay
the next due installment of real estate taxes and assessments on the Properties
at least one (1) month prior to the earlier of (a) the delinquent date thereof
or (b) any such date by which the Borrower is required by law to pay same, and
the next due annual insurance premiums with respect to the Properties at least
one (1) month prior to the due date thereof. Commencing on the first monthly
payment date under the Note and continuing thereafter on each monthly payment
date under the Note, Borrower shall pay to Lender, concurrently with and in
addition to the monthly payment due under the Note and until the Loan is fully
paid and performed, deposits in an amount equal to one-twelfth (1/12) of the
amount of the annual real estate taxes and assessments that will next become due
and payable on the Properties, plus one-twelfth (1/12) of the amount of the
annual premiums that will next become due and payable on insurance policies
which Borrower is required to maintain hereunder, each as estimated and
determined by Lender. So long as no Event of Default has occurred, all sums in
the Impound Account shall be held by Beneficiary in the Impound Account to pay
said taxes and assessments before the same become delinquent. Borrower shall be
responsible for ensuring the receipt by Lender, at least thirty (30) days prior
to the respective due date for payment thereof, of all bills, invoices and
statements for all taxes and assessments to be paid from the Impound Account,
and so long as no Event of Default has occurred, Lender shall pay the
governmental authority or other party entitled thereto directly to the extent
funds are available for such purpose in the Impound Account. Borrower agrees
that it shall pay all said insurance premiums before the same become delinquent
directly to the party entitled thereto. So long as no Event of Default has
occurred, sums held in the Impound Account by Lender shall be disbursed by
Lender to Borrower within ten (10) Business Days after Borrower's request to
reimburse Borrower for the payment of said insurance premiums to the extent
funds are available for such purpose in the Impound Account. Borrower shall with
each reimbursement request (which shall not be more frequent than once in any
thirty (30) day period) submit copies of receipts, statements or invoices
evidencing payment of such insurance premiums acceptable to Lender. In the event
Borrower fails to pay said insurance premiums before the same become delinquent,
Lender shall have the right to make such payment to the party entitled thereto
on Borrower's behalf with the sums held by Lender in the Impound Account. In
making any payment from the Impound Account, Lender
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shall be entitled to rely on any bill, statement or estimate procured from
the appropriate public office or insurance company or agent without any inquiry
into the accuracy of such bill, statement or estimate and without any inquiry
into the accuracy, validity, enforceability or contestability of any tax,
assessment, valuation, sale, forfeiture, tax lien or title or claim thereof. The
Impound Account shall not, unless otherwise explicitly required by applicable
law, be or be deemed to be escrow or trust funds, but, at Lender's option and in
Lender's discretion, may either be held in a separate account or be commingled
by Lender with the general funds of Lender.
9.3 Repair and Remediation Reserve.
------------------------------
Prior to the execution of this Loan Agreement, Lender has
caused each Property in the Property Pool to be inspected and such inspection
has revealed that certain Properties (each, a "Deferred Maintenance Property"
and collectively, the "Deferred Maintenance Properties") are in need of certain
maintenance, repairs and/or remedial or corrective work. Contemporaneously with
the execution hereof, Borrower has established with the Lender a reserve in the
amount of Seven Hundred Twenty-five Thousand Six Hundred and 00/100 Dollars
($725,600.00) (the "Repair and Remediation Reserve") by depositing such amount
with Lender. Borrower shall cause each of the items described in Schedule 4
attached hereto and made a part hereof (the "Deferred Maintenance") to be
completed, performed, remediated and corrected to the satisfaction of Lender and
as necessary to bring the Deferred Maintenance Properties into compliance with
all applicable laws, ordinances, rules and regulations on or before the
expiration of one hundred-eighty (180) days after the Closing Date, as such time
period may be extended by Lender in its reasonable discretion. Lender shall have
the right to inspect the work from time to time to insure that the work is being
completed in a good and workmanlike manner.
So long as no Default or Event of Default has occurred and is
continuing, all sums in the Repair and Remediation Reserve shall be held by
Lender in the Repair and Remediation Reserve to pay the costs and expenses of
completing the Deferred Maintenance. So long as no Default or Event of Default
has occurred and is continuing, Lender shall, to the extent funds are available
for such purpose in the Repair and Remediation Reserve, disburse to Borrower the
amount paid or incurred by Borrower in completing, performing, remediating or
correcting the Deferred Maintenance upon (a) the receipt by Lender of a written
request from Borrower for disbursement from the Repair and Remediation Reserve
and a certification by Borrower in the form annexed hereto as Exhibit D that the
Deferred Maintenance has been fully completed and that all Deferred Maintenance
work with respect to any Property for which funds are requested has been
completed in accordance with the terms of this Loan Agreement, (b) delivery to
Lender of invoices, receipts or other evidence satisfactory to Lender verifying
the costs of the Deferred Maintenance to be reimbursed, (c) if applicable,
delivery to Lender of any and all certifications from inspecting architects,
engineers or other consultants reasonably acceptable to Lender describing the
completed work, verifying the completion of the work and the value of the
completed work and, if applicable, certifying that the Deferred Maintenance
Properties are, as a result of such work, in compliance with all applicable
laws, ordinances rules and regulations relating to the Deferred Maintenance
so performed, (d) delivery to Lender of affidavits, lien waivers or other
evidence reasonably satisfactory to Lender showing that all materialmen,
laborers, subcontractors and any other parties who might or could claim
statutory or common law liens and are furnishing or have furnished materials or
labor to the Deferred Maintenance Properties have been paid all amounts due for
such labor and materials furnished to the Deferred Maintenance
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Properties, and (e) the receipt by Lender of an administrative fee for each
disbursement request in an amount equal to all of Lender's out of pocket costs
and expenses plus Lender's then customary charge for performing such service,
but in no event less than $1,000.00. Lender shall not be required to make
advances from the Repair and Remediation Reserve more frequently than once in
any thirty (30) day period and for an amount less than $10,000. In making
payment from the Repair and Remediation Reserve Lender shall be entitled to rely
on the request from Borrower without any inquiry into the accuracy, validity or
contestability of any such amount. The Repair and Remediation Reserve shall not,
unless otherwise explicitly required by applicable law, be or be deemed to be
escrow or trust funds, but, at Lender's option and in Lender's discretion, may
either be held in a separate account or be commingled by Lender with the general
funds of Lender.
9.4 Replacement Reserve; Tenant Improvements and Leasing Commissions
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Reserve.
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(a) During the continuance of a Cash Management Period,
Borrower shall establish and maintain at all times during such period a
replacement reserve (the "Replacement Reserve") with Lender for payment of
certain costs and expenses, incurred by Borrower or which may otherwise be
necessary, in connection with the repair and maintenance of the Properties,
including, but not limited to, the roofs, gutters, downspouts, paving, curbs,
driveways, ramps, exterior walls, exterior doors and doorways, windows,
elevators and mechanical and HVAC equipment (collectively, the "Repairs").
During the continuance of a Cash Management Period, Borrower shall pay Lender,
concurrently with and in addition to the monthly payment due under the Note, a
deposit to the Replacement Reserve in the amount determined by the formula set
forth in Schedule 3 for such reserve. Lender shall, to the extent funds are
available for such purpose in the Replacement Reserve, disburse to Borrower the
amount paid or incurred by Borrower in performing such Repairs within ten (10)
Business Days following: (i) the receipt by Lender of a written request from
Borrower for disbursement from the Replacement Reserve and a certification by
Borrower in the form attached hereto as Exhibit D that the applicable item of
Repair has been completed; (ii) the delivery to Lender of invoices, receipts or
other evidence satisfactory to Lender, verifying the cost of performing the
Repairs; (iii) for disbursement requests in excess of $150,000 in the aggregate
within any thirty (30) day period as to any single Property, the delivery to
Lender of affidavits, lien waivers or other evidence reasonably satisfactory to
Lender showing that all materialmen, laborers, subcontractors and any other
parties who might or could claim statutory or common law liens and are
furnishing or have furnished material or labor to the applicable Property have
been paid all amounts due for labor and materials furnished to such Property;
(iv) for disbursement requests in excess of $300,000 in the aggregate within any
thirty (30) day period as to any single Property, delivery to Lender of a
certification from an inspecting architect or other third party acceptable to
Lender describing the completed Repairs and verifying the completion of the
Repairs and the value of the completed Repairs; (v) delivery to Lender of a new
certificate of occupancy for the portion of the Improvements covered by such
Repairs, if said new certificate of occupancy is required by law, or a
certification by Borrower that no new certificate of occupancy is required; and
(vi) the receipt by Borrower of an administration fee for each disbursement
request in an amount equal to all of Lender's out of pocket costs and expenses
plus Lender's then customary charge for performing such services but in no event
less than $1,000. Lender shall not be required to make advances from the
Replacement Reserve more frequently than once in any thirty (30) day period
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and for an amount less than $10,000. In making any payment from the
Replacement Reserve, Lender shall be entitled to rely on such request from
Borrower without any inquiry into the accuracy, validity or contestability of
any such amount. During any Cash Management Period, Lender may, at Lender's
expense, make or cause to be made an annual inspection at the Properties to
determine the need, as determined by Lender in its reasonable judgment, for
further Repairs of the Properties. In the event that such inspection reveals
that further Repairs of the Properties are required, Lender shall provide
Borrower with a written description of the required Repairs and Borrower shall
complete such Repairs to the reasonable satisfaction of Lender within ninety
(90) days after the receipt of such description from Lender, or such later
date as may be approved by Lender in its reasonable discretion. The
Replacement Reserve shall not, unless otherwise explicitly required by
applicable law, be or be deemed to be escrow or trust funds, but, at Lender's
option and in Lender's discretion, may either be held in a separate account or
be commingled by Lender with the general funds of Lender.
(b) During the continuance of a Cash Management Period,
Borrower shall establish and maintain at all times during such period a reserve
for tenant improvements and leasing commissions (the "TI/LC Reserve") with
Lender for payment of leasing commissions and tenant improvement costs and
expenses incurred by Borrower in connection with re-leasing the Properties
pursuant to Leases approved, or deemed approved, by Lender (collectively, the
"Leasing Costs"). During the continuance of a Cash Management Period, Borrower
shall pay Lender, concurrently with and in addition to the monthly payment due
under the Note, a deposit to the TI/LC Reserve in the amounts determined by the
formulas set forth in Schedule 3 for such reserves. Lender shall, to the extent
funds are available for such purpose in the TI/LC Reserve, disburse to Borrower
the amount paid or incurred by Borrower in performing such Leasing Costs within
ten (10) Business Days following: (i) the receipt by Lender of a written request
from Borrower for disbursement from the TI/LC Reserve and a certification by
Borrower in the form annexed as Exhibit D that (1) for Leasing Costs consisting
of commissions payable to brokers not affiliated with Borrower and at a rate not
greater than the then-current market rate, such leasing commission has been paid
by Borrower, and (2) for Leasing Costs consisting of amounts required to be
expended pursuant to the relevant Lease for tenant improvement or related costs,
said Leasing Costs have been incurred, (ii) the delivery to Lender of invoices,
receipts or other evidence satisfactory to Lender verifying the cost of such
Leasing Costs; (iii) for disbursement requests for Leasing Costs in excess of
$150,000 in the aggregate within any thirty (30) day period as to any single
Property, the delivery to Lender of affidavits, lien waivers or other evidence
reasonably satisfactory to Lender showing that all materialmen, laborers,
subcontractors and any other parties who might or could claim statutory or
common law liens and are furnishing or have furnished material or labor to the
property have been paid (or will be paid out of such disbursement) all amounts
due for labor and materials furnished to the applicable Property; (iv) for
disbursement requests for Leasing Costs in excess of $300,000 in the aggregate
within any thirty (30) day period as to any single Property (other than with
respect to leasing commissions), delivery to Lender of a certification from an
inspecting architect or other third party acceptable to Lender describing the
completed tenant improvement or other work, and verifying the completion and the
value thereof; (v) for disbursement requests for Leasing Costs in excess of
$300,000 in the aggregate within any thirty (30) day period as to any single
Property (other than with respect to leasing commissions), evidence satisfactory
to Lender that there exists sufficient funds in the TI/LC Reserve to complete
the tenant improvement or other work; (vi) delivery to Lender of a new
certificate of occupancy for the portion of the Improvements covered by such
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Lease for the applicable Property, if said new certificate of occupancy was
required by law, or a certification by Borrower that no new certificate of
occupancy was required; (vii) for disbursement requests for Leasing Costs in
excess of $300,000 in the aggregate within any thirty (30) day period as to any
single Property (other than with respect to leasing commissions), delivery to
Lender of an estoppel certificate from the tenants of the relevant premises in
form and substance reasonably acceptable to Lender; and (viii) the receipt by
Lender of an administrative fee for each disbursement request in an amount equal
to all of Lender's out of pocket costs and expenses plus Lender's then customary
charge for performing such services but in no event less than $1,000. Lender
shall not be required to make advances from the TI/LC Reserve more frequently
than once in any thirty (30) day period and for an amount less than $10,000. In
making any payment from the TI/LC Reserve, Lender shall be entitled to rely on
such request from Borrower without any inquiry into the accuracy, validity or
contestability of any such amount. The TI/LC Reserve shall not, unless otherwise
explicitly required by applicable law, be or be deemed to be escrow or trust
funds, but, at Lender's option and in Lender's discretion, may either be held in
a separate account or be commingled by Lender with the general funds of Lender.
9.5 Environmental Reserve.
(a) Contemporaneously with the execution hereof, Borrower has
established with Lender a reserve in the amount of $300,000 (the "Environmental
Reserve") by depositing such amount with Lender to fund potential remediation
work as more particularly described in that certain Environmental Site
Assessment dated July 24, 1998 and prepared by Dames and Moore for Lender (the
"Environmental Report"; such work, the "Environmental Work"), with respect to
the Property located at 9401 Corbin Avenue, Lot # 43, Northridge, California
(identified as Property # 101 on Exhibit A attached hereto) to be performed and
completed to the satisfaction of Lender and as recommended in the Environmental
Report.
(b) So long as no Default or Event of Default has occurred and
is continuing, all sums in the Environmental Reserve shall be held by Lender in
the Environmental Reserve to pay the costs and expenses of completing the
Environmental Work. So long as no Default or Event of Default has occurred and
is continuing, Lender shall, to the extent funds are available for such purpose
in the Environmental Reserve, disburse to Borrower the amount paid or incurred
by Borrower in performing and completing the Environmental Work upon (i) the
receipt by Lender of a written request from Borrower for disbursement from the
Environmental Reserve and a certification by Borrower in the form annexed as
Exhibit D that the Environmental Work has been fully completed in accordance
with the terms of this Agreement, (ii) delivery to Lender of invoices, receipts
or other evidence satisfactory to Lender verifying the costs of the
Environmental Work to be reimbursed, (iii) delivery to Lender of a certification
from an inspecting architect, engineer or other consultant reasonably acceptable
to Lender describing the completed work, verifying the completion of the work
and the value of the completed work and, if applicable, certifying that such
work has been performed in compliance with all applicable laws, ordinances rules
and regulations relating to the Environmental Work so performed, (iv) delivery
to Lender of affidavits, lien waivers or other evidence reasonably satisfactory
to Lender showing that all materialmen, laborers, subcontractors and any other
parties who might or could claim statutory or common law liens and are
furnishing or have furnished materials or labor to the Property have been paid
(or will be paid out of such disbursement) all amounts due
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for such labor and materials furnished to the Property, and (v) the receipt by
Lender of an administrative fee in an amount equal to all of Lender's out
of pocket costs and expenses plus Lender's then customary charge for performing
such services but in no event less than $1,000. Lender shall not be required to
make more than one (1) payment from the Environmental Reserve. In making the
payment from the Environmental Reserve, Lender shall be entitled to rely on such
request from Borrower without any inquiry into the accuracy, validity or
contestability of any such amount. The Environmental Reserve shall not, unless
otherwise explicitly required by applicable law, be or be deemed to be escrow or
trust funds, but, at Lender's option and in Lender's discretion, may either be
held in a separate account or be commingled by Lender with the general funds of
Lender.
9.6 Prepaid Rent Reserve
--------------------
(a) Contemporaneously with the execution hereof, Borrower has
established with Lender a reserve in the amount of $187,306 (the "Prepaid Rent
Reserve") by depositing with Lender an amount equal to two-thirds (2/3rds) of
the amount of rent paid quarterly in advance (i.e., paid prior to the period to
which such rent applies) for the Ground Leases listed on Schedule 5.1(ee)(iii)
(the "Quarterly Ground Leases"). Lender shall hold the Prepaid Rent Reserve
throughout the term of the Loan. Borrower shall provide to Lender a quarterly
certificate as to the amount of the rent paid under the Quarterly Ground Leases
more than thirty (30) days in advance, together with any other rents similarly
paid (i.e., paid prior to the period to which such rent applies) more than
thirty (30) days in advance under any other Leases (collectively, the "Prepaid
Rents"). The amount of the Prepaid Rent Reserve shall be adjusted quarterly by
Lender to reflect any increase or decrease in the amount of Prepaid Rents
collected by Borrower such that the amount of the Prepaid Rent Reserve shall
always equal the amount of Prepaid Rents. Borrower agrees that if at any time
the Prepaid Rent Reserve is less than the Prepaid Rents, Borrower shall deposit
with Lender such additional funds necessary to properly fund the Prepaid Rent
Reserve. So long as no Default or Event of Default has occurred and is
continuing, Lender shall disburse to Borrower any excess funds above and beyond
the amount required to be in the Prepaid Rent Reserve from time to time. Lender
shall not be required to make more than one (1) payment per ninety (90) day
period.
