SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20543
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED June 30, 1996
-------------
COMMISSION FILE NO. 1-11706
-------
CARRAMERICA REALTY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1796339
- ---------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006
- --------------------------------------------------------------------------------
(Address or principal executive office) (Zip code)
Registrant's telephone number, including area code (202) 624-7500
--------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Number of shares outstanding of each of the registrant's
classes of common stock, as of August 14, 1996:
Common Stock, par value $.01 per share: 35,462,183
- --------------------------------------------------------------------------------
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 twelve (12) months (or such shorter period that the Registrant was
required to file such report) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
------ -------
<PAGE>
Index
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I: Financial Information
- ------------------------------
Item 1. Financial Statements
Condensed consolidated balance sheets of CarrAmerica
Realty Corporation and subsidiaries as of June 30,
1996 (unaudited) and December 31, 1995.......................................4
Condensed consolidated statements of operations of
CarrAmerica Realty Corporation and subsidiaries for the
three months ended June 30, 1996 and 1995 (unaudited)........................5
Condensed consolidated statements of operations of
CarrAmerica Realty Corporation and subsidiaries for the
six months ended June 30, 1996 and 1995 (unaudited)..........................6
Condensed consolidated statements of cash flows of
CarrAmerica Realty Corporation and subsidiaries for the
three months ended June 30, 1996 and 1995 (unaudited)........................7
Condensed consolidated statements of cash flows of
CarrAmerica Realty Corporation and subsidiaries for the
six months ended June 30, 1996 and 1995 (unaudited)..........................8
Notes to condensed consolidated financial statements...................9 to 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................16 to 24
Part II: Other Information
- --------------------------
Item 1. Legal Proceedings...........................................................25
Item 2. Changes in Securities.......................................................25
Item 3. Defaults Upon Senior Securities.............................................25
Item 4. Submission of Matters to a Vote of Security Holders.........................25
Item 5. Other Information.....................................................25 to 26
Item 6. Exhibits and Reports on Form 8-K............................................26
</TABLE>
2
<PAGE>
Part I
Item 1. Financial Information
---------------------
The information furnished in the accompanying condensed consolidated
balance sheets, condensed consolidated statements of operations and condensed
consolidated statements of cash flows of CarrAmerica Realty Corporation and
subsidiaries (the Company) reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the aforementioned financial
statements for the interim periods.
The aforementioned financial statements should be read in conjunction
with the notes to such financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
3
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of June 30, 1996 and December 31, 1995
- --------------------------------------------------------------------------------
(Unaudited and in thousands, except per common share amounts)
<TABLE>
<CAPTION>
June 30, 1996 December 31,
(Unaudited) 1995
---------------- ----------------
<S> <C> <C>
Assets
- ------
Rental property (note 1):
Land $ 188,469 115,565
Buildings 565,872 301,537
Tenant improvements 81,278 60,060
Furniture, fixtures and equipment 2,680 3,427
------------- ------------
838,299 480,589
Less - accumulated depreciation (105,726) (98,873)
------------- ------------
Total rental property 732,573 381,716
------------- ------------
Cash and cash equivalents 13,022 9,217
Restricted cash and cash equivalents (note 2) 8,634 2,249
Accounts receivable and notes receivable 8,921 8,728
Accrued straight-line rents 22,582 22,437
Investments 11,045 10,745
Land held for development 9,605 --
Tenant leasing costs, net 10,467 10,746
Deferred financing costs, net 3,081 2,267
Prepaid expenses and other assets, net 18,737 10,755