(b) The Prepaid Rent Reserve shall not, unless otherwise
explicitly required by applicable law, be or be deemed to be escrow or trust
funds, but, at Lender's option and in Lender's discretion, may either be held in
a separate account or be commingled by Lender with the general funds of Lender.
9.7 Interest Payable by Lender. Lender shall cause funds in the
Impound Account, the Repair and Remediation Reserve, the Replacement Reserve,
the TI/LC Reserve, and the Environmental Reserve, if any, to be deposited into
an interest bearing account (which shall be a Permitted Investment) of the
type customarily maintained by Lender or its servicing agent for the
investment of similar reserves, which account may not yield the highest
interest rate then available. All accounts must be and continue to be held
with a financial institution rated at least "A" by DCR and at least "Aa2" by
Moody's, or if not rated by DCR and Moody's, correspondingly by at least two
(2) Rating Agencies, or otherwise acceptable to DCR and Moody's. Interest
payable on such amounts shall be computed based on the daily outstanding
balance in such account. Such interest shall be calculated on a simple, non-
compounded interest
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basis based solely on contributions made to such account by Borrower. All
interest earned on amounts contributed to such account shall be retained by
Lender and added to the balance in the Impound Account, the Repair and
Remediation Reserve, the Replacement Reserve, and the TI/LC Reserve, as
applicable, and shall be disbursed for payment of the items for which other
funds in such reserves are to be disbursed.
9.8 Pledge of Security Interest in Impound and Reserve Accounts.
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(a) As additional security for the Secured Obligations,
Borrower hereby unconditionally and irrevocably assigns, conveys, pledges,
mortgages, transfers, delivers, deposits, sets over and confirms unto Lender,
and hereby grants to Lender a security interest in, (i) the Impound Account, the
Repair and Remediation Reserve, the Replacement Reserve, the TI/LC Reserve, the
Environmental Reserve, the Prepaid Rent Reserve, the Cash Management Accounts,
and any other reserve or escrow account established, pursuant to the terms
hereof or of any other Loan Documents (collectively, the "Reserves"), (ii) the
accounts into which the Reserves have been deposited, (iii) all insurance of
said accounts, (iv) all accounts, contract rights and general intangibles or
other rights and interests pertaining thereto, (v) all sums now or hereafter
therein or represented thereby, (vi) all replacements, substitutions or proceeds
thereof, (vii) all instruments and documents now or hereafter evidencing the
Reserves or such accounts, (viii) all powers, options, rights, privileges and
immunities pertaining to the Reserves (including the right to make withdrawals
therefrom), and (ix) all proceeds of the foregoing. Borrower hereby authorizes
and consents to the account into which the Reserves have been or will be
deposited being held in Lender's name or the name of any entity servicing the
Note for Lender and hereby acknowledges and agrees, that Lender, or at Lender's
election, such servicing agent, shall have exclusive control over said account.
Notice of the assignment and security interest granted to Lender herein may be
delivered by Lender at any time to the financial institution wherein the
Reserves have been established, and Lender, or such servicing entity, shall have
possession of all passbooks or other evidences of such accounts. Borrower hereby
assumes all risk of loss with respect to amounts on deposit in the Reserves
except to the extent such loss is caused by Lender's willful misconduct or gross
negligence. Borrower hereby knowingly, voluntarily and intentionally stipulates,
acknowledges and agrees that the advancement of the funds from the Reserves as
set forth herein is at Borrower's direction and is not the exercise by Lender of
any right of set-off or other remedy upon an Event of Default. Borrower hereby
waives all right to withdraw funds from the Reserves except as provided in the
Cash Management Agreement. If an Event of Default shall occur hereunder or under
any other of the Loan Documents, then Lender may, without notice or demand on
Borrower or Guarantor, at its option: (A) withdraw any or all of the funds
(including, without limitation, interest) then remaining in the Reserves and
apply the same, after deducting all costs and expenses of safekeeping,
collection and delivery (including, but not limited to, reasonable attorneys'
fees, costs and expenses) to the obligations of Borrower under the Loan
Documents in such manner or as Lender shall deem appropriate in its sole
discretion, and the excess, if any, shall be paid to Borrower, (B) exercise any
and all rights and remedies of a secured party under any applicable Uniform
Commercial Code, and/or (C) exercise any other remedies available at law or in
equity. No such use or application of the funds contained in the Reserves shall
be deemed to cure any Event of Default hereunder or under the other Loan
Documents.
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(b) The Reserves are solely for the protection of Lender and
entail no responsibility on Lender's part beyond the payment of the respective
items for which they are held following receipt of bills, invoices or statements
therefor in accordance with the terms hereof and beyond the allowing of due
credit for the sums actually received. Upon assignment of the Note by Lender,
any funds in the Reserves shall be turned over to the assignee and any
responsibility of Lender, as assignor, with respect thereto shall terminate. If
the funds in the applicable Reserve shall exceed the amount of payments actually
applied by Lender for the purposes and items for which the applicable Reserve is
held, such excess may be credited by Lender on subsequent payments to be made
hereunder or, at the option of Lender, refunded to Borrower. If, however, the
applicable Reserve shall not contain sufficient funds to pay the sums required
by the dates on which such sums are required to be on deposit in such account,
Borrower shall, within ten (10) days after receipt of written notice thereof,
deposit with Lender the full amount of any such deficiency. If Borrower shall
fail to deposit with Lender the full amount of such deficiency as provided
above, Lender shall have the option, but not the obligation, to make such
deposit, and all amounts so deposited by Lender, together with interest thereon
at the Default Interest Rate from the date so deposited by Lender until actually
paid by Borrower, shall be immediately paid by Borrower on demand and shall be
secured by the Mortgages and by all of the other Loan Documents securing all or
any part of the Loan. Upon full payment of the Loan in accordance with its terms
or at such earlier time as Lender may elect, the balance of any or all of the
Reserves then in Lender's possession shall be paid over to Borrower and no other
party shall have any right or claim thereto.
(c) By exercising any of its rights or remedies under this
Section 9.8 (including, without limitation, taking possession of the Reserves),
Lender shall not be deemed to have exercised any equitable right of setoff, or
foreclosed any statutory banker's lien. Accordingly, the exercise of any or all
of Lender's rights and remedies under this Section 9.8 shall not in any way
prejudice or affect Lender's right to initiate and complete a judicial or
non-judicial foreclosure under the Mortgages. This Agreement evidences the
consensual granting of a personal property security interest in the Reserves as
permitted by any applicable Uniform Commercial Code as adopted and enacted by
the State or States where any of the Reserves are held (the "Uniform Commercial
Code").
ARTICLE X
DEFAULTS AND REMEDIES
10.1 Events of Default. The occurrence of any of the following events
(each an "Event of Default") shall be an Event of Default hereunder and under
each Loan Document:
(a) Borrower fails to punctually perform any covenant,
agreement or obligation under any Loan Document which requires payment of any
money to Lender at the time or within any applicable period set forth in such
Loan Document, or if no time or period is set forth in such Loan Document, then
within ten (10) Business Days of the date such payment is due (except that no
grace period or notic
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(b) e period is provided for the payment of principal and
interest due on any Payment Date or on the Maturity Date), or following demand
if there is no due date.
(c) Borrower fails to perform any covenant, agreement,
obligation, term or condition set forth in Section 2.11 hereof, Section 7.3
hereof, or Article IV hereof.
(d) Borrower fails to perform any other Secured Obligation or
condition set forth in any Loan Document other than those otherwise described in
this Section 10.1 and, to the extent such failure or default is susceptible of
being cured, the continuance of such failure or default for thirty (30) days
after written notice thereof from Lender to Borrower; provided, however, that if
such default is susceptible of cure but such cure cannot be accomplished with
reasonable diligence within said period of time, and if Borrower commences to
cure such default promptly after receipt of notice thereof from Lender and
Lender's security is not otherwise materially impaired, and thereafter
prosecutes the curing of such default with reasonable diligence, such period of
time shall be extended for such period of time as may be necessary to cure such
default with reasonable diligence, but not to exceed an additional ninety (90)
days.
(e) Any representation or warranty made herein, in or in
connection with any application or in the Loan Commitment relating to the Loan
evidenced by the Note, or in any of the other Loan Documents to Lender by
Borrower, by any principal, general partner or managing member in Borrower or by
any indemnitor or guarantor (including Guarantor) under any indemnity or
guaranty executed in connection with the Loan is determined by Lender to have
been false or misleading in any material respect with respect to any one or more
Properties or otherwise with respect to the Loan at the time made.
(f) An Event of Default occurs under any of the other Loan
Documents.
(g) Borrower, any general partner or member in Borrower or any
indemnitor or guarantor (including Guarantor) under any indemnity or guaranty
executed in connection with the Loan becomes insolvent, or makes a transfer in
fraud of creditors, or makes an assignment for the benefit of creditors, or
files a petition in bankruptcy, or is voluntarily adjudicated insolvent or
bankrupt or admits in writing the inability to pay debts as they mature, or
petitions or applies to any tribunal for, or consents to or fails to contest the
appointment of, a receiver, trustee, custodian or similar officer for Borrower,
for any such general partner or member of Borrower or for any such indemnitor or
guarantor (including Guarantor) or for a substantial part of the assets of
Borrower, of any such general partner or member of Borrower or of any such
indemnitor or guarantor (including Guarantor), or commences any case, proceeding
or other action under any bankruptcy, reorganization, arrangement, readjustment
or debt, dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect with respect to Borrower, any general partner or
member in Borrower or any indemnitor or guarantor (including, but not limited
to, Guarantor).
(h) A petition is filed or any case, proceeding or other
action is commenced against Borrower, against any general partner or member of
Borrower or against any indemnitor or guarantor (including Guarantor) under any
indemnity or guaranty executed in connection with the Loan seeking to have an
order for relief entered against it as debtor or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts or other relief under any law relating to bankruptcy, insolvency,
arrangement, reorganization, receivership or
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other debtor relief under any law or statute of any jurisdiction whether
now or hereafter in effect, or a court of competent jurisdiction enters an order
for relief against Borrower, against any general partner or member of Borrower
or against any indemnitor or guarantor (including Guarantor) under any indemnity
or guaranty executed in connection with the Loan, as debtor, or an order,
judgment or decree is entered appointing, with or without the consent of
Borrower, of any such general partner or member of Borrower or of any such
indemnitor or guarantor (including Guarantor), a receiver, trustee, custodian or
similar officer for Borrower, for any such general partner or member of Borrower
or for any such indemnitor or guarantor (including Guarantor), or for any
substantial part of any of the properties of Borrower, of any such general
partner or member of Borrower or of any such indemnitor or guarantor (including
Guarantor), and if any such event shall occur, such petition, case, proceeding,
action, order, judgment or decree shall not be dismissed within sixty (60) days
after being commenced.
(i) Any Property or any material part thereof is taken on
execution or other process of law (other than in the nature of eminent domain)
in any action against Borrower.
(j) Borrower fails to deliver the audited balance sheet as
required in Section 8.1 above on or before October 28, 1998, which balance sheet
must be consistent with the Properties' financial information previously
delivered to Lender in connection with the closing of the Loan.
10.2 Acceleration Upon Event of Default; Remedies. Upon the occurrence
and during the continuance of any Event of Default, Lender may, at its sole
option, declare all sums owing to Lender under the Note, this Agreement and the
other Loan Documents immediately due and payable without any presentment,
demand, protest, notice, or action of any kind whatever (each of which is hereby
expressly waived by Borrower), whereupon the same shall become immediately due
and payable. Upon any such acceleration, payment of such accelerated amount
shall constitute a prepayment of the principal balance of the Note and any
applicable prepayment premium provided for in the Note shall then be immediately
due and payable.
10.3 Further Remedies. During the continuance of any Event of Default,
Lender shall have all rights, powers and remedies available under each of the
Loan Documents, or accorded by law, including, without limitation, the right to
resort to any or all security for any credit extended by Lender to Borrower
under any of the Loan Documents and to exercise any or all of the rights of a
Lender or secured party pursuant to the applicable law.
10.4 Repayment of Funds Advanced. Any amounts expended by Lender in
the exercise of its rights or remedies under this Agreement and the other Loan
Documents shall (except to the degree governed by a specific provision to the
contrary in this Agreement or the other Loan Documents) be due and payable
from Borrower to Lender ten (10) Business Days after Lender's demand therefor,
together with interest at the Applicable Interest Rate (as defined in the
Note) from the date incurred by Lender and at the Default Interest Rate (x)
commencing ten (10) Business Days after Lender's demand or (y) if applicable,
following the maturity or acceleration of the Loan, until paid. Lender shall
provide to Borrower copies of invoices, statements or other records
documenting such amounts to the extent available to Lender.
10.5 Rights Cumulative, No Waiver. All rights, powers and remedies of
Lender provided in this Agreement and in the other Loan Documents may be
exercised at any time by
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Lender and from time to time after the occurrence and during the
continuance of any such breach or default, are cumulative and not exclusive, may
be pursued singularly, successively, or together at the sole discretion of
Lender, and shall be in addition to any other rights, powers or remedies
provided by law or equity. The failure to exercise any such right or remedy
shall in no event be construed as a waiver or a release thereof. Lender's
exercise of any right or remedy shall not constitute a cure of any Event of
Default unless all amounts then due and payable to Lender under the Loan
Documents are repaid and Borrower has cured all other Events of Default. No
waiver shall be implied from any failure of Lender to take, or any delay by
Lender in taking, action concerning any Event of Default or failure of condition
under the Loan Documents, or from any previous waiver of any similar or
unrelated Event of Default or failure of condition. Any waiver or approval under
any of the Loan Documents must be in writing and shall be limited to its
specific terms.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 No Third Parties Benefited. No person other than Lender and
Borrower and their permitted successors and assigns shall have any right of
action under any of the Loan Documents.
11.2 Notices. All notices, demands and other communications under this
Agreement and the other Loan Documents shall be in writing and telecopied (with
a confirmation copy sent by overnight courier), mailed, messengered or sent by
overnight delivery service to the appropriate party at its telecopy number or
address set forth below (subject to change from time to time by written notice
to all other parties to this Agreement). All such notices and communications
shall be effective (a) upon receipt, when delivered by hand or overnight
delivery service, or if mailed, upon the first to occur of receipt or the
expiration of three (3) days after the deposit in the United States Postal
Service mail, postage prepaid and addressed to the address of Borrower or Lender
at the address specified; provided, however, that non-receipt of any
communication as the result of any change of address of which the sending party
was not notified or as the result of a refusal to accept delivery shall be
deemed receipt of such communication, and (b) upon transmission, when delivered
by telecopy to the specified telecopy number (if a confirmation copy is also
sent by overnight courier).
Lender: Prudential Mortgage Capital Company, Inc.
100 Mulberry Street
Gateway Center Four, 9th Floor
Newark, New Jersey 07102-4069
Attn: Shane Tucker, SVP
Telecopy No.: (973) 802-4838
With a copy to: Prudential Mortgage Capital Company, Inc.
21261 Burbank Boulevard
Woodland Hills, California 91367-6699
Attn: Steve Mekeown
Telecopy No.: (818) 992-3790
56
<PAGE>
Borrower: Catellus Finance 1, L.L.C.
201 Mission Street, Suite 340
San Francisco, CA 94105
Attn: Stephen R. Koch
Telecopy No.: (415) 974-4502
11.3 Payment of Costs; Reimbursement to Lender. Borrower shall pay all
costs and expenses of every character reasonably incurred in connection with the
closing or administration of the Loan or otherwise attributable or chargeable to
Borrower as the owner of the Properties, including, without limitation,
appraisal fees, recording fees, documentary, stamp, mortgage or intangible
taxes, brokerage fees and commissions, title policy premiums and title search
fees, uniform commercial code/tax lien/litigation search fees, escrow fees and
reasonable attorneys' fees. Lender shall provide to Borrower copies of invoices,
statements or other records documenting such amounts to the extent available to
Lender. If Borrower defaults in any such payment, which default is not cured
within any applicable grace or cure period, Lender may pay the same and Borrower
shall reimburse Lender on demand for all such costs and expenses incurred or
paid by Lender, together with such interest thereon at the Default Interest Rate
from and after the date of Lender's making such payment until reimbursement
thereof by Borrower. Any such sums disbursed by Lender, together with such
interest thereon, shall be additional indebtedness of Borrower secured by the
Mortgages and by all of the other Loan Documents securing all or any part of the
Loan by the Note. Without limiting or waiving any other rights and remedies of
Lender hereunder, if Borrower fails to perform any of its covenants or
agreements contained in this Agreement or in any of the other Loan Documents and
such failure is not cured within any applicable grace or cure period, or if any
action or proceeding of any kind (including, but not limited to, any bankruptcy,
insolvency, arrangement, reorganization or other debtor relief proceeding) is
commenced which might affect Lender's interest in the Properties or Lender's
right to enforce its security, then Lender may, at its option, with or without
notice to Borrower, make any appearances, disburse any sums and take any actions
as may be necessary or desirable to protect or enforce the security of the
Mortgages or to remedy the failure of Borrower to perform its covenants and
agreements (without, however, waiving any default of Borrower). Borrower agrees
to pay on demand all expenses of Lender incurred with respect to the foregoing
(including, but not limited to, reasonable fees and disbursements of counsel),
together with interest thereon at the Default Interest Rate from and after the
date on which Lender incurs such expenses until reimbursement thereof by
Borrower. Any such expenses so incurred by Lender, together with interest
thereon as provided above, shall be additional indebtedness of Borrower secured
by the Mortgages and by all of the other Loan Documents securing all or any part
of the Loan. The necessity for any such actions and of the amounts to be paid
shall be determined by Lender in its reasonable discretion. This Section shall
not be construed to require Lender to incur any expenses, make any appearances
or take any actions.
11.4 Relationship of Parties. The relationship of Borrower and Lender
under this Agreement, and the other Loan Documents is, and shall at all times
remain, solely that of borrower and lender; and Lender neither undertakes nor
assumes any responsibility or duty to Borrower or to any third party with
respect to any of the Properties. Notwithstanding any other provisions of this
Agreement or the other Loan Documents: (a) Lender is not, and shall not be
construed as, a partner, joint venturer, alter-ego, manager, controlling person
or other business associate or participant of any kind of Borrower, and Lender
does not intend to ever assume such status; (b) Lender does not intend to ever
assume any responsibility to any person for the quality,
57
<PAGE>
suitability, safety or condition of any of the Properties; and (c) Lender
shall not be deemed responsible for or a participant in any acts, omissions or
decisions of Borrower. Lender shall not be directly or indirectly liable or
responsible for any loss, claim, cause of action, liability, indebtedness,
damage or injury of any kind or character to any person or property arising from
any construction on, or occupancy or use of, the Properties, whether caused by
or arising from: (i) any defect in any building, structure, grading, fill,
landscaping or other improvements thereon or in any on-site or off-site
improvement or other facility therein or thereon; (ii) any act or omission of
Borrower or any of Borrower's agents, employees, independent contractors,
licensees or invitees; (iii) any accident in or on the Properties or any fire,
flood or other casualty or hazard thereon; (iv) the failure of Borrower, any of
Borrower's licensees, employees, invitees, agents, independent contractors or
other representatives to maintain any of the Properties in a safe condition; and
(v) any nuisance made or suffered on any part of any of the Properties.
11.5 Delay Outside Lender's Control. Lender shall not be liable in any
way to Borrower or any third party for Lender's failure to perform or delay in
performing under the Loan Documents (and Lender may suspend or terminate all or
any portion of Lender's obligations under the Loan Documents) if such failure to
perform or delay in performing results directly or indirectly from, or is based
upon, the action, inaction, or purported action, of any governmental or local
authority, or because of war, rebellion, insurrection, strike, lock-out, boycott
or blockade (whether presently in effect, announced or in the sole judgment of
Lender deemed probable), or from any act of God or other cause or event beyond
Lender's control.
11.6 Attorneys' Fees. In the event legal action, suit or any proceeding
is commenced between Borrower and Lender regarding their respective rights and
obligations under this Agreement or any of the other Loan Documents, the
prevailing party shall be entitled to recover, in addition to damages or other
relief, costs and expenses, attorneys' fees and court costs. As used herein the
term "prevailing party" shall mean the party which obtains the principal relief
it has sought, whether by compromise settlement or judgment. If the party which
shall have commenced or instituted the action, suit or proceeding shall dismiss
or discontinue it without the concurrence of the other party, such other party
shall be deemed the prevailing party.
11.7 Loan Sales and Securitization; Disclosure of Information. Borrower
acknowledges that Lender may include all or portions of the Loan in one or more
future securitizations (collectively, the "Securitization"). Borrower shall
cooperate in good faith with Lender in effecting any such Securitization and in
implementing all requirements imposed by any Rating Agency involved in any
Securitization including, without limitation, all changes to the Loan,
including, but not limited to, any modifications to any documents evidencing or
securing the Loan secured hereby; provided, however, no such modification shall
amend the Initial Interest Rate or Extended Term Interest Rate payable under the
Note, the Anticipated Repayment Date or the Maturity Date, the amortization
schedule of the Note or any economic or other material term of the Loan.
Borrower will also agree to cooperate with Lender in connection with any
Securitization as required by any of the Rating Agencies or as reasonably
requested by Lender, in connection with Loan Document preparation, due
diligence, Lender's obtaining ratings and preliminary evaluations from all such
Rating Agencies or Lender's preparation of offering materials. Borrower
acknowledges that such cooperation may include, if necessary, Borrower
providing, at Borrower's expense, audited financials as well as updated
financial and other information on Borrower and the Properties. Reference in
this Agreement to the downgrade, disqualification or withdrawal of ratings by
the Rating Agencies shall be deemed
58
<PAGE>
to refer to the Rating Agencies which have rated or, as indicated by
Lender, shall rate the Securitization securities. Lender shall be permitted to
share all information provided to Lender in connection with the Loan with the
investment banking firms, accounting firms, law firms, Rating Agencies and other
third-party advisors involved with any such Securitization. Lender and all such
third-party advisors shall be entitled to rely on any information supplied by,
or on behalf of, Borrower or Guarantor. Borrower and Guarantor shall indemnify
Lender and such third-parties, and any of their respective "controlling" persons
(as defined under the securities laws) from any loss, claim, cost, damage or
expense incurred by such parties and any of their respective "controlling"
persons that arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in such information or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required or necessary in order to make the statements in such
information, or in light of the circumstances under which they were made, not
misleading. Borrower further acknowledges that any item submitted to Lender in
connection with the Loan may be delivered to a purchaser of securities or other
interest in the Loan in connection with the Securitization. All obligations of
Borrower and/or Guarantor under the Loan Documents to indemnify Lender shall
also run to the benefit of any purchaser of the Loan or interests therein in the
secondary market who has been identified by Lender (whether or not the identity
of such purchaser is known to Borrower prior to the Closing Date).
11.8 Certain Rights of Lender. Without affecting Borrower's liability
for the payment of any of the Loan, Lender may from time to time and without
notice to Borrower: (a) release any person liable for the payment of the Loan;
(b) accept additional real or personal property of any kind as security or
alter, substitute or release any property securing the Loan; (c) reconvey all or
any part of the Properties; (d) consent in writing to the making of any
subdivision map or plat thereof; (e) join in granting any easement therein; or
(f) enter into any agreement to subordinate the lien of any Loan Document.
11.9 Waiver; Discontinuance of Proceedings. Lender may waive any single
Event of Default by Borrower hereunder without waiving any other prior or
subsequent Default or Event of Default. Lender may remedy any Event of Default
by Borrower hereunder without waiving the default remedied. Neither the failure
by Lender to exercise, nor the delay by Lender in exercising, any right, power
or remedy upon any Event of Default by Borrower hereunder shall be construed as
a waiver of such default or as a waiver of the right to exercise any such right,
power or remedy at a later date. No single or partial exercise by Lender of any
right, power or remedy hereunder shall exhaust the same or shall preclude any
other or further exercise thereof, and every such right, power or remedy
hereunder may be exercised at any time and from time to time. No modification or
waiver of any provision hereof nor consent to any departure by Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by Lender, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose given. No notice to nor
demand on Borrower in any case shall of itself entitle Borrower to any other or
further notice or demand in similar or other circumstances. Acceptance by Lender
of any payment in an amount less than the amount then due on any of the Loan
shall be deemed an acceptance on account only and shall not in any way affect
the existence of an Event of Default hereunder. In case Lender shall have
proceeded to invoke any right, remedy or recourse permitted hereunder or under
the other Loan Documents and shall thereafter elect to discontinue or abandon
the same for any reason, Lender shall have the unqualified right to do so and,
in such an event, Borrower and Lender shall be restored to their
59
<PAGE>
former positions with respect to the Loan, the Loan Documents, the
Properties and otherwise, and the rights, remedies, recourses and powers of
Lender shall continue as if the same had never been invoked.
11.10 Application of the Proceeds of the Note. To the extent that
proceeds of the Note are used to pay indebtedness secured by any outstanding
lien, security interest, charge or prior encumbrance against any of the
Properties, such proceeds have been advanced by Lender at Borrower's request and
Lender shall be subrogated to any and all rights, security interests and liens
owned by any owner or holder of such outstanding liens, security interests,
charges or encumbrances, irrespective of whether said liens, security interests,
charges or encumbrances are released.
11.11 Tax Service. Lender is authorized to secure in Lender's
reasonable discretion, at Borrower's expense, a tax service contract with a
third party vendor which shall provide property tax payment information on the
Properties satisfactory to Lender.
11.12 Severability. If any provision or obligation under this Agreement
and the other Loan Documents shall be determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable, that provision shall be
deemed severed from the Loan Documents and the validity, legality and
enforceability of the remaining provisions or obligations shall remain in full
force as though the invalid, illegal or unenforceable provision had never been a
part of the Loan Documents.
11.13 Heirs, Successors and Assigns. The terms of this Agreement and of
the other Loan Documents shall bind and inure to the benefit of the heirs,
successors and assigns of the parties (including, but not limited to, any
purchaser of the Loan or any interests therein in connection with any
Securitization or otherwise). The foregoing sentence shall not be construed to
permit Borrower to assign the Loan except as otherwise permitted under this
Agreement or in the other Loan Documents.
11.14 Time. Time is of the essence of each and every term of this
Agreement.
11.15 Headings. All Article, Section or other headings appearing in
this Agreement and any of the other Loan Documents are for convenience of
reference only and shall be disregarded in construing this Agreement and any of
the other Loan Documents.
11.16 Governing Law. The Note, this Agreement, and each of the other
Loan Documents (unless otherwise provided in such other Loan Documents) shall be
governed by and construed in accordance with the laws of the State of New York
without reference to conflicts of law rules. It is the intent of the parties
hereto that the provisions of Section 5-1401 of the General Obligations Law of
the State of New York apply to this Agreement. Accordingly, in all respects,
including, without limitation, matters of construction, validity, enforceability
and performance, this Agreement, the Note and the other Loan Documents and the
obligations arising hereunder and thereunder shall be governed by, and construed
in accordance with, the laws of the state of New York applicable to contracts
made and performed in such state, and any applicable law of the United States of
America, except that at all times the provisions for enforcement of the power of
sale granted under the Mortgages and the creation, perfection and enforcement of
the security interests created pursuant thereto and hereunder and pursuant to
the other Loan Documents shall be governed by and construed according to the
laws of the state where the
60
<PAGE>
Property is located. Except as provided in the immediately preceding
sentence, Borrower hereby unconditionally and irrevocably waives, to the fullest
extent permitted by law, any claim to assert that the law of any jurisdiction
other than New York governs this Agreement, the Note and the other Loan
Documents.
11.17 Consent to Jurisdiction. Borrower irrevocably submits to the
jurisdiction of: (a) any state or federal court sitting in the state of New
York, over any suit, action or proceeding, arising out of or relating to this
Agreement, the Note or the Loan; and (b) any state court sitting in the county
of the state where the applicable Property is located over any suit, action or
proceeding, brought by the trustee or Lender related to the exercise of the
power of sale under the applicable Mortgage or any action brought by Lender to
enforce its rights with respect to the Property. Borrower irrevocably waives, to
the fullest extent permitted by law, any objection that Borrower may now or
hereafter have to the laying of venue of any such suit, action, or proceeding
brought in any such court and any claim that any such suit, action, or
proceeding brought in any such court has been brought in an inconvenient forum.
11.18 Integration: Interpretation. The Loan Documents contain or
expressly incorporate by reference the entire agreement of the parties with
respect to the matters contemplated therein and supersede all current or prior
negotiations or agreements, written or oral. The Loan Documents shall not be
modified except by written instrument executed by all parties. Any reference in
any of the Loan Documents to a Property or Properties shall include all or any
part of such Property or Properties. Any reference to the Loan Documents
includes any amendments, renewals or extensions now or hereafter approved by
Lender in writing.
11.19 Joint and Several Liability. The liability of all persons and
entities obligated in any manner under this Agreement and any of the Loan
Documents shall be joint and several.
11.20 Counterparts. This Agreement and any of the other Loan Documents
(except for the Note) may be executed in any number of counterparts, each of
which when executed and delivered shall be deemed to be an original, and all
such counterparts together shall constitute one and the same instrument.
11.21 Advertising. Lender is authorized to state in advertising or
other press releases the fact that the type and amount of financing under the
Loan has been provided by Lender for Borrower on the Properties.
11.22 Maximum Interest. The provisions of this Agreement and of all
other Loan Documents between Borrower and Lender, whether now existing or
hereafter arising and whether written or oral, are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of demand or
acceleration of the maturity of the Note or otherwise, shall the amount paid, or
agreed to be paid ("Interest"), to Lender for the use, forbearance or retention
of the money loaned under the Note exceed the maximum amount permissible under
applicable law. If, from any circumstance whatsoever, performance or fulfillment
of any provision hereof or of any agreement between Borrower and Lender shall,
at the time performance or fulfillment of such provision shall be due, exceed
the limit for Interest prescribed by law or otherwise transcend the limit of
validity prescribed by applicable law, then, ipso facto, the obligation to be
performed or fulfilled shall be reduced to such limit, and if, from any
circumstance whatsoever, Lender shall ever receive anything of value deemed
Interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive
61
<PAGE>
Interest shall be applied to the reduction of the principal balance owing under
the Note in the inverse order of its maturity (whether or not then due) or, at
the option of Lender, be paid over to Borrower, and not to the payment of
Interest. All Interest (including any amounts or payments deemed to be Interest)
paid or agreed to be paid to Lender shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full period
until payment in full of the principal balance of the Note so that the Interest
thereon for such full period will not exceed the maximum amount permitted by
applicable law. This Section will control all agreements between Borrower and
Lender.
11.23 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THE LOAN
DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION
THEREOF OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS
(AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OR CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), IN EACH CASE WHETHER SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION IS NOW EXISTING OR HEREAFTER ARISING,
AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT
MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF ANY RIGHT
THEY MIGHT OTHERWISE HAVE TO TRIAL BY JURY.
- ----------- -------------
Initials Initials
[SIGNATURE PAGE FOLLOWS]
62
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as
of the date appearing on the first page of this Agreement.
"Lender" "Borrower"
PRUDENTIAL MORTGAGE CAPITAL CATELLUS FINANCE 1, L.L.C.,
COMPANY, INC. a Delaware limited liability company
By:_________________________ By: _____________________________
Name:_________________ Name:_____________________
Title:________________ Title: ___________________
Acknowledged and agreed as to
the provisions of Section 11.7
hereof.
By: ______________________________
"Guarantor" Name: ______________________
Title: _____________________
CATELLUS DEVELOPMENT CORPORATION,
a Delaware corporation
63
<PAGE>
EXHIBIT A - LIST OF PROPERTIES
THE PROPERTIES
<TABLE>
<CAPTION>
PN# Property City State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial Properties
1. AZ0131403 2404 S. Wilson Street Tempe AZ
2. AZ0131405 2925 S. Roosevelt Street Tempe AZ
3. AZ0131407 421 W. Alameda Drive Tempe AZ
4. AZ0131406 443 W. Alameda Drive Tempe AZ
5. CA0010510 2900 Faber Street Union City CA
6. CA0010511 29959-30009 Ahern Ave. "B" Union City CA
7. CA0010512 29983-95 Ahern Ave. "C" Union City CA
8. CA0010513 30001-27 Ahern Ave. "A" Union City CA
9. CA0010523 30000 Eigenbrodt Way Union City CA
10. CA0010525 6909 Las Positas Rd. Livermore CA
11. CA0010526 6757 Las Positas Rd./Vaughn Livermore CA
Ave.
12. CA0010527 6645 Las Positas Rd. Livermore CA
13. CA0010538 30029 Ahern St. "D" Union City CA
14. CA0010539 30039 Ahern St. "E" Union City CA
15. CA0010540 30049-57 Ahern St. "F" Union City CA
16. CA0010592 41300 - 41400 Boyce Rd Fremont CA
17. CA0010591 6120 Stewart Ave. Fremont CA
18. CA0010612 AutoMall Parkway Fremont CA
19. CA0370092 20801&20821 Santa Fe Ave. Carson CA
20. CA0370130 12801 Busch/9303 Greenleaf Santa Fe Springs CA
Ave.
<CAPTION>
Year
Built
Square Feet Largest Tenant
- -----------------------------------------------
<S> <C> <C>
93,366 1986 Southern Wine & Spirits
111,337 1986 Microage Computer Centers
165,646 1990 Microage Computer Centers
133,291 1988 Microage Computer Centers
126,144 1987 Office Depot
88,704 1987 AM-PAC Tire
86,496 1987 Logitech, Inc
44,909 1987 Midatlantic Bio-Medical
116,747 1989 Saab Scania of America
131,128 1989 Nature Kist
76,800 1989 PND Transportation
92,022 1989 Trans Western Polymers
82,944 1988 Orthopedic System, Inc
115,200 1988 California Equipment Dist.
77,760 1988 National Retail Transport
94,080 1996 Galgon Industries
114,948 1996 Exhibitgroup Inc.
376,260 1997 Office Depot
(plus ____
acres of
Expansion
Land)
251,785 1988 H.J. Heinz
169,638 1987 Gallagher Flooring
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
21. CA0372060 4551, 4575 & 4567 Loma Vista Vernon CA
22. CA0372062 4560 Loma Vista Vernon CA
23. CA0372066 4900 Loma Vista Ave. Vernon CA
24. CA0372067 4578 E. 49th St. Vernon CA
25. CA0372068 4501-4561 E. 49th St. Vernon CA
26. CA0372079 4507-4547 & 4553-4587 Vernon CA
Maywood Ave.
27. CA0372081 4592-4626 E. 48th St., Vernon CA
4593-4625 E. 49th St., 4665
E. 49th Street
28. CA0372082 4592-4626 E. 48th St., Vernon CA
4593-4625 E. 49th St., 4665
E. 49th Street
29. CA0372085 4575 - 4599 District Blvd. Vernon CA
30. CA0373101 16400 Trojan Way La Mirada CA
31. CA0374501 1700 & 1800 Bay Street Los Angeles CA
32. CA0375303 12202 E. Slauson Ave. Santa Fe Springs CA
33. CA0591019 4950 E. Hunter Anaheim CA
34. CA0591020 4990 E. Hunter Anaheim CA
35. CA0591024 4955 E. Landon Dr. Anaheim CA
36. CA0591025 4985 E. Landon Dr. Anaheim CA
37. CA0591031 4905 E. La Palma Ave. Anaheim CA
38. CA0591054 5055 Landon Dr./ 5055 E. Anaheim CA
Hunter Ave.