------------- ------------
$ 838,667 458,860
============= ============
Liabilities, Minority Interest, and Stockholders' Equity
- --------------------------------------------------------
Liabilities:
Mortgages and notes payable (note 2) 452,993 317,374
Accounts payable and accrued expenses 11,363 9,357
Rent received in advance and security deposits 3,177 1,736
------------- ------------
Total liabilities 467,533 328,467
------------- ------------
Minority interest (note 3) 34,498 34,850
Stockholders' equity:
Common stock, $.01 par value, authorized 90,000,000
shares, issued and outstanding 25,200,469 at June 30,
1996 and 13,409,177 at December 31, 1995 252 134
Additional paid in capital 372,070 126,835
Cumulative dividends paid in excess of net income (35,686) (31,426)
------------ ------------
Total stockholders' equity 336,636 95,543
------------ ------------
Commitments (note 4)
$ 838,667 458,860
- --------------------------------------------------------- ============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
(Unaudited and in thousands, except per common share amounts)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Real estate operating revenue:
Rental revenue (note 4):
Minimum base rent $ 29,164 19,816
Recoveries from tenants 2,475 1,244
Parking and other tenant charges 1,145 1,081
------ -------
Total rental revenue 32,784 22,141
Real estate service income 2,904 2,626
------- -------
Total revenue 35,688 24,767
------- -------
Real estate operating expenses:
Property operating expenses:
Operating expenses 7,416 5,028
Real estate taxes 3,053 2,256
Interest expense 7,414 5,428
General and administrative 3,910 2,684
Depreciation and amortization 8,615 4,342
----- -------
Total operating expenses 30,408 19,738
------ ------
Real estate operating income 5,280 5,029
----- -------
Other operating income (expense):
Interest Income 513 264
Equity in earnings (losses) of
unconsolidated partnerships 160 (35)
-------- -------
Total other operating income 673 229
-------- -------
Net operating income before minority interest
and extraordinary item 5,953 5,258
Minority interest (note 3) (1,212) (1,574)
-------- -------
Income before extraordinary item 4,741 3,684
Extraordinary item-loss on early extinguishment of debt (484) --
-------- --------
Net income $ 4,257 3,684
===== ========
Net income per common share:
Income before extraordinary item 0.22 0.28
Extraordinary item-loss on early
extinguishment of debt (0.02) --
------- -------
Net income per common share $ 0.20 0.28
======== ========
</TABLE>
5
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
(Unaudited and in thousands, except per common share amounts)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Real estate operating revenue:
Rental revenue (note 4):
Minimum base rent $ 51,077 39,328
Recoveries from tenants 4,510 2,415
Parking and other tenant charges 2,546 2,194
------- -------
Total rental revenue 58,133 43,937
Real estate service income 5,631 5,108
------- -------
Total revenue 63,764 49,045
------ ------
Real estate operating expenses:
Property operating expenses:
Operating expenses 13,647 9,986
Real estate taxes 5,812 4,818
Interest expense 13,946 10,685
General and administrative 6,659 5,294
Depreciation and amortization 14,099 8,727
-------- -------
Total operating expenses 54,163 39,510
------ ------
Real estate operating income 9,601 9,535
------- ------
Other operating income (expense):
Interest Income 819 547
Equity in earnings (losses) of
unconsolidated partnerships 258 (76)
--------- --------
Total other operating income 1,077 471
--------- --------
Net operating income before minority interest
and extraordinary income 10,678 10,006
Minority interest (note 3) (2,602) (3,065)
--------- -------
Income before extraordinary item 8,076 6,941
Extraordinary item-loss on early extinguishment of debt (484) --
--------- --------
Net income $ 7,592 6,941
========= ========
Net income per common share:
Income before extraordinary item 0.46 0.52
Extraordinary item-loss on early
extinguishment of debt (0.03) --
--------- ---------
Net income per common share $ 0.43 0.52
========= =========
</TABLE>
6
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,257 3,684
------------ ------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 8,615 4,342
Minority interest in income 1,212 1,574
Equity in (earnings) losses of unconsolidated partnerships (153) 43
Extraordinary Item-loss on early extinguishment of debt 484 --
Decrease (increase) in accounts receivable (723) 433