<CAPTION>
<S> <C> <C>
106,059 1986 Chan H Park
47,000 1992 Michael Caruso & Co.
26,923 1990 Barth and Dreyfuss of CA
26,653 1990 Marhuna USA
48,187 1990 Mister S.
222,656 1988 Pepboys
61,680 1991 Superior Cutting Service
49,250 1991 Brambles Information Mgmt
69,510 1996 Lucky Brand Dungarees
220,000 1990 Mohawk Industries
61,415 1987 Valley Fruit & Produce
100,000 1995 Spicers Paper, Inc.
28,185 1989 Shaxon Industries
24,955 1989 Specification Seals Co.
20,705 1989 Automation Products
39,285 1989 V&M Restoration
130,595 1992 Micro Technology
130,466 1997 Anixter Inc.
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PN# Property City State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
39. CA0591152 222 E. Bristol Lane Orange CA
40. CA0591103 2245 North Glassell Street. Anaheim CA
41. CA0591251 230 W. Blueridge Ave. Orange CA
42. CA0591252 324 W. Blueridge Ave. Orange CA
43. CA0591434 1915 South Grand Ave. Santa Ana CA
44. CA0591553 1200 Edinger St. Tustin CA
45. CA0592601 14352 Franklin Ave. Tustin CA
46. CA0712412 5525 Concours St. Ontario CA
47. CA0712430 1051 N. Wineville Ave. Ontario CA
48. CA0712434 740 Vintage Ave. Ontario CA
49. CA0713526 5351 Jurupa Ave. Ontario CA
50. CA0713551 5130 Santa Ana Street Ontario CA
51. CA0713561 Sweet HeartCups/751 & 851 Ontario CA
Vintage Ave.
52. CA0770659-GATX 6810 S. McKinley Stockton CA
Stockton
53. IL1970335 GATX/ 2649 Internationale Woodridge IL
Pkwy
54. IL1970104-GilleGillette Romeoville IL
55. OK1090404 7201 S. Sunnylane Rd. Oklahoma City OK
56. TX1130338 3737 Grader St. Garland TX
<CAPTION>
Year
Built
Square Feet Largest Tenant
- ------------------------------------------------
<S> <C>
35,000 1986 Commander Packaging W.
54,177 1988 Orange County Register
106,302 1986 BE Aerospace, Inc.
38,793 1986 Mailing and Marketing, Inc.
44,420 1994 Iron Mountain Records
39,600 1966 Vacant
65,910 1975 Pairgain Technologies
300,136 1995 Dunlop Tire Corp.
201,454 1996 Ameriserve Food Dist.
(plus ____
acres of
Expansion
Land)
180,608 1997 The Kendall Co.
405,864 1988 Preferred Public Storage
141,150 1990 Duracell
528,000 1998 SweetHeart Cup Co.
500,000 1999 GATX
240,000 1998 GATX
(plus ____
acres of
Expansion
Land)
532,000 1999 Gillette
(plus ____
acres of
Expansion
Land)
124,905 1996 Mackie Automotive Systems
226,807 1997 ASD Systems
</TABLE>
Office Properties
A-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
57. CA0374803 9121 Oakdale Ave. Chatsworth CA
58. CA0374804 9131 Oakdale Ave. Chatsworth CA
59. CA0374805 9201 Oakdale Ave. Chatsworth CA
60. CA0374806 9211 Oakdale Ave. Chatsworth CA
61. CA0592501 4000 Westerly Pl. Newport Beach CA
62. CA0591151 2301 N. Glassell, St.. Orange CA
63. CA0591430 1717 South Grand Ave. Santa Ana CA
64. CA0591504 1311 East Valencia Tustin CA
65. CA0591552 1361 Valencia Tustin CA
66. CA0591512 15222 Del Amo Tustin CA
67. IL0311251 224 South Michigan Ave. Chicago IL
<CAPTION>
Retail Properties
68. CA0010251 1300 University Ave. Berkeley CA
69. CA0010598 Home Depot/3838 Hollis Street Emeryville CA
70. CA0010601 Pak `N' Save/1199 40th Street Emeryville CA
71. CA0010603 Kmart/1555 40th Street Emeryville CA
72. CA0591557 1100 Edinger St. Tustin CA
<CAPTION>
Total Improved Properties
56,391 1988 State Farm Mutual Insurance
43,117 1988 Synergistic Systems, Inc
53,292 1988 St. Ives Lab
61,536 1988 Insurance Company of N. A.
45,574 1972 DataQuest, Inc
40,000 1986 Control Air Conditioning
61,193 1990 Quanterra Inc.
69,763 1989 3M Company
75,226 1986 Scan-Tron Corp.
59,825 1988 Vitalcom, Inc
369,511 1985 Sara Lee Bakery
3,695 1990 Santa Fe Bar & Grill
102,501 1995 Home Depot USA
71,190 1995 Pak'N'Save
117,000 1995 Kmart
39,600 1968 Microcenter
- ------------
8,997,269
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
PN# Property City State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Ground Leases
73. CA0010173 210 Fallon Street Oakland CA
74. CA0370011 4790 West Pico Boulevard Los Angeles CA
75. CA0370050 1210 County Road Pomona CA
76. CA0370051 240 South Arroyo Parkway Pasadena CA
77. CA0370225 12865 Ann Street/9415 Santa Fe Springs CA
Greenleaf Ave.
78. CA0374801 19800-19808 Nordhoff Place, Northridge CA
Lot #1
79. CA0374802 19840-19860 Nordhoff Place, Northridge CA
Lot #2
80. CA0374813 20001 Prairie Street Northridge CA
81. CA0374814 9301 Oakdale Avenue, Lot #15 Northridge CA
82. CA0374815 9401 Oakdale Avenue, Lot #16 Northridge CA
83. CA0374816 19900 Plummer Street, Lot #17 Northridge CA
84. CA0374823 19755 Nordhoff Place, Lot #26 Northridge CA
85. CA0374824 19737 Nordhoff Place, Lot #27 Northridge CA
86. CA0374825 9111 Corbin Avenue, Lot #28 Northridge CA
87. CA0374826 9111 Corbin Avenue, Lot #29 Northridge CA
88. CA0374827 9145 Corbin Avenue, Lot #30 Northridge CA
89. CA0374828 9145 Corbin Avenue, Lot #31 Northridge CA
90. CA0374829 19734-19736 Dearborn Street, Northridge CA
Lot #32
91. CA0374830 19748 Dearborn Street, Lot Northridge CA
#33
92. CA0374831 19748 Dearborn Street, Lot Northridge CA
#34
93. CA0374832 19735 Dearborn Street, Lot Northridge CA
#35
94. CA0374833 9221 Corbin Avenue, Lot #36 Northridge CA
95. CA0374834 9221 Corbin Avenue, Lot #37 Northridge CA
96. CA0374835 9255 Corbin Avenue, Lot #38 Northridge CA
<CAPTION>
Square Feet of
Improvements
Acres Largest Tenant
- ------------------------------------------------
<S> <C> <C>
N/A 2.1 Integrated Storage Proper
156,104 14.7 Venture Bowl/Midtown Ct
89,337 4.4 Miller, D.K.
3,650 0.8 A & M Investments Co.
68,520 3.0 GreenLeaf Associates
44,000 2.2 Dem, Neal & Karen
42,000 2.1 Dem, Neal & Karen
84,458 3.2 Washington Mutual
70,340 3.2 Commonwealth Life
97,336 3.5 Valley Associates
43,472 3.8 Lot 17 Associates
14,950 0.7 W & K Investment Co.
35,000 1.1 W & K Investment Co.
13,637 0.7 Katell Properties
13,637 0.8 Katell Properties
4,330 1.0 Lot 30 Associates
4,330 1.0 Lot 30 Associates
29,200 1.1 W & K Investment Co.
28,350 1.3 W & K Investment Co.
35,400 1.3 W & K Investment Co.
24,350 1.1 W & K Investment Co.
25,972 1.1 Katell Properties
25,972 1.1 Katell Properties
14,491 0.4 W & K Investment Co.
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
97. CA0374836 9255 Corbin Avenue, Lot #39 Northridge CA
98. CA0374837 9255 Corbin Avenue, Lot #40 Northridge CA
99. CA0374838 19756 Prairie Street, Lot #41 Northridge CA
100. CA0374839 9301 Corbin Avenue, Lot #42 Northridge CA
101. CA0374840 9401 Corbin Avenue, Lot #43 Northridge CA
102. CA0374841 9451 Corbin Avenue, Lot #44 Northridge CA
103. CA0590125 1421 North Wanda Road Orange CA
104. CA0650127 257-299 Railroad Canyon Drive Lake Elsinore CA
105. CA0710214 Helendale Rd Helendale CA
106. CA0710625 505 West 2nd Street San Bernardino CA
107. CA0850031 2550 Zanker Road San Jose CA
108. CA0850032 590 Brennan Street San Jose CA
<CAPTION>
Total Ground Leases
14,491 0.4 W & K Investment Co.
14,491 0.4 W & K Investment Co.
20,898 1.0 W & K Investment Co.
113,900 5.6 W & K Investment Co.
114,800 5.3 W & K Investment Co.
114,800 5.6 Charles Dunn Co.
24,579 2.2 Griffith Brothers
10,770 0.8 Chang, Norman F.
0 5,140 Lockheed Corp.
8,400 1.4 Bank of San Bernardino
174,997 8.3 State of California
109,400 4.9 O'Donnell Partnership
- ------------------------
1,690,360 5,231
</TABLE>
A-6
<PAGE>
EXHIBIT B - FORM OF PROMISSORY NOTE
-----------------------------------
[SEE ATTACHED COPY]
B-1
<PAGE>
EXHIBIT C - DOCUMENTS
---------------------
A. Loan Documents. The documents listed below, and amendments,
modifications and supplements thereto which have received the prior written
consent of Lender, together with any documents executed in the future that are
approved by Lender and that recite that they are "Loan Documents" for purposes
of this Agreement, are, together with the Other Related Documents, collectively
referred to herein as the Loan Documents (as such term is defined in Section 1.1
of this Agreement).
(1) This Agreement;
(2) The Promissory Note of even date herewith in the original
principal amount of the Loan made by Borrower to the order of Lender;
(3) Eleven (11) Mortgages or Deeds of Trust, Assignment of Leases
and Rents, Security Agreement and Fixture Filing of even date herewith executed
by Borrower, for the benefit of Lender;
(4) Eleven (11) Assignment of Leases and Rents of even date herewith
executed by Borrower, for the benefit of Lender;
(5) Uniform Commercial Code - Financing Statements -
Form UCC-1, of even date herewith, as necessary to perfect the security
interested granted under each of the Mortgages executed by Borrower, as debtor,
in favor of Lender, as secured party;
(6) Five (5) Cash Management Agreements of even date
herewith executed by Borrower and Lender;
(7) Assignment of Warranties and Other Contract Rights
for each of the Properties of even date herewith executed by Borrower;
(8) Certificate Regarding Loans to Related Parties of even date
herewith executed by Borrower;
(9) Certificate of Rent Roll for each of the Properties of even date
herewith executed by Borrower;
(10) Certificate of Lease Form for each of the Properties of even
date herewith executed by Borrower;
(11) Five (5) Consents and Agreement of Manager executed by the
respective property manager of each Property in favor of Lender;
(12) Estoppel Certificates of various dates executed by the tenants
of each Property in favor of Lender;
C-1
<PAGE>
(13) Agreements of Non-Disturbance and Attornment of various dates
executed by certain tenants at the Properties in favor of Lender;
(14) Agreements of Subordination, Non-Disturbance and Attornment of
various dates executed by certain tenants at the Properties in favor of Lender;
(15) Receipt and Closing Certificate dated of even date herewith
executed by Borrower in favor of Lender;
(16) Certificate of Zoning and Certificate of Compliance dated of
even date herewith executed by Borrower and Guarantor in favor of Lender.
B. Other Related Documents. The documents listed below, and amendments,
modifications and supplements thereto which have received the prior written
consent of Lender, for purposes of this Agreement, are collectively referred to
herein as the Other Related Documents.
(1) Indemnity and Guaranty Agreement of even date herewith executed
by Guarantor in favor of Lender; and
(2) Hazardous Substances Indemnity Agreement of even date herewith
executed by Borrower and Guarantor, as indemnitors, in favor of Lender.
C-2
<PAGE>
EXHIBIT D - FORM OF CERTIFICATION
---------------------------------
BORROWER'S CERTIFICATE
----------------------
The undersigned is the __________________________ of CATELLUS FINANCE
1, L.L.C. ("Borrower") and has made due investigation as to the matters
hereinafter set forth and does hereby certify the following to induce PRUDENTIAL
MORTGAGE CAPITAL COMPANY, INC. ("Lender") to advance the aggregate sum of
$_____________________________ (the "Disbursement") [from the Repair and
Remediation Reserve] [the Replacement Reserve], [the TI/LC Reserve,] or [the
Environmental Reserve] to Borrower pursuant to the terms of that certain Loan
Agreement dated as of October ___, 1998, between Lender and Borrower (together
with any amendments, modifications, supplements and replacements thereof or
therefor, the "Loan Agreement"), pursuant to that certain Disbursement request
dated ________________________which is being submitted to Lender. (Capitalized
terms used and not otherwise define shall have the respective meanings given to
them in the Loan Agreement.)
1. No Default or Event of Default exists under the Loan Agreement or under
any of the other Loan Documents.
2. The [Deferred Maintenance] [Repairs] [Leasing Costs] or [Environmental
Work] relative to the Disbursement have been delivered or provided to Borrower
and are properly, completely and permanently installed on or about the Property
or otherwise properly completed, as applicable.
3. All of the statements, invoices, receipts and information delivered in
connection with the Disbursement request being submitted to Lender in connection
herewith are true and correct as of the date hereof, and the amount requested in
said Disbursement request accurately reflects the precise amounts due and
payable during the period covered by such Disbursement request. All of the funds
to be received pursuant to such Disbursement request shall be used solely for
the purpose of reimbursing Borrower for items previously paid.
4. Nothing has occurred subsequent to the date of the Loan Agreement which
has or may result in the creation of any lien, charge or encumbrance upon the
Properties or the Improvements or any part thereof except as permitted by the
Loan Agreement, or anything affixed thereto or used in connection therewith, or
which has or may substantially and adversely impair the ability of Borrower to
make any payments of principal and interest on the Note or the ability of
Borrower to meet its obligations under the Loan Agreement.
5. None of the labor, materials, overhead or other items of expense
specified in the Disbursement request submitted herewith has previously been the
basis of any Disbursement request by Borrower or any payment by Lender and, when
added to all sums previously disbursed by Lender on account of the [Deferred
Maintenance] [Repairs,] [Leasing Costs] or [Environmental Work], do not exceed
the costs of all [Deferred Maintenance] [Repairs, Leasing Costs] or
[Environmental Work] services completed, installed and/or delivered, as
applicable, to the date of that certificate.
D-1
<PAGE>
6. All permits and approvals required to complete the work which work is
now in process or was previously completed have been obtained.
7. All conditions to the Disbursement to be made in accordance with the
Disbursement request submitted herewith have been met in accordance with the
terms of the Loan Agreement.
By:_____________________________
Name:___________________________
Title:__________________________
D-2
<PAGE>
EXHIBIT E - FORM OF TENANT ESTOPPEL
-----------------------------------
ESTOPPEL CERTIFICATE
--------------------
PN # _______________
Tenant _____________
Lease # _____________
Prudential Mortgage Capital Company, Inc.
100 Mulberry Street - GC4
Newark, NJ 07102-4069
Re: Lease (the "Lease") of space at
-------------------------------------------------------------------
(the "Building") by and between
----------------------------- ---
, as tenant ("Tenant") and , as landlord
-------------
("Landlord").
Ladies and Gentlemen:
Tenant understands that Prudential Mortgage Capital Company, Inc. (together with
its successors and assigns, "Lender") may be making a loan, the repayment of
which would be secured by a deed of trust or mortgage (the "Deed of Trust") on
the Building and an assignment of Landlord's interest in the Lease, and that in
making the loan, Lender will be relying upon the following statements and
agreements of Tenant:
1. A complete, true and accurate copy of the Lease and all amendments or
modifications thereto is attached hereto as Exhibit A.
2. The Lease is in good standing and in full force and effect and has not
been modified or amended other than as provided in the attached amendments or
modifications, if any, except as follows:___________________________________
E-1
<PAGE>
_____________________________________________ (State "N/A" if there are no
other amendments or modifications.)
3. Tenant has accepted the premises demised under the Lease ("Premises")
and Landlord has completed all construction and improvements required
under the Lease to be completed by Landlord. The Premises is comprised
of square feet.
4. No advance rental or other payment has been made in connection with the
Lease, except rental for the current month. Current monthly base rent under
the Lease is in the amount of $___ . If applicable, percentage rent is
payable under the Lease as follows: __________________________. Rent has been
paid through and including _________, 1998.
5. The term of the Lease commenced on _______________and will terminate on
_____________. Tenant has no option to ________________ ____________________
renew or extend the term of the Lease except as follows: ___________________
___________________________. (State "none" if there are no options.)
6. Tenant has paid Landlord a security deposit under the Lease in the
amount of $ _______________________________.
7. To the best knowledge of Tenant, there are no defaults of Landlord
under the Lease except as follows: _________________________________________.
8. Tenant has not received any "free rent" which is presently in effect or
will in the future be in effect in connection with the Premises and
there are no offsets or credits against the payment of rent due under
the Lease, except as follows: ______________________________________________.
9. Tenant has no special termination rights under the Lease, no purchase or
other options or rights of first offer or refusal with respect to renting
additional space or acquiring any additional interest in the Building except
as follows: . For purposes of this paragraph, special termination rights
shall not include termination by reason of casualty loss or condemnation.
10. Tenant agrees that no future material modification or amendment to the
Lease, or any cancellation or termination of the Lease except in
accordance with the terms of the existing Lease, shall be enforceable
unless such modification, amendment, cancellation or termination has
been consented to by Lender in writing.
11. There are no actions, whether voluntary or otherwise, pending against
Tenant and/or any guarantor of Tenant's obligations under the Lease
pursuant to the bankruptcy or insolvency laws of the United States or
any state thereof and, to the best knowledge of Tenant, none have been
threatened.
E-2
<PAGE>
Dated: ______________________, 1998. _______________________________________
By: ___________________________________
Its:___________________________________
E-3
<PAGE>
EXHIBIT F - FORM OF SUBORDINATION, NON-DISTURBANCE AND
------------------------------------------------------
ATTORNMENT
----------
When recorded, return to:
ORRICK, HERRINGTON & SUTCLIFFE LLP
666 Fifth Avenue
New York, NY 10103
Attention: Daisy Klingman, Legal Assistant
AGREEMENT OF SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT
THIS AGREEMENT OF SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT is made as of the ___ day of _______________, 1998, by and among
__________________ ("Lessor"), ___________________ ("Lessee"), and PRUDENTIAL
MORTGAGE CAPITAL COMPANY, INC., a Delaware corporation ("Lender").
W I T N E S S E T H
WHEREAS, Lessor is the owner of a certain tract of land with
improvements thereon ("Property"), and said tract is more fully described in
Exhibit "A", which is attached hereto and incorporated herein by reference as if
fully set forth at this point; and
WHEREAS, under a certain lease ("Lease") dated __________,
19___, between Lessor and Lessee, as evidenced by a Memorandum of Lease recorded
__________, 19___, as Instrument No. __________ of the Official Records of
__________ County, California, and extended pursuant to an Addendum to Lease
dated __________, 19___, Lessor did lease, let and demise a portion of the
Property ("Premises") as described in the Lease to Lessee for the period of time
and upon the covenants, terms and conditions therein stated; and
[ADD APPLICABLE PORTIONS OF THE FOLLOWING RECITAL IF LEASE CONTAINS AN
OPTION TO PURCHASE OR RIGHT OF FIRST REFUSAL]
[WHEREAS, the Lease contains provisions granting Lessee [an
option to purchase the Property] [a right of first refusal or first offer to
purchase the Property] (the "Option"); and]
WHEREAS, by making a loan, Lender has or is about to become
the owner of an indebtedness and holder of a certain Note, secured by a Deed of
Trust, Assignment of Leases and
F-1
<PAGE>
Rents, Security Agreement and Fixture Filing of even date therewith (the
"Security Instrument"), to be recorded in the Official Records of __________
County, California, constituting a first lien upon the Property, and secured by
an assignment of Lessor's interest in the Lease as more particularly set forth
in a certain Assignment of Leases and Rents; and
WHEREAS, Lender desires that the Lease be subordinated to the
Security Instrument, and that Lessee agree to attorn to the purchaser at
foreclosure of the Security Instrument in the event of such foreclosure or to
Lender in the event of collection of the rent by Lender; and
WHEREAS, Lessee is willing to agree to attorn if Lender will
recognize Lessee's rights under the Lease.
NOW, THEREFORE, in consideration of the covenants, terms,
conditions and agreements herein contained, and in consideration of other good
and valuable consideration, each to the other, the sufficiency and receipt of
which are hereby acknowledged, the parties hereto agree, covenant and warrant as
follows:
1. That the terms, covenants, provisions and conditions of the
Lease and the rights of the Lessee thereunder, [ADD FOLLOWING BRACKETED LANGUAGE
IF LEASE CONTAINS OPTION: including, but not limited to, Lessee's Option under
section _____ of the Lease], are and will continue to be subordinate to the
Security Instrument, and the lien thereof, and to any renewal, substitution,
extension or replacement thereof.
2. So long as (i) Lessee is not in default (beyond any period
given Lessee to cure such default) in the payment of rent or additional rent or
in the performance or observance of any of the other terms, covenants,
provisions or conditions of the Lease on Lessee's part to be performed or
observed, (ii) Lessee is not in default under this Agreement and (iii) the Lease
is in full force and effect: (a) Lessee's possession of the Premises and
Lessee's rights and privileges under the Lease, or any extensions or renewals
thereof which may be affected in accordance with any option therefor which is
contained in the Lease, shall not be diminished or interfered with by Lender,
and Lessee's occupancy of the Premises shall not be disturbed by Lender for any
reason whatsoever during the term of the Lease or any such extensions or
renewals thereof and (b) Lender will not join Lessee as a party defendant in any
action or proceeding to foreclose the Security Instrument or to enforce any
rights or remedies of Lender under the Security Instrument which would cut-off,
destroy, terminate or extinguish the Lease or Lessee's interest and estate under
the Lease (except to the extent that Lessee's right to receive or set-off any
monies or obligations owed or to be performed by any of Lender's
predecessors-in-interest shall not be enforceable thereafter against Lender or
any of Lender's successors-in-interest).
3. (A) After notice is given by Lender that the Security
Instrument is in default and that the rentals under the Lease should be paid to
Lender, Lessee will attorn to Lender and pay to Lender, or pay in accordance
with the directions of Lender, all rentals and other monies due and to become
due to Lessor under the Lease or otherwise in respect of the Premises consistent
with applicable law; and such payments shall be made regardless of any right of
set-off, counterclaim or other defense which Lessee may have against Lessor,
whether as the tenant under the Lease or otherwise.
F-2
<PAGE>
(B) In addition, if Lender (or its nominee or designee) shall
succeed to the rights of Lessor under the Lease through possession or
foreclosure action, delivery of a deed or otherwise, or another person purchases
the Premises upon foreclosure (or following foreclosure if such purchase is in
connection with the overall foreclosure transaction) of the Security Instrument,
Lessee shall attorn to Lender (or its nominee or designee) or such purchaser
(Lender, its nominees and designees, and such purchaser, each being a
"Successor-Lessor"), and recognize Successor-Lessor as Lessee's landlord under
the Lease. Such attornment shall be effective and self-operative without the
execution of any further instrument; however, at the request of
Successor-Lessor, Lessee shall promptly execute and deliver any instrument that
Successor-Lessor may reasonably request consistent with this Agreement to
further evidence such attornment. Upon such attornment, the Lease shall continue
in full force and effect as, or as if it were, a direct lease between
Successor-Lessor and Lessee upon all terms, conditions and covenants as are set
forth in the Lease, except that Successor-Lessor shall not:
(i) be liable for any previous act or omission of Lessor
under the Lease;
(ii) be subject to any off-set, defense or counterclaim
which shall have theretofore accrued to Lessee against Lessor;
(iii) be bound by any material modification or amendment to
the Lease or by any previous prepayment of rent or additional rent for more than
one (1) month which Lessee might have paid to Lessor, unless such modification
or amendment shall have been expressly approved in writing by Lender or such
prepayment is expressly provided for in the Lease or shall have been expressly
approved in writing by Lender; and
(iv) be liable for any security deposited under the Lease
unless such security has been physically delivered to Lender.
[ADD FOLLOWING LANGUAGE IF LEASE CONTAINS OPTION WHICH PROVIDES TENANT WITH A
RIGHT OF FIRST REFUSAL OR FIRST OFFER TO PURCHASE THE PROPERTY:
(C) Notwithstanding anything to the contrary in Sections 2,
3(A) or 3(B) above, Lessee and Lender agree that, in the event title to the
Premises and the landlord's interest in the Lease are transferred to a
Successor-Lessor through foreclosure action, delivery of a deed-in-lieu of
foreclosure or otherwise, the Lease shall be automatically deemed amended
without the need for any further action by Successor-Lessor or Lessee to provide
that Section [___] of the Lease shall not apply to Successor-Lessor's first
completed sale to a bona-fide third party purchaser of the Premises, but shall
thereafter become effective and shall apply to any subsequent sale of the
Premises (excluding any transfers through foreclosure action, delivery of a
deed-in-lieu of foreclosure or other similar transfers.]
[ADD FOLLOWING LANGUAGE IF LEASE CONTAINS AN ENVIRONMENTAL INDEMNIFICATION
PROVISION WHICH IS BINDING UPON LESSOR'S LENDER:
(C) Notwithstanding anything to the contrary in Sections 2,
3(A) or 3(B) above, Lessee and Lender agree that, in the event title to the
Premises and the
F-3
<PAGE>
landlord's interest in the Lease are transferred to a Successor-Lessor
through foreclosure action, delivery of a deed-in-lieu of foreclosure or
otherwise, any environmental/hazardous materials indemnity and/or reimbursement
provisions under the Lease shall not be applicable to, or enforceable against, a
Successor-Lessor with respect to any matters which occurs prior to
Successor-Lessor's ownership of the Premises or acquisition of the landlord's
interest in the Lease. [Lessee reserves and is not hereby waiving any right to
proceed against Lessor for any rights it may have, if any, with respect to any
environmental/hazardous materials indemnity and/or reimbursement claims which
Lessee may have against Lessor under the Lease.]]
4. Lessee shall promptly notify Lender of any default by
Lessor under the Lease and of any act or omission of Lessor which would give
Lessee the right to cancel or terminate the Lease or to claim a partial or total
eviction. In the event of a default by Lessor under the Lease which would give
Lessee the right, immediately or after the lapse of a period of time, to cancel
or terminate the Lease or to claim a partial or total eviction, or in the event
of any other act or omission of Lessor which would give Lessee the right to
cancel or terminate the Lease, Lessee shall not exercise such right (i) until
Lessee has given written notice of such default, act or omission to Lender and
(ii) unless Lender has failed, within thirty (30) days after Lender receives
such notice, to cure or remedy the default, act or omission or, if such default,
act or omission shall be one which is not reasonably capable of being remedied
by Lender within such thirty (30) day period, until a reasonable period for
remedying such default, act or omission shall have elapsed following the giving
of such notice and following the time when Lender shall have become entitled
under the Security Instrument to remedy the same (which reasonable period shall
in no event be less than the period to which Lessor would be entitled under the
Lease or otherwise, after similar notice, to effect such remedy), provided that
Lender shall with due diligence give Lessee written notice of its intention to
and shall commence and continue to, remedy such default, act or omission. If
Lender cannot reasonably remedy a default, act or omission of Lessor until after
Lender obtains possession of the Premises, Lessee may not terminate or cancel
the Lease or claim a partial or total eviction by reason of such default, act or
omission until the expiration of a reasonable period necessary for the remedy
after Lender secures possession of the Premises.
5. Except as specifically provided in this Agreement, Lender
shall not, by virtue of this Agreement, the Security Instrument or any other
instrument to which Lender may be a party, be or become subject to any liability
or obligation to Lessee under the Lease or otherwise.
6. All notices, demands, requests and other communications
made hereunder shall be in writing and shall be properly given and deemed
delivered on the date of delivery if sent by personal delivery or nationally
recognized overnight courier and on the third business day following mailing if
sent by certified or registered mail, postage prepaid, return receipt requested,
as follows:
If to Lender: Prudential Mortgage Capital Company, Inc.
100 Mulberry Street
Gateway Center Four, 9th Floor
F-4
<PAGE>
Newark, New Jersey 07102-4069
Attention: Capital Markets Group and Conduit
Lending Program
If to Lessee: ________________________________________________
------------------------------------------------
------------------------------------------------
With copy to: ________________________________________________
------------------------------------------------
------------------------------------------------
If to Lessor:
------------------------------------------------
------------------------------------------------
With copy to: ________________________________________________
------------------------------------------------
------------------------------------------------
7. The agreements herein contained shall bind and inure to the
benefit of the successors and assigns in interest of the parties hereto and,
without limiting such, the agreement of the Lender shall specifically be binding
upon any purchaser of the Property at a sale foreclosing the Security
Instrument.
8. This Agreement may be executed in any number of
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effect as if all parties hereto had signed the
same signature page. Any signature page of this Agreement may be detached from
any counterpart of this Agreement without impairing the legal effect of any
signatures
F-5
<PAGE>
thereon and may be attached to another counterpart of this Agreement
identical in form hereto but having attached to it one or more additional
signature pages.
F-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed and delivered in their respective names and on their
behalf; and if a corporation, by its officers duly authorized, on the day and
year first above written.
F-7
<PAGE>
LESSEE:
INSERT SIGNATURE BLOCK
LESSOR:
INSERT SIGNATURE BLOCK
LENDER:
PRUDENTIAL MORTGAGE CAPITAL
COMPANY, INC.,
a Delaware corporation
F-8
<PAGE>
By:______________________
Name:
Title:
F-9
<PAGE>
(a) CALIFORNIA ALL-PURPOSE NOTARY ACKNOWLEDGMENT
State of ____________________ *** OPTIONAL SECTION ***
County of ___________________ CAPACITY CLAIMED BY SIGNER
On this ________ day of ______, 1998, Through statute does not require
the Notary to fill in the data
before me, below, doing so may prove
invaluable to persons relying on
the document
INDIVIDUAL
____________________________________
Name, Title of Officer CORPORATE OFFICERS(S)
personally appeared_________________ PARTNER(S) LIMITED
Name(s) of Signer(s)
GENERAL
personally known to me - ATTORNEY-IN-FACT
OR - proved to me on the basis of
satisfactory evidence to be the person(s) TRUSTEE(S)
whose name(s) is/are subscribed
to the within instrument and acknowledged GUARDIAN/CONSERVATOR
to me that he/she/they executed the same
in his/her/their authorized capacity(ies), OTHER: ________________________
and that by his/her/their signature(s) on
the instrument the person(s), or the entity
upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
- --------------------------------------------
SIGNATURE OF NOTARY
******************************* OPTIONAL SECTION *****************************
F-10
<PAGE>
THIS CERTIFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED BELOW:
TITLE OR TYPE OF DOCUMENT_________________________________________________
NUMBER OF PAGES _____________________________ DATE OF DOCUMENT__________________
SIGNER(S) OTHER THAN NAMED ABOVE__________________________________________
Though the data requested here is not required by law, it could prevent
fraudulent reattachment of this form.
11
<PAGE>
(b) CALIFORNIA ALL-PURPOSE NOTARY ACKNOWLEDGMENT
State of ____________________ *** OPTIONAL SECTION ***
County of ___________________ CAPACITY CLAIMED BY SIGNER
On this ________ day of ______, 1998, Through statute does not require
the Notary to fill in the data
before me, below, doing so may prove
invaluable to persons relying on
the document
INDIVIDUAL
____________________________________
Name, Title of Officer CORPORATE OFFICERS(S)
personally appeared_________________ PARTNER(S) LIMITED
Name(s) of Signer(s)
GENERAL
personally known to me - ATTORNEY-IN-FACT
OR - proved to me on the basis of
satisfactory evidence to be the person(s) TRUSTEE(S)
whose name(s) is/are subscribed
to the within instrument and acknowledged GUARDIAN/CONSERVATOR
to me that he/she/they executed the same
in his/her/their authorized capacity(ies), OTHER: ________________________
and that by his/her/their signature(s) on
the instrument the person(s), or the entity
upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
- --------------------------------------------
SIGNATURE OF NOTARY
******************************* OPTIONAL SECTION *****************************
F-12
<PAGE>
THIS CERTIFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED BELOW:
TITLE OR TYPE OF DOCUMENT_________________________________________________
NUMBER OF PAGES ___________________________ DATE OF DOCUMENT___________________
SIGNER(S) OTHER THAN NAMED ABOVE__________________________________________
Though the data requested here is not required by law, it could prevent
fraudulent reattachment of this form.
13
<PAGE>
(c) CALIFORNIA ALL-PURPOSE NOTARY ACKNOWLEDGMENT
State of ____________________ *** OPTIONAL SECTION ***
County of ___________________ CAPACITY CLAIMED BY SIGNER
On this ________ day of ______, 1998, Through statute does not require
the Notary to fill in the data
before me, below, doing so may prove
invaluable to persons relying on
the document
INDIVIDUAL
____________________________________
Name, Title of Officer CORPORATE OFFICERS(S)
personally appeared_________________ PARTNER(S) LIMITED
Name(s) of Signer(s)
GENERAL
personally known to me - ATTORNEY-IN-FACT
OR - proved to me on the basis of
satisfactory evidence to be the person(s) TRUSTEE(S)
whose name(s) is/are subscribed
to the within instrument and acknowledged GUARDIAN/CONSERVATOR
to me that he/she/they executed the same
in his/her/their authorized capacity(ies), OTHER: ________________________
and that by his/her/their signature(s) on
the instrument the person(s), or the entity
upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
- --------------------------------------------
SIGNATURE OF NOTARY
******************************* OPTIONAL SECTION *****************************
F-14
<PAGE>
THIS CERTIFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED BELOW:
TITLE OR TYPE OF DOCUMENT_________________________________________________
NUMBER OF PAGES __________________________ DATE OF DOCUMENT___________________
SIGNER(S) OTHER THAN NAMED ABOVE__________________________________________
Though the data requested here is not required by law, it could prevent
fraudulent reattachment of this form.