Increase in accrued straight-line rents 19 453
Additions to tenant leasing costs (743) (260)
Increase in prepaid expenses and other assets (6,169) (302)
Increase in accounts payable and accrued expenses 5,402 516
Decrease in rent received in advance and security deposits (882) (529)
------------ ------------
Total adjustments 7,062 6,270
------------ ------------
Net cash provided by operating activities 11,319 9,954
------------ ------------
Cash flows from investing activities:
Acquisition of real estate service contracts (1,750) (80)
Acquisitions of property (144,109) --
Additions to rental property (867) (2,159)
Investments in unconsolidated partnerships (896) (822)
Distributions from unconsolidated partnerships 1,401 1,226
Decrease (increase) in restricted cash and cash equivalents (6,578) 607
------------ ------------
Net cash used by investing activities (152,799) (1,228)
------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 244,692 --
Net proceeds from exercise of options 17 --
Borrowings on mortgages payable 136,000 3,000
Dividends paid (5,938) (5,830)
Repayment of mortgages payable (237,396) (459)
Additions to deferred financing costs (1,333) (16)
Distributions to minority interest (1,773) (1,949)
------------ ------------
Net cash provided (used) by financing activities 134,269 (5,254)
------------ ------------
Increase (decrease) in unrestricted cash and cash equivalents (7,211) 3,472
Unrestricted cash and cash equivalents, beginning of the period 20,233 10,690
------------ ------------
Unrestricted cash and cash equivalents, end of the period $ 13,022 14,162
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest
of $226 and $0 for the three months ended
June 30, 1996 and 1995, respectively. $ 7,398 5,426
============ ============
</TABLE>
During the three month period ended June 30, 1996, the Company
assumed $57.4 million of mortgages payable and issued $.3 million
of Units in connection with acquisitions of office properties.
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
(Unaudited and in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,592 6,941
------------ -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 14,099 8,727
Minority interest in income 2,602 3,065
Equity in (earnings) losses of unconsolidated partnerships (244) 91
Extraordinary item-loss on early extinguishment of debt 484 --
Increase in accounts receivable (193) (708)
(Increase) decrease in accrued straight-line rents (145) 884
Additions to tenant leasing costs (1,025) (388)
Increase in prepaid expenses and other assets (7,277) (680)
Increase in accounts payable and accrued expenses 2,986 229
Increase (decrease) in rent received in advance and
security deposits 1,441 (235)
------------ -----------
Total adjustments 12,728 10,985
------------ -----------
Net cash provided by operating activities 20,320 17,926
------------ -----------
Cash flows from investing activities:
Acquisition of real estate service contracts (1,750) (7,419)
Acquisition of property (312,265) --
Additions to rental property (1,836) (4,960)
Investments in unconsolidated partnerships (1,464) (2,777)
Acquisition of minority interest (3) --
Distributions from unconsolidated partnerships 1,408 1,341
Increase in restricted cash and cash equivalents (6,385) (220)
Notes receivable issued -- (1,500)
------------ -----------
Net cash used by investing activities (322,295) (15,535)
------------ -----------
Cash flows from financing activities:
Net proceeds from sale of common stock 244,692 --
Net proceeds from exercise of options 17 --
Borrowings on mortgages and notes payable 316,000 9,720
Contributions from minority interests -- 17
Dividends paid (11,852) (11,633)
Repayment of mortgages and notes payable (237,813) (904)
Additions to deferred financing costs (1,694) (16)
Distributions to minority interest (3,570) (3,875)
------------ -----------
Net cash provided (used) by financing activities 305,780 (6,691)
------------ -----------
Increase (decrease) in unrestricted cash and cash equivalents 3,805 (4,300)
Unrestricted cash and cash equivalents, beginning of the period 9,217 18,462
------------ -----------
Unrestricted cash and cash equivalents, end of the period $ 13,022 14,162
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest
of $452 and $0 for the six months ended
June 30, 1996 and 1995 respectively. $ 13,815 10,599
============ ===========
</TABLE>
On January 31, 1996, the Company issued 40,909 Class A Units
of Carr Realty, L.P., valued at approximately $1 million, as
payment of a liability.