F-15
<PAGE>
EXHIBIT A
F-16
<PAGE>
EXHIBIT G
Legal Description of GATX-Woodridge Property
G-1
<PAGE>
SCHEDULE 1
----------
FAIR MARKET VALUES, NOI AND ALLOCATED LOAN AMOUNTS
NOTE:____These allocated loan amounts set forth herein are listed solely to
facilitate the substitution and defeasance of Properties only as may be
expressly permitted by the Loan Documents and shall not be deemed or construed
as limitations on the full cross-collateralization of each of the Properties to
secure the full amount of the Loan.
PN# Property Property
Type
- ----------------------------------------------------------------------------
1 AZ0131403 2404 S. Wilson Street Tempe AZ Industrial
2 AZ0131405 2925 S. Roosevelt Street Tempe AZ Industrial
3 AZ0131406 443 W. Alameda Drive Tempe AZ Industrial
4 AZ0131407 421 W. Alameda Drive Tempe AZ Industrial
5 CA0010510 2900 Faber Street Union City CA Industrial
6 CA0010511 29959-3009 Ahern Ave. "B" Union City CA Industrial
7 CA0010512 29983-95 Ahern Ave. "C" Union City CA Industrial
8 CA0010513 30001-27 Ahern Ave. "A" Union City CA Industrial
9 CA0010523 30000 Eigenbrodt Way Union City CA Industrial
10 CA0010525 6909 Las Positas Rd. Livermore CA Industrial
11 CA0010526 6757 Las Positas Livermore CA Industrial
Rd./Vaughn Ave.
12 CA0010527 6645 Las Positas Rd. Livermore CA Industrial
13 CA0010538 30029 Ahern St. "D" Union City CA Industrial
14 CA0010539 30039 Ahern St. "E" Union City CA Industrial
15 CA0010540 30049-57 Ahern St. "F" Union City CA Industrial
16 CA0010591 6120 Stewart Ave. Fremont CA Industrial
17 CA0010592 41300 - 41400 Boyce Rd Fremont CA Industrial
SF Fair Market Allocated
Value Loan
NOI
- -------------------------------------------------------
93,366 3,920,000 304,540 2,790,000
111,337 4,200,000 309,420 2,860,000
133,291 5,000,000 351,809 3,170,000
165,646 5,700,000 404,195 3,600,000
126,144 5,900,000 543,318 4,430,000
88,704 3,900,000 264,593 2,350,000
86,496 3,800,000 295,860 2,690,000
44,909 2,450,000 227,407 1,840,000
116,747 6,410,000 590,960 4,820,000
131,128 5,900,000 437,258 3,900,000
76,800 3,740,000 269,883 2,380,000
92,022 4,540,000 405,642 3,410,000
82,944 4,150,000 245,504 2,140,000
115,200 4,800,000 349,568 3,140,000
77,760 3,400,000 292,202 2,550,000
114,948 7,635,000 402,276 3,810,000
94,080 7,470,000 624,554 5,610,000
S1-1
<PAGE>
PN# Property Property
Type
- ----------------------------------------------------------------------------
18 CA0010612 AutoMall Parkway Fremont CA Industrial
19 CA0370092 20801&20821 Santa Fe Ave. Carson CA Industrial
20 CA0370130 12801 Busch/9303 Greenleaf Santa Fe Springs CA Industrial
Ave.
21 CA0372060 4551, 4575 & 4567 Loma Vernon CA Industrial
Vista
22 CA0372062 4560 Loma Vista Vernon CA Industrial
23 CA0372066 4900 Loma Vista Ave. Vernon CA Industrial
24 CA0372067 4578 E. 49th St. Vernon CA Industrial
25 CA0372068 4501-4561 E. 49th St. Vernon CA Industrial
26 CA0372079 4507-4547 & 4553-4587 Vernon CA Industrial
Maywood Ave.
27 CA0372081 4592-4626 E. 48th St., Vernon CA Industrial
4593-4625 E. 49th St.,
4665 E. 49th Street
28 CA0372082 4592-4626 E. 48th St., Vernon CA Industrial
4593-4625 E. 49th St.,
4665 E. 49th Street
29 CA0372085 4575 - 4599 District Blvd. Vernon CA Industrial
30 CA0373101 16400 Trojan Way La Mirada CA Industrial
31 CA0374501 1700 & 1800 Bay Street Los Angeles CA Industrial
32 CA0375303 12202 E. Slauson Ave. Santa Fe Springs CA Industrial
33 CA0591019 4950 E. Hunter Anaheim CA Industrial
34 CA0591020 4990 E. Hunter Anaheim CA Industrial
35 CA0591024 4955 E. Landon Dr. Anaheim CA Industrial
36 CA0591025 4985 E. Landon Dr. Anaheim CA Industrial
SF Fair Market Allocated
Value Loan
NOI
- -------------------------------------------------------
376,260 23,555,000 2,051,491 17,700,000
(plus
----
acres of
Expansion
Land)
251,785 9,900,000 918,725 7,440,000
169,638 7,400,000 596,933 5,540,000
106,059 4,600,000 390,085 3,460,000
47,000 2,400,000 259,007 1,800,000
26,923 1,300,000 97,704 910,000
26,653 1,300,000 101,528 940,000
48,187 2,400,000 204,074 1,800,000
222,656 8,900,000 820,647 6,690,000
61,680 3,000,000 279,969 2,250,000
49,250 2,400,000 179,217 1,670,000
69,510 3,700,000 339,839 2,780,000
220,000 8,800,000 840,600 6,610,000
61,415 4,200,000 410,074 3,160,000
100,000 4,500,000 397,841 3,380,000
28,185 1,780,000 133,723 1,300,000
24,955 1,550,000 126,494 1,160,000
20,705 1,510,000 89,889 820,000
39,285 2,300,000 170,604 1,610,000
S1-2
<PAGE>
PN# Property Property
Type
- ----------------------------------------------------------------------------
37 CA0591054 5055 Landon Dr./ 5055 E. Anaheim CA Industrial
Hunter Ave.
38 CA0591103 2245 North Glassell St. Anaheim CA Industrial
39 CA0591152 222 E. Bristol Lane Orange CA Industrial
40 CA0591251 230 W. Blueridge Ave. Orange CA Industrial
41 CA0591252 324 W. Blueridge Ave. Orange CA Industrial
42 CA0591434 1915 South Grand Ave. Santa Ana CA Industrial
43 CA0591553 1200 Edinger St. Tustin CA Industrial
44 CA0592601 14352 Franklin Ave. Tustin CA Industrial
45 CA0712412 5525 Concours St. Ontario CA Industrial
46 CA0712430 1051 N. Wineville Ave. Ontario CA Industrial
47 CA0712434 740 Vintage Ave. Ontario CA Industrial
48 CA0713526 5351 Jurupa Ave. Ontario CA Industrial
49 CA0713551 5130 Santa Ana Street Ontario CA Industrial
50 CA0713561 Sweet HeartCups/ 751 & 851 Ontario CA Industrial
Vintage Ave.
51 CA0770659 6810 S. McKinley Stockton CA Industrial
52 IL1970104 Gillette Romeoville IL Industrial
53 IL1970335 GATX/ 2649 Internationale Woodridge IL Industrial
Pkwy
54 OK1090404 7201 S. Sunnylane Rd. Oklahoma City OK Industrial
55 TX1130338 3737 Grader St. Garland TX Industrial
56 CA0374803 9121 Oakdale Avenue Chatsworth CA Office
SF Fair Market Allocated
Value Loan
NOI
- -------------------------------------------------------
130,466 7,200,000 751,450 5,410,000
54,177 3,230,000 262,300 2,430,000
35,000 3,100,000 175,464 1,600,000
106,302 5,100,000 440,221 3,830,000
38,793 2,300,000 190,827 1,720,000
44,420 2,800,000 225,618 2,100,000
39,600 2,770,000 206,002 1,980,000
65,910 4,030,000 329,941 3,030,000
300,136 10,300,000 916,169 7,740,000
201,454 7,600,000 714,631 5,710,000
(plus
----
acres of
Expansion
Land)
180,608 6,300,000 547,036 4,730,000
405,864 12,700,000 1,430,708 9,540,000
141,150 4,300,000 339,101 2,910,000
528,000 18,800,000 1,490,677 14,120,000
500,000 15,500,000 1,339,439 11,640,000
532,000 19,600,000 1,554,607 14,720,000
(plus
----
acres of
Expansion
Land)
240,000 8,600,000 723,278 6,460,000
(plus
----
acres of
Expansion
Land)
124,905 4,000,000 418,716 3,010,000
226,807 7,400,000 612,351 5,370,000
56,391 6,200,000 622,039 4,660,000
S1-3
<PAGE>
PN# Property Property
Type
- ----------------------------------------------------------------------------
57 CA0374804 9131 Oakdale Avenue Chatsworth CA Office
58 CA0374805 9201 Oakdale Avenue Chatsworth CA Office
59 CA0374806 9211 Oakdale Avenue Chatsworth CA Office
60 CA0591031 4905 E. La Palma Ave. Anaheim CA Office
61 CA0591151 2301 N. Glassell St. Orange CA Office
62 CA0591430 1717 South Grand Ave. Santa Ana CA Office
63 CA0591504 1311 East Valencia Tustin CA Office
64 CA0591512 15222 Del Amo Tustin CA Office
65 CA0591552 1361 Valencia Tustin CA Office
66 CA0592501 4000 Westerly Place Newport Beach CA Office
67 IL0311251 224 South Michigan Ave. Chicago IL Office
68 CA0010251 1300-1310 University Ave. Berkeley CA Retail
69 CA0010598 Home Depot/3838 Hollis Emeryville CA Retail
Street
70 CA0010601 Pak 'N' Save/1199 40th St. Emeryville CA Retail
71 CA0010603 Kmart/1555 40th Street Emeryville CA Retail
72 CA0591557 1100 Edinger St. Tustin CA Retail
73 CA0010173 210 Fallon St. Oakland CA GL
74 CA0370011 4790 West Pico Blvd. Los Angeles CA GL
75 CA0370050 1210 County Rd Pomona CA GL
76 CA0370051 240 South Arroyo Pkwy Pasadena CA GL
77 CA0370225 12865 Ann St./9415 Santa Fe Springs CA GL
Greenleaf Ave.
78 CA0374801 19800-19808 Nordhoff Pl. Northridge CA GL
79 CA0374802 19840-19860 Nordhoff Pl. Northridge CA GL
80 CA0374813 20001 Prairie St. Northridge CA GL
81 CA0374814 9301 Oakdale Ave. Northridge CA GL
SF Fair Market Allocated
Value Loan
NOI
- -------------------------------------------------------
43,117 5,000,000 528,683 3,760,000
53,292 6,300,000 599,714 4,730,000
61,536 7,000,000 620,344 5,140,000
130,595 11,000,000 1,000,735 8,260,000
40,000 3,300,000 215,423 1,800,000
61,193 6,100,000 563,022 4,580,000
69,763 6,840,000 592,055 5,140,000
59,825 6,000,000 374,186 2,450,000
75,226 6,120,000 425,720 3,670,000
45,574 4,500,000 326,849 2,290,000
369,511 41,400,000 3,438,159 23,950,000
3,695 980,000 77,008 740,000
102,501 15,300,000 1,285,658 11,490,000
71,190 8,800,000 865,388 6,610,000
117,000 13,500,000 1,265,782 10,140,000
39,600 4,000,000 334,848 3,010,000
89,298 1,170,000 90,125 940,000
564,975 9,900,000 708,421 7,720,000
89,337 1,420,000 80,187 873,000
3,650 840,000 44,595 490,000
68,520 1,100,000 89,369 880,000
44,000 1,550,000 109,013 1,194,000
42,000 1,800,000 129,429 1,410,000
84,458 2,800,000 247,994 2,240,000
70,340 3,100,000 231,232 2,480,000
S1-4
<PAGE>
PN# Property Property
Type
- ----------------------------------------------------------------------------
82 CA0374815 9401 Oakdale Ave. Northridge CA GL
83 CA0374816 19900 Plummer St. Northridge CA GL
84 CA0374823 19755 Nordhoff Pl. Northridge CA GL
85 CA0374824 19737 Nordhoff Pl. Northridge CA GL
86 CA0374825 9111 Corbin Ave. Northridge CA GL
87 CA0374826 9111 Corbin Ave. Northridge CA GL
88 CA0374827 9145 Corbin Ave. Northridge CA GL
89 CA0374828 9146 Corbin Ave. Northridge CA GL
90 CA0374829 19734-19736 Dearborn St. Northridge CA GL
91 CA0374830 19748 Dearborn St. Northridge CA GL
92 CA0374831 19748 Dearborn St. Northridge CA GL
93 CA0374832 19735 Dearborn St. Northridge CA GL
94 CA0374833 9221 Corbin Ave. Northridge CA GL
95 CA0374834 9221 Corbin Ave. Northridge CA GL
96 CA0374835 9255 Corbin Avenue, Lot #38 Northridge CA GL
97 CA0374836 9255 Corbin Avenue, Lot #39 Northridge CA GL
98 CA0374837 9255 Corbin Avenue, Lot #40 Northridge CA GL
99 CA0374838 19756 Prairie St. Northridge CA GL
100 CA0374839 9301 Corbin Ave. Northridge CA GL
101 CA0374840 9401 Corbin Ave. Northridge CA GL
102 CA0374841 9451 Corbin Ave. Northridge CA GL
103 CA0590125 1421 North Wanda Rd Orange CA GL
104 CA0650127 257-299 Railroad Canyon Dr. Lake Elsinore CA GL
105 CA0710214 Helendale Rd Helendale CA GL
SF Fair Market Allocated
Value Loan
NOI
- -------------------------------------------------------
97,336 3,200,000 320,083 2,560,000
43,472 1,800,000 175,990 1,440,000
14,950 160,000 8,685 90,000
35,000 410,000 14,449 170,000
13,500 187,312 22,708 150,000
13,500 232,688 24,853 185,000
4,330 168,945 24,110 135,000
4,330 161,055 13,949 129,000
29,200 260,000 19,537 208,000
28,350 200,000 17,108 160,000
35,400 280,000 17,106 190,000
24,350 270,000 14,189 150,000
25,972 387,849 98,528 310,000
25,972 412,151 39,630 330,000
14,491 291,499 24,874 230,000
14,491 226,226 20,042 180,000
14,491 282,274 24,184 226,000
20,898 140,000 12,732 110,000
113,900 2,100,000 295,199 1,680,000
114,800 2,200,000 272,954 1,760,000
114,800 1,900,000 234,981 1,520,000
24,579 1,300,000 107,674 1,040,000
10,770 300,000 11,807 120,000
0 1,800,000 153,800 1,440,000
S1-5
<PAGE>
PN# Property Property
Type
- ----------------------------------------------------------------------------
106 CA0710625 505 West 2nd St. San Bernardino CA GL
107 CA0850031 2550 Zanker Rd San Jose CA GL
108 CA0850032 590 Brennan St. San Jose CA GL
Improved Properties
Ground Leases
Total Portfolio
SF Fair Market Allocated
Value Loan
NOI
- -------------------------------------------------------
8,400 900,000 66,337 720,000
174,997 1,200,000 88,683 960,000
109,400 2,000,000 166,013 1,600,000
8,997,269 476,380,000 40,531,582 336,980,000
0 46,449,999 4,020,571 36,020,000
------------------------------------------------------
8,997,269 522,829,999 44,552,153 373,000,000
S1-6
<PAGE>
SCHEDULE 2
----------
MAJOR TENANTS/LEASES
PN# Tenant Property
- --------------------------------------------------------------------------------
1. AZ0131405 Microage Computer Centers 2925 South Roosevelt
AZ0131407 Microage Computer Centers 421 West Alameda
AZ0131406 Microage Computer Centers 443 West Alameda
2. CA0010612 Office Depot AutoMall Parkway
3. CA0370092 H.J. Heinz 20801 & 20821 Santa Fe Ave.
4. CA0370130 Galleher Hardwood Company 12801 Busch/9303 Greenleaf
5. CA0372079 Pepboys 4507-4587 Maywood
6. CA0373101 Mohawk Industries 16400 Trojan Way
7. CA0591054 Anixter Inc. 5055 Landon Dr.
8 CA0591434 Iron Mountain 1915 Grand Ave.
9. CA0591504 3M Company 1311 Valencia
10. CA0591552 Scan-Tron Corp. 1361 Valencia
11. CA0712412 Dunlop Tire Corp. 5525 Concourse Dr.
12. CA0712430 Ameriserve Food Dist. 1051 N. Wineville
13. CA0712434 The Kendall Co. 2059 Vintage Ave.
14. CA0713526 Preferred Public Storage 5351 Jurupa Ave.
15. CA0713561 SweetHeart Cup Co. Sweet HeartCups
16. IL1970335 GATX GATX
17. TX1130338 ASD Systems 3737 Grader St.
18. CA0374805 St. Ives Lab 9201 Oakdale Avenue
19. IL0311251 Sara Lee Bakery 224 South Michigan Avenue
20. CA0010598 Home Depot USA Home Depot
City State SF/Acres
- ------------------------------------------------
Tempe AZ 111,337
Tempe AZ 165,646
Tempe AZ 133,291
Fremont CA 376,260
Carson CA 133,240
Santa Fe Springs CA 94,850
Vernon CA 137,307
La Mirada CA 220,000
Anaheim CA 130,466
Santa Ana CA 44,420
Tustin CA 69,763
Tustin CA 75,226
Ontario CA 300,136
Ontario CA 201,454
Ontario CA 180,608
Ontario CA 405,864
Ontario CA 528,000
Woodridge IL 240,000
Garland TX 112,881
Chatsworth CA 53,292
Chicago IL 94,470
Emeryville CA 102,501
S2-1
<PAGE>
21. CA0010601 Pak'N'Save Pak `N' Save
22. CA0010603 Kmart Kmart
23. CA0370011 Midtown Shopping Ctr. 4790 West Pico Boulevard
24 CA0374813 Washington Mutual 20001 Prairie Street
25. CA0374814 Commonwealth Life 9301 Oakdale Avenue
26. CA0374815 Valley Associates 9401 Oakdale Avenue
27. CA0374823 W & K Investment Co. 19755 Nordhoff Place
CA0374824 W & K Investment Co. 19737 Nordhoff Place
CA0374829 W & K Investment Co. 19734-19736 Dearborn Street
CA0374830 W & K Investment Co. 19748 Dearborn Street
CA0374831 W & K Investment Co. 19748 Dearborn Street
CA0374832 W & K Investment Co. 19735 Dearborn Street
CA0374835 W & K Investment Co. 19749 Dearborn Street
CA0374838 W & K Investment Co. 19756 Prairie Street
Emeryville CA 59,195
Emeryville CA 117,000
Los Angeles CA 14.7
Northridge CA 3.2
Northridge CA 3.2
Northridge CA 3.5
Northridge CA 0.7
Northridge CA 1.1
Northridge CA 1.1
Northridge CA 1.3
Northridge CA 1.3
Northridge CA 1.1
Northridge CA 1.3
Northridge CA 1.0
1-2
<PAGE>
SCHEDULE 3
----------
Reserve Calculations for
Cash Management Periods
Reserves would be paid monthly; however the formula for each Reserve, as set
forth below, would be determined on the commencement of the Cash Management
Period and each year thereafter.
For all Reserves:
CPI = Average annual CPI (for the period since the Closing Date)
n = Number of years since the Closing Date.
S.F. = Total square footage of properties securing the loan at the time of
calculation, excluding square feet of ground lease properties.
R = Rollover equal to square footage of space by property type with leases
maturing over the next 12 months
For Replacement Reserves:
[$.15 x ((1+CPI)/n/) x S.F.]/12
For Tenant Improvement Reserves:
[[T x (1 + CPI) /n/] x R]/12
Tenant Improvements per square foot for each property type, as described on
Schedule 1, are:
Industrial: TI = $1.40 PSF
Retail: TR = $7.50 PSF
S3-1
<PAGE>
Schedule 4
----------
Deferred Maintenance
Office: TO = $12.00 PSF
Ground Lease: N/A
For Leasing Commission Reserves:
[[C x (1 + CPI) /n/] x R]/12
Leasing Commissions per square foot for each property type, as described on
Schedule 1, are: (Average Underwritten Market Rent PSF x Average Lease Term x
5%)
Industrial: CI = $1.90 PSF
Retail: CR = $5.90 PSF
Office: CO = $6.80 PSF
Ground Lease: N/A
1-2
<PAGE>
Schedule 4
Deferred Maintenance
PN Property Square Cost of
Feet Immediate
Repairs
- ---- ---------- -------------------- --------- ---------- ---------------------
1 CA0591553 1200 East Edinger 39,600 $228,520
Tustin, CA
2 CA0010251 1310 University Avenue 3,695 $26,787
Berkeley, CA
3 CA0372079 4507-4547 & 222,656 $25,500
4559-4587 Maywood Avenue
Vernon, CA
4 CA0591152 222 Bristol 35,000 $24,615
Orange, CA
Immediate Repair Needs
- ---------------------------
Repair the irrigation
system. Seal between
construction joints
at truck yard. Paint
metal railing at dock
door ramp and apply
rust inhibitors.
Paint exteriors.
Replace roof and
skylights over
warehouse and office.
Replace office interiors.
Seal coat and restripe parking lot.
Provide weather stripping at rear entry.
Fix roof drainage and re roof. Replace
roof top HVAC equipment. Strap water
heater for seismic hazards. See ADA
recommendations.
Seal coat paving and restripe.
Install a cover over the trench on the
southeast side of the property. Overlay
and re-stripe asphalt parking area.
<PAGE>
Schedule 4
Deferred Maintenance
PN Property Square Cost of
Feet Immediate
Repairs
- ---- ---------- -------------------- --------- ---------- ---------------------
5 CA0010538 30029-30031 Ahern Avenue 82,944 $20,578
Union City, CA
6 CA0372068 4501-4561 East 49th Street 48,187 $20,349
Vernon, CA
7 CA0591557 1100 East Edinger 39,600 $19,560
Tustin, CA
8 CA0010523 30000 Eigenbrodt Way 116,747 $17,287
Union City, CA
9 AZ0131403 2404 South Wilson 93,366 $17,150
Tempe, AZ
Immediate Repair Needs
- ---------------------------------
Repair the concrete approach at the
entrance drive to the facility. Replace
the four damaged loading dock shelters.
Replace caulking at expansion joints.
Replace the non-functional RVAP motor in
the rooftop package units.
Patch and repair roof leaks at skylights.
Minor paving/ patching. Paint exterior
walls. Paint exterior handrails. Repair
and reseal windows. Caulk and seal corner
walls in offices. Paint existing OH and man
doors.
Sealcoat asphalt parking area. Repair
fence along northwest side.
Replace 10 of the building mounted lights
and 1 landscaping lights. Recaulk expansion
joints. Seal cracks in the concrete
walls. Secure loose hand rail on the
interior staircase. Seal cracks in the
mineral surface cap sheet.
Overlay the asphalt parking area in front
of dock. Repaint exterior. Remove and
replace caulking sealants at construction
joints.
S4-2
<PAGE>
Schedule 4
Deferred Maintenance
PN Property Square Cost of
Feet Immediate
Repairs
- ---- ---------- -------------------- --------- ---------- ---------------------
10 CA0010511 29959 Ahern Avenue 86,900 $14,388
Union City, CA
11 AZ0131405 2925 South Roosevelt 111,337 $14,194
Tempe, AZ
12 CA0010510 2900 Faber Street 126,144 $13,020
Union City, CA
13 CA0591151 2301 North Glassell 40,000 $12,700
Orange, CA
14 AZ0131406 443 West Alameda 133,291 $12,409
Tempe, AZ
15 CA0010511 29987-29995 Ahern Avenue 88,704 $10,488
Union City, CA
Immediate Repair Needs
- -------------------------------
Replace the three damaged Kelley Tufseal
loading dock shelters. Replace the
caulking at expansion joints.
Perform asphalt repairs and surface
sealcoat parking area. Screen off
abandoned equipment to prevent pigeons from
inhabiting it.
Recaulk expansion joints throughout the
facility. Seal cracks in the concrete wall
at the west side of the building. Repair
damaged partition wall at the north side of
the building.
Patch asphalt, surface sealcoat and
restripe parking area. Add GFCI
receptacles to sinks and lavatories.
Perform asphalt parking area repairs.
Perform maintenance on evaportive coolers.
Replace the caulking at expansion joints.
S4-3
<PAGE>
Schedule 4
Deferred Maintenance
PN Property Square Cost of
Feet Immediate
Repairs
- ---- ---------- -------------------- --------- ---------- ---------------------
16 CA0591430 1717, 1719, & 61,126 $9,983
1721 S. Grand Avenue
Santa Ana, CA
17 CA0010513 30009-30023 Ahern Avenue 44,972 $9,326
Union City, CA
18 CA0591504 1311 Valencia Avenue 69,763 $9,170
Tustin, CA
19 CA0713526 5351 Jurupa Street 405,864 $9,125
Ontario, CA
20 CA0591103 2245 North Glassell 54,177 $8,925
Orange, CA
Immediate Repair Needs
- ------------------------------------
Inspect and seal large cracks in parking
areas. Sealcoat and restripe parking
areas. Repaint and reletter concrete
curbing. ADA recommendations.
Replace the caulking at expansion joints.
Perform asphalt overlay. Re-grade the
area along the east parking area to drain
into the concrete swales and repair base
failure on east side when asphalt
overlay is performed. Inspect leak under
HVAC equipment Update elevator inspection.
Seal cracks in concrete pavement at
loading dock areas. Repaint steel picket
security gates at loading dock entrances.
Repair and repaint broken gates at dumpster
enclosures. Also see ADA recommendations.
Repair asphalt parking and apply surface
sealcoat. Replace sagging lavatory
counters in restrooms.
S4-4
<PAGE>
Schedule 4
Deferred Maintenance
PN Property Square Cost of
Feet Immediate
Repairs
- ---- ---------- -------------------- --------- ---------- ---------------------
21 CA0372082 4665 East 49th Street 49,250 $8,914
Vernon, CA
22 CA0591252 324 West Blueridge Avenue 38,793 $8,720
Orange, CA
23 CA0372081 4592-4626 East 48th 61,680 $7,400
Street &
4593-4625 East 49th Street
Vernon, CA
24 CA0010525 6909 Las Positas 131,128 $7,394
Livermore, CA
25 CA0374501 1700 Bay Street 72,584 $7,100
26 CA0370130 12801 Busch Place and 169,638 $6,394
Greenleaf Avenue
Santa Fe Springs, CA
Immediate Repair Needs
- ---------------------------------
Patch cracking on exterior walls and
repaint. Secure roof access ladder.
Replace missing H/C parking sign.
Repair separated waste pipe on north side.
Patch and repair roof leaks at sky lights.
Minor AC paving patching. Remove and
replace concrete at low spot at 4604 E.
48th Street.
Reseal and restripe parking and drive
areas. Repaint exterior metal doors.
Patch and repair roof and skylights. Patch
and cracking on exterior walls and
repaint. Repair concrete paving cracks.
Replace damaged ceiling tiles. Paint
handicap parking sign.
Seal coat and restripe. ADA recommendations.
S4-5
<PAGE>
Schedule 4
Deferred Maintenance
PN Property Square Cost of
Feet Immediate
Repairs
- ---- ---------- -------------------- --------- ---------- ---------------------
27 CA0591512 15222 Del Amo 59,825 $5,480
Tustin, CA
28 CA0373101 16400 Trojan Way 220,000 $5,010
La Mirada, CA
Total Immediate Repairs: $580,486
125% of Repairs = Amount Escrowed at Closing: $725,600
Immediate Repair Needs
- --------------------------------
Surface sealcoat parking area and
restripe. Remove stored items from in front
of the main electrical equipment. Update
elevator inspection. Replace insulation on
lavatory pipes.
Replant grass. Repair CMU retaining wall.
Repair potholes. Replace bumpers on loading
docks. Repair curbs, damaged concrete wall,
cracked floor and tilt-up walls, concrete
steps, and bent hand rails. Replace damaged
gates. ADA recommendations.
S4-6
<PAGE>
SCHEDULE 5.1(w)
Flood Zones
- ------------------------- ------------------------------------------ -----------
PN# Property Address City
- ------------------------- ------------------------------------------ -----------
- ------------------------- ------------------------------------------ -----------
CA0010591 6120 Stewart Ave. Fremont
- ------------------------- ------------------------------------------ -----------
- ------------------------- ------------------------------------------ -----------
CA0010592 41300-41400 Boyce Road Fremont
- ------------------------- ------------------------------------------ -----------
- ------------------------- ------------------------------------------ -----------
CA0370011 4790 West Pico Blvd. Los Angeles
- ------------------------- ------------------------------------------ -----------
- ------------------------- ------------------------------------------ -----------
CA0850031 Trimble & Zanker Rd. San Jose
- ------------------------- ------------------------------------------ -----------
- ------------------------- ------------------------------------------ -----------
CA0850032 590 Brennan St. San Jose
- ------------------------- ------------------------------------------ -----------
- ------------------------- ------------------------------------------ -----------
GATXStockton 6810 S. Mckinley Stockton
- ------------------------- ------------------------------------------ -----------
- ------- ----------- ------------------
State Flood Zone
- ------- ----------- ------------------
- ------- ----------- ------------------
CA AO
- ------- ----------- ------------------
- ------- ----------- ------------------
CA AO
- ------- ----------- ------------------
- ------- ----------- ------------------
CA AO
- ------- ----------- ------------------
- ------- ----------- ------------------
CA AH
- ------- ----------- ------------------
- ------- ----------- ------------------
CA AO
- ------- ----------- ------------------
- ------- ----------- ------------------
CA AO/X
- ------- ----------- ------------------
<PAGE>
SCHEDULE 5.1(ee)(ii)
Lease Defaults
- ----------------- ---------------------------------- --------------------------
PN# Property Tenant
- ----------------- ---------------------------------- --------------------------
CA0010601 East Bay Bridge 1199 40th Street Pak N Save
Emeryville, CA
- ----------------- ---------------------------------- --------------------------
- ----------------- ---------------------------------- --------------------------
CA0591031 4905 E. La Palma Anaheim, CA Micro Technology
- ----------------- ---------------------------------- --------------------------
- ----------------- ---------------------------------- --------------------------
CA037285 4575 District Blvd. Vernon, CA Lucky Brand Dungarees
- ----------------- ---------------------------------- --------------------------
- --------------------------------------
Description
- --------------------------------------
Non-payment of prior year CAM
reconciliation totaling about $54K.
The amount is in dispute.
- --------------------------------------
- --------------------------------------
Non-payment of prior year tax
reconciliation totaling $96K. The
amount is in dispute.
- --------------------------------------
- --------------------------------------
Non-payment of rent totaling about
$12K.
- --------------------------------------
S5.1(ee)(ii)-1
<PAGE>
SCHEDULE 5.1(ee)(iii)
Rent Paid More than 30 Days in Advance
The following Ground Lease Tenants pay Base Rent quarterly in advance, most
recently with a due date of October 1, 1998:
- --------------------------------------------------------------------------------
PN# Tenant Name Address
- --------------------------------------------------------------------------------
CA0370225 Greenleaf Associates 12865 Ann Street, Santa Fe Spring, CA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374814 Commonwealth Life 9301Oakdale Avenue, Northridge, CA
91311
Insurance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374815 Valley Associates 9401 Oakdale Avenue, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374816 Lot 17 Associates 19900 Plummer Street, Northridge, CA
91311
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CA0374823 W&K Investment Co. 19755 Nordoff Place, Northridge, CA
91311
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374824 W&K Investment Co. 19737 Nordoff Place, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374825 Gerald L. Katell Trust 9111 Corbin Avenue, Northridge, CA
and Linda J. Katell 91311
Trust
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374827 Lot 30 Associates 9145 Corbin Avenue, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374828 Lot 30 Associates 9145 Corbin Avenue, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374829 W&K Investment Co. 19734-19736 Dearborn Street,
Northridge, CA 91311
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CA0374830 W&K Investment Co. 19749 Dearborn Street, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374831 W&K Investment Co. 19748 Dearborn Street, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374832 W&K Investment Co. 19735 Dearborn Street, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374833 Northridge Associates 9221 Corbin Avenue, Northridge, CA
91312
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374834 Northridge Associates 9221 Corbin Avenue, Northridge, CA
91312
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374835 W&K Investment Co. 9255 Corbin Avenue, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374836 W&K Investment Co. 9255 Corbin Avenue, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374837 W&K Investment Co. 9255 Corbin Avenue, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374838 W&K Investment Co. 19756 Praire Street, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374839 W&K Investment Co. 9301 Corbin Avenue, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
S5.1(ee)(iii)-1
CA0374840 W&K Investment Co. 9401 Corbin Avenue, Northridge, CA
91311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CA0374841 Charles Dunn Co. 9451Corbin Avenue, Northridge, CA
91311
- --------------------------------------------------------------------------------
S5.1(ee)(iii)-2
<PAGE>
SCHEDULE 5.1(ee)(v)
Tenants Not in Occupancy
- ------------------- ----------------------------- ---------------------
PN# Property Property Type
- ------------------- ----------------------------- ---------------------
CA0010525 6909 Las Positas Rd. Industrial Bldg
Livermore, CA
- ------------------- ----------------------------- ---------------------
- ------------------- ----------------------------- ---------------------
CA0713561 751 N. Vintage Ave. Industrial Bldg
Ontario, CA
Description
- ---------------------------------------
A tenant, M.A. Hannah Resin has
executed a lease for 42,624, sf, but
will not take occupancy until 11/1/98
- ---------------------------------------
- ---------------------------------------
A tenant, URS Logistics Inc. dba
Americold, has executed a lease for
130,454 sf, but will not take
occupancy until 12/1/98
S5.1(ee)(v)-1
<PAGE>
SCHEDULE 5.1(ee)(ix)
Tenant Affiliated Leases
- ----------------------- ------------------------- ---------------
Affiliate Name Address Sq. Ft.
- ----------------------- ------------------------- ---------------
- ----------------------- ------------------------- ---------------
Catellus Residential 3990 Westerly Place 3,848
Group Ste. 100
Newport Beach, CA
- ----------------------- ------------------------- ---------------
- ----------------------- ------------------------- ---------------
Catellus Development 4000 Westerly Place 4,877
Corporation Ste. 200
Newport Beach, CA
- ----------------------- ------------------------- ---------------
------------------------- -----------------
Commencement Date Expiration Date
------------------------- -----------------
------------------------- -----------------
March 1, 1998 February 28,
2001
------------------------- -----------------
------------------------- -----------------
July 1, 1998 June 30, 2001
S5.1(ee)(ix)-1
<PAGE>
EXHIBIT 10.22
MEMORANDUM
PERSONAL AND CONFIDENTIAL
TO: Doug Gardner
FROM: Nelson Rising
DATE: November 14, 1997
RE: Memorandum of Understanding Regarding Employment
On behalf of Catellus Development Corporation ("Catellus"), I am pleased to
confirm our offer of employment to you. This Memorandum of Understanding
("Memorandum") sets forth the terms of your employment with Catellus Development
Corporation ("Catellus"), and entirely supersedes any previous understandings,
whether oral or in writing.
The following provisions will govern your employment with Catellus:
* Effective October 1, 1997, you became a full-time, regular employee with
the title of Vice President, and you will be continue to be expected to
handle such responsibilities and perform such work as may be assigned.