During the six month period ended June 30, 1996, the Company
assumed $57.4 million of mortgages payable and issued $.3 million
of Units in connection with acquisitions of office properties.
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(1) Organization, Business and Summary of Significant Accounting Policies
(a) Organization and Business
CarrAmerica Realty Corporation (formerly Carr Realty
Corporation) (the Company) is a self-administered and
self-managed equity real estate investment trust (REIT),
organized under the laws of Maryland, which owns, develops,
acquires and operates office buildings.
(b) Principles of Consolidation
The accounts of the Company and its majority-owned
subsidiaries are consolidated in the accompanying financial
statements. All significant intercompany balances and
transactions have been eliminated in consolidation. As used
hereafter, the Company refers to CarrAmerica Realty
Corporation and its consolidated subsidiaries.
(c) Interim Financial Statements
The information furnished reflects all adjustments which are,
in the opinion of management, necessary to reflect a fair
statement of the results for the interim periods presented,
and all such adjustments are of a normal, recurring nature.
(d) Rental Property
Rental property is recorded at cost less accumulated
depreciation (which is less than the net realizable value of
the property). Depreciation is computed on the straight-line
basis over the estimated useful lives of the assets, as
follows:
Base building................. 20 to 50 years
Building components........... 7 to 20 years
Tenant improvements........... Terms of the leases or
useful lives,
whichever is shorter
Furniture, fixtures and
equipment.................. 5 to 15 years
Expenditures for maintenance and repairs are charged to
operations as incurred. Significant renovations are
capitalized.
(e) Tenant Leasing Costs
Fees and costs incurred in the successful negotiation of
leases have been deferred and are being amortized on the
straight-line basis over the terms of the respective leases.
9
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(f) Deferred Financing Costs
Deferred financing costs include fees and costs incurred to
obtain long-term financing and are being amortized over the
terms of the respective loans on a basis which approximates
the interest method.
(g) Fair Value of Financial Instruments
The carrying amount of the following financial instruments
approximates fair value because of their short-term maturity:
cash and cash equivalents; accounts and notes receivable;
accounts payable and other liabilities; and accrued expenses.
(h) Real Estate Service Contracts and Other Intangible Assets
Real estate service contracts and other intangible assets,
including goodwill, represent the purchase price of net assets
of real estate service operations acquired and are amortized
on the straight-line basis over the expected lives of the
respective real estate service contracts. Goodwill, which
represents the excess of purchase price over the fair value of
net assets acquired, is amortized on the straight-line basis
over the expected periods to be benefited, generally 15 years.
The Company assesses the recoverability of these intangible
assets by determining whether the amortization of the balance
over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The
amount of impairment loss, if any, is measured as the amount
by which the carrying amount of the assets exceeds the fair
value of the assets. The assessment of the recoverability of
these intangible assets will be impacted if estimated future
operating cash flows are not achieved.
(i) Revenue Recognition
The Company reports base rental revenue for financial
statement purposes straight-line over the terms of the
respective leases. Accrued straight-line rents represent the
amount that straight-line rental revenue exceeds rents
collected in accordance with the lease agreements. Management,
considering current information and events regarding the
tenants' ability to fulfill their lease obligations, considers
accrued straight-line rents to be impaired if it is probable
that the Company will be unable to collect all rents due
according to the contractual lease terms. If accrued
straight-line rents associated with a tenant are considered to
be impaired, the amount of the impairment is measured based on
the present value of expected future cash flows. Impairment
losses, if any, are recorded through a loss on the write-off
of assets. Cash receipts on impaired accrued straight-line
rents are applied to reduce the remaining outstanding balance
and as rental revenue, thereafter.