* You acknowledge and agree that your employment will be "at-will" and
that either Catellus or you, at any time, with or without cause and
with or without notice, may terminate the employment relationship,
including all compensation and benefits. However, should Catellus
terminate your employment without cause before October 1, 2000, (A)
Catellus will pay to you the amount of your cash compensation and
total bonus (Target Bonus and Additional Bonus, both as defined below)
for the preceding calendar year, or if the termination without Cause
occurs before December 31, 1998, the amount of your base salary and
Target Bonus for the year during which the termination without Cause
occurs, and (B) the options awarded to you pursuant hereto will vest
immediately. For purposes of this Agreement, "Cause" means that the
Chief Executive Officer ("CEO") shall have determined that any of the
following events has occurred: (i) the substandard performance by the
Employee of his duties and authorities, based on the level of
competence, consistency, quality, integrity or achievement considered
desirable by the CEO, (ii) the commission by the Employee of an act of
fraud or embezzlement, (iii) misconduct by the Employee as an employee
of the Company or any affiliate, including without limitation the
unauthorized disclosure of confidential or proprietary information of
the Company or any affiliate by the Employee, or (iv) any other
failure of the Employee properly to discharge the duties and
authorities of his position which the CEO determines (A) constitutes a
material neglect of the Employee's duties or authorities, (B)
constitutes a breach of the Employee's fiduciary duties to the Company
and its stockholders or (C) involves
<PAGE>
any criminal activity on the part of the Employee or exposes the Company or
any affiliate to any inappropriate risk.
* You will be compensated at the initial Monthly Salary rate of Fifteen
Thousand Dollars ($15,000.00), payable in accordance with Catellus' normal
payroll practices and subject to all applicable tax withholding requirements.
* You will receive in 1997 a total grant of stock options to purchase 100,000
shares of Catellus stock under the Company's Executive Stock Option Plan.
* For 1997, you have received contemporaneously herewith a signing bonus of
$35,000 (less applicable withholding). In addition, you will be eligible
for 1997 to receive a Target Bonus of up to 60% of your base salary
actually paid in 1997, subject to satisfaction of target performance
criteria as determined by Senior Management. For 1997 you will also be
eligible for an Additional Bonus of up to 60% of your Base Salary actually
paid in 1997, subject to satisfaction of the criteria for exceptional
performance as determined by Senior Management. The performance criteria
will be established by Senior Management and may relate to individual
goals, company or division goals, or a combination. The maximum bonus
potential will be paid only for extraordinary performance. To be eligible
for either bonus, you must remain employed through the date the bonus is
paid. Any bonus which you are entitled to receive for 1997 will be paid no
later than March 31, 1998. With respect to future years, Senior Management
will determine your eligibility to participate in such bonus programs as
may be made available by Catellus to executives of your level.
* You will receive an automobile allowance of $726.75 per month.
* As a condition of employment, you will be required to review the Company's
Personnel Policies Manual (sent to you under prior correspondence), execute
the Manual's Receipt and Acknowledgement (which is the last page of the
Manual), and return such Receipt and Acknowledgment to Jaime Gertmenian no
later than December 15, 1997.
* This Memorandum will be governed by the laws of the State of California.
ACKNOWLEDGEMENT AND AGREEMENT
-----------------------------
I agree to the terms of this Memorandum.
Dated: /s/ Douglas J. Gardner
____________________________ _____________________________________
Doug Gardner
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF CATELLUS DEVELOPMENT CORPORATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Percentage
Type of Owned by Jurisdiction of
Entity Entity Catellus Organization
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Akins-Seyen General Partnership GP 50%/1/ California
- -----------------------------------------------------------------------------------------------------------------
ANT II, LLC (also doing business as ANT Properties II, L.L.C.
and ANT II, L.L.C.) LLC 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
ANT, LLC (also doing business as ANT Properties II, LLC
and ANT, L.L.C.) LLC /2/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Bridgecourt Partners GP 19%/3/ California
- -----------------------------------------------------------------------------------------------------------------
Carlsbad Laurel Tree Apartments, LP LP 50%/4/ California
- -----------------------------------------------------------------------------------------------------------------
Catellus Commercial Group, LLC (formerly Catellus Tug, LLC) LLC 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Construction Corporation Corp 100%/5/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Fiber Optics, LLC (also doing business as
Catellus Fiber Optics, L.L.C.) LLC 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Finance 1, L.L.C. LLC 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Fort Carson, LLC LLC 100%/6/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Management Corporation Corp 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Management Corporation of Canada (USA) Corp 100%/7/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Management Corporation of Canada Ltd. Corp. 100%/8/ Yukon Territory
- -----------------------------------------------------------------------------------------------------------------
Catellus Mixed Use Group, LLC (formerly Catellus LLC 100% Delaware
Mixed Use Land Development, LLC)
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Communities, Inc. Corp 100%/9/ California
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Construction, Inc. Corp 100%/10/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Design Center, Inc. Corp 100%/11/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Financial Services, LP LP 70%/12/ California
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Group, Inc. Corp 100% California
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Homes Corp. I Corp 100%/13/ California
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Marbella, Inc. Corp 100%/14/ California
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Ocean Ridge, Inc. Corp 100%/15/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Ridgemoor Homes, Inc. Corp 100%/16/ California
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Ridgemoor, Inc. Corp 100%/17/ California
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Tustin II LLC LLC 100%/18/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Vista Ladera L.L.C. LLC 100%/19/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Residential Westchester, L.L.C. LLC 50%/20/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Catellus Union Station, Inc. Corp 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
CRG-CDI Oxnard LLC LLC 50%/21/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Cuatro Catellus, LP LP 66.5%/22/ California
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Percentage
Type of Owned by Jurisdiction of
Entity Entity Catellus Organization
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dallas International Ltd. LP 25.21%/23/ Texas
- -----------------------------------------------------------------------------------------------------------------
Desert Housing LLC LLC 60%/24/ California
- -----------------------------------------------------------------------------------------------------------------
Design Center Services GP 75%/25/ California
- -----------------------------------------------------------------------------------------------------------------
Design Properties, Inc. Corp. /26/ California
- -----------------------------------------------------------------------------------------------------------------
Desman Road Partners Part 37.82% California
- -----------------------------------------------------------------------------------------------------------------
GGF Holdings, LLC LLC 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
GGF Property, LLC LLC 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
Golden Empire Investment Corporation Corp 100%/27/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Harbor Drive Company Corp 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
International Rivercenter LP 25.16% Louisiana
- -----------------------------------------------------------------------------------------------------------------
New Orleans International Hotel LP 14.15%/28/ Louisiana
- -----------------------------------------------------------------------------------------------------------------
New Orleans Rivercenter GP /29/ Louisiana
- -----------------------------------------------------------------------------------------------------------------
Pacific Design Center GP 75%/30/ California
- -----------------------------------------------------------------------------------------------------------------
Pacific Market Investment Company GP/JV 50%/31/ California
- -----------------------------------------------------------------------------------------------------------------
Riding-Catellus Golden Gate LLC LLC 80%/32/ Delaware
- -----------------------------------------------------------------------------------------------------------------
RVL, Inc. Corp 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
Santa Fe Bayfront Venture (fka JMB/Santa Fe Bayfront Venture) JV 100%/33/ California
- -----------------------------------------------------------------------------------------------------------------
Santa Fe Towers Land Company Corp 100% California
- -----------------------------------------------------------------------------------------------------------------
Seabridge Properties, Inc. Corp 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
Sequoia Pacific Realco LP 99%/34/ California
- -----------------------------------------------------------------------------------------------------------------
Serrano Associates, LLC LLC 66.6%/35/ Delaware
- -----------------------------------------------------------------------------------------------------------------
SF Pacific Properties Inc. (also doing business as
SF Pacific Utah Properies Inc.) Corp 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
Talega Associates, LLC LLC 33%/36/ Delaware
- -----------------------------------------------------------------------------------------------------------------
The South Portal Company Corp /37/ Delaware
- -----------------------------------------------------------------------------------------------------------------
Torrance Investment Company JV & Part 66.66%/38/ California
- -----------------------------------------------------------------------------------------------------------------
Union Station Partners LP 50%/39/ California
- -----------------------------------------------------------------------------------------------------------------
Union Station Venture One Corporation Corp 100% Delaware
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
/1/ 50% partnership interest owned through Catellus Residential Group, Inc.,
through Catellus Residential Homes Corp. I.
/2/ Owned through The South Portal Company, which holds a 100% membership
interest.
/3/ 19% owned through Catellus Residential Group, Inc., 81% owned by EAH
<PAGE>
/4/ 50% partnership interest owned through Catellus Residential Group, Inc.,
other partnership interest owned by Metropolitan Area Advisory Committee on
Anti-Poverty of San Diego County, Inc. (MAAC)
/5/ California State Contractor License No. 695604; to perform construction
services for a fee.
/6/ 100% owned through Catellus Residential Group, Inc.
/7/ 100% owned by CMC of Canada Ltd, which is owned 100% by CMC
/8/ 100% owned by CMC
/9/ 100% ownership through Catellus Residential Group, Inc.
/10/ 100% ownership through Catellus Residential Group, Inc.
/11/ 100% ownership through Catellus Residential Group, Inc.
/12/ 70% partnership interest owned through Catellus Residential Group, Inc.,
30% partnership interest owned by Duxford Financial Services
/13/ 100% ownership through Catellus Residential Group, Inc.
/14/ 100% ownership through Catellus Residential Group, Inc.
/15/ 100% ownership through Catellus Residential Group, Inc.
/16/ 100% ownership through Catellus Residential Group, Inc.
/17/ 100% ownership through Catellus Residential Group, Inc.
/18/ 100% ownership through Catellus Residential Group, Inc.
/19/ 100% ownership through Catellus Residential Group, Inc., which owns a 50%
membership interest, and Catellus Residential Ridgemoor, Inc., which owns a
50% membership interest
/20/ 50% partnership interest owned through Catellus Residential Group, Inc.,
through Catellus Residential Homes Corp. I, 50% membership interest owned
by Ssangyong.
/21/ 50% partnership interest owned through Catellus Residential Group, Inc.,
50% membership interest owned by Community Dynamics, Inc.
/22/ 66.5% limited partnership interest owned through Catellus Residential
Group, Inc., other partnership interest owned through Cuatro Corporation,
the General Partner
/23/ Catellus owns 25.21% of capital, 24.19% of profit and loss
/24/ 60% membership interest owned through Catellus Residential Group, Inc.,
other membership interest owned by Peters-Hover Associates
/25/ Partnership interest owned directly by Sequoia Pacific Realco.
/26/ Owned through Pacific Design Center.
/27/ 100% owned through SF Pacific Properties Inc.
/28/ Limited partnership interest through Harbor Drive.
/29/ 38.75% owned through Harbor Drive Company. Also owned through New Orleans
International Hotel, which holds a 22.5% interest.
/30/ Partnership interest owned directly by Sequoia Pacific Realco.
/31/ 50% partnership interest owned through Harbor Drive Company.
/32/ 80% membership interest owned through Catellus Residential Group, Inc., 20%
membership interest owned by The Riding Group
/33/ 50.51% partnership interest owned through Seabridge Properties, Inc. and
49.49% owned by Catellus Development Corporation
/34/ Owned by SF Pacific Properties, Inc., through Golden Empire Investment
Corporation which holds a 93% general partnership interest and a 5% lmited
partnership interest, and through Catellus Management Corporation of Canada
(USA) which holds a 1% general partnership interest. (1% limited
partnership interest is also held by Birren)
/35/ 66.6% owned through Catellus Residential Group, Inc., 33.3% owned by Parker
Development Company
/36/ 33% membership interest owned through Catellus Residential Group, Inc., 33%
membership interest owned by Standard Pacific, 33% owned by JKS Holdings
/37/ 2.174% owned through SF Pacific Properties, Inc. and also owned through
Sequoia Pacific Realco, L.P., which owns 97.826%
/38/ 66.66% partnership interest owned through Santa Fe Towers Land Company.
/39/ 50% partnership interest owned through Catellus Union Station, Inc.
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 of the Catellus
Development Corporation Amended and Restated Executive Stock Option Plan, the
Registration Statement on Form S-8 of the Catellus Development Corporation
Profit Sharing & Savings Plan & Trust, the Registration Statement on Form S-8 of
the Catellus Development Corporation Long Term Incentive Compensation Plan,
Stock Purchase Program, Incentive Stock Compensation Pl an and Stock Option
Plan, the Registration Statement on Form S-8 of the Catellus Development
Corporation 1995 Stock Option Plan and the Registration Statement on Form S-8 of
the Catellus Development Corporation 1996 Performance Award Plan (Nos. 33-58143,
33-38827, 33-42124, 333-01215 and 333-04293, respectively) of our report dated
February 2, 1999, appearing on Page F-2 of this Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedules, which appears o n page S-1 of this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
March 31, 1999
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, and Paul A. Lockie, or any of them, with full power of
substitution, to sign on his or her behalf, in the capacity stated below, the
1998 Annual Report on Form 10-K (the "10-K") of Catellus Development Corporation
and to file the 10-K, together with exhibits thereto, and any amendment to the
10-K and other documents in connection therewith, with the Securities and
Exchange Commission.
Dated: March 8, 1999 /s/ Joseph F. Alibrandi
-----------------------
Joseph F. Alibrandi
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, and Paul A. Lockie, or any of them, with full power of
substitution, to sign on his or her behalf, in the capacity stated below, the
1998 Annual Report on Form 10-K (the "10-K") of Catellus Development Corporation
and to file the 10-K, together with exhibits thereto, and any amendment to the
10-K and other documents in connection therewith, with the Securities and
Exchange Commission.
Dated: March 12, 1999 /s/ Daryl J. Carter
-----------------------
Daryl J. Carter
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, and Paul A. Lockie, or any of them, with full power of
substitution, to sign on his or her behalf, in the capacity stated below, the
1998 Annual Report on Form 10-K (the "10-K") of Catellus Development Corporation
and to file the 10-K, together with exhibits thereto, and any amendment to the
10-K and other documents in connection therewith, with the Securities and
Exchange Commission.
Dated: March 31, 1999 /s/ Richard D. Farman
-----------------------
Richard D. Farman
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, and Paul A. Lockie, or any of them, with full power of
substitution, to sign on his or her behalf, in the capacity stated below, the
1998 Annual Report on Form 10-K (the "10-K") of Catellus Development Corporation
and to file the 10-K, together with exhibits thereto, and any amendment to the
10-K and other documents in connection therewith, with the Securities and
Exchange Commission.
Dated: March 10, 1999 /s/ Christine Garvey
-----------------------
Christine Garvey
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, and Paul A. Lockie, or any of them, with full power of
substitution, to sign on his or her behalf, in the capacity stated below, the
1998 Annual Report on Form 10-K (the "10-K") of Catellus Development Corporation
and to file the 10-K, together with exhibits thereto, and any amendment to the
10-K and other documents in connection therewith, with the Securities and
Exchange Commission.
Dated: March 12, 1999 /s/ William M. Kahane
-----------------------
William M. Kahane
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, and Paul A. Lockie, or any of them, with full power of
substitution, to sign on his or her behalf, in the capacity stated below, the
1998 Annual Report on Form 10-K (the "10-K") of Catellus Development Corporation
and to file the 10-K, together with exhibits thereto, and any amendment to the
10-K and other documents in connection therewith, with the Securities and
Exchange Commission.
Dated: March 15, 1999 /s/ Leslie D. Michelson
-----------------------
Leslie D. Michelson
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, and Paul A. Lockie, or any of them, with full power of
substitution, to sign on his or her behalf, in the capacity stated below, the
1998 Annual Report on Form 10-K (the "10-K") of Catellus Development Corporation
and to file the 10-K, together with exhibits thereto, and any amendment to the
10-K and other documents in connection therewith, with the Securities and
Exchange Commission.
Dated: March 10, 1999 /s/ Jacqueline R. Slater
------------------------
Jacqueline R. Slater
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, and Paul A. Lockie, or any of them, with full power of
substitution, to sign on his or her behalf, in the capacity stated below, the
1998 Annual Report on Form 10-K (the "10-K") of Catellus Development Corporation
and to file the 10-K, together with exhibits thereto, and any amendment to the
10-K and other documents in connection therewith, with the Securities and
Exchange Commission.
Dated: March 10, 1999 /s/ Thomas M. Steinberg
-----------------------
Thomas M. Steinberg
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, and Paul A. Lockie, or any of them, with full power of
substitution, to sign on his or her behalf, in the capacity stated below, the
1998 Annual Report on Form 10-K (the "10-K") of Catellus Development Corporation
and to file the 10-K, together with exhibits thereto, and any amendment to the
10-K and other documents in connection therewith, with the Securities and
Exchange Commission.
Dated: March 14, 1999 /s/ Beverly B. Thomas
-----------------------
Beverly B. Thomas
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 52,975
<SECURITIES> 0
<RECEIVABLES> 50,691
<ALLOWANCES> 3,127
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,660,544
<DEPRECIATION> 265,077
<TOTAL-ASSETS> 1,625,540
<CURRENT-LIABILITIES> 0
<BONDS> 873,207
0
0
<COMMON> 1,068
<OTHER-SE> 489,161
<TOTAL-LIABILITY-AND-EQUITY> 1,625,540
<SALES> 285,308
<TOTAL-REVENUES> 471,064
<CGS> 229,125
<TOTAL-COSTS> 333,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,384
<INCOME-PRETAX> 100,303
<INCOME-TAX> 40,400
<INCOME-CONTINUING> 59,903
<DISCONTINUED> 0
<EXTRAORDINARY> (25,165)
<CHANGES> 0
<NET-INCOME> 34,738
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