The Company receives monthly management fees generally equal
to 2% to 3% of the gross monthly revenue of each property it
manages. Management fees are recognized as revenue as they are
earned.
10
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
The Company receives monthly leasing fees generally equal to
1.5% to 2.0% of the gross monthly revenue of certain
properties it manages. These leasing fees are recognized as
revenue as they are earned. For certain other managed
properties, leasing commissions are received at the time a
lease is executed or at lease commencement. Such leasing fees
are recognized as revenue upon lease execution or lease
commencement, when earned.
(j) Income and Other Taxes
The Company qualifies as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended. A REIT will
generally not be subject to federal income taxation on that
portion of its income that qualifies as REIT taxable income to
the extent that it distributes at least 95 percent of its
taxable income to its shareholders and complies with certain
other requirements. Accordingly, no provision has been made
for federal income taxes for the Company and certain of its
subsidiaries in the accompanying condensed consolidated
financial statements.
Certain consolidated subsidiaries of the Company are subject
to District of Columbia franchise tax. These consolidated
subsidiaries file separate tax returns and are subject to
federal and state income taxes. Income taxes are accounted for
using the asset and liability method of accounting. These
taxes are recorded as general and administrative expenses in
the accompanying condensed consolidated financial statements.
(k) Investments in Unconsolidated Partnerships
The Company uses the equity method of accounting for its
investments in and earnings (losses) of unconsolidated
partnerships.
(l) Per Share Data
The computation of earnings per share in each year is based
upon the weighted average number of common shares
outstanding. When dilutive, stock options are included as
share equivalents using the treasury stock method. The
weighted average number of shares used in computing earnings
per share was 21,426,996 and 13,340,463 for the three month
periods ended June 30, 1996 and 1995, respectively, and
17,500,856 and 13,305,095 for the six month periods ended
June 30, 1996 and 1995, respectively.
(m) Cash Equivalents
For the purposes of reporting cash flows, the Company
considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash
equivalents.
(n) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
11
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(2) Mortgages and Notes Payable
Mortgages and notes payable generally require monthly principal and/or
interest payments. Following is a summary of the Company's mortgages
and notes payable as of June 30, 1996 and December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- -----------------
<S> <C> <C>
Mortgages payable to The Northwestern Mutual Life Insurance Company
(NML); bearing interest at rates ranging from 7.55 percent to
8.80 percent; interest only is payable monthly through February
1, 1998; thereafter principal and interest payments are due
monthly based on a 25-year amortization schedule through maturity
in February, 2003.
$ 183,500 183,500
Mortgage payable to NML; bearing interest at 8.90 percent monthly;
principal and interest payments of $346 thousand through maturity
in June 2002; additional annual principal curtailments of $500
thousand are due through 2000, $2 million in 2001 and $1 million
in 2002.
38,846 39,377
Mortgages payable to the Aid Association for Lutherans (AAL) under
two notes; $16.5 million note bearing interest at 9.50 percent
requires monthly principal and interest payments of $144 thousand
through maturity on July 1, 2017; callable after June 30, 2002 by
AAL; $21.6 million note bearing interest at 8.25 percent requires
monthly principal and interest payments of $138 thousand through
maturity on July 15, 2019; callable by AAL after July 1, 2004. 32,815 33,050
Mortgage payable to NationsBank, N.A.; $35.0 million interest only
note bearing interest at 1.75 percent above the London Interbank
Offered Rate (LIBOR); repaid in full on April 30, 1996. -- 35,000
Mortgage payable to NationsBank, N.A.; bearing
interest at 2.00 percent above the LIBOR rate;
repaid in full on April 30, 1996. -- 20,000
12
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
June 30, December 31,
1996 1995
------------- -----------------
Note payable to Morgan Guaranty Trust Company of New York
("Morgan"); $215.0 million unsecured credit facility bearing
interest, as selected by the Company, at either (i) the higher of
the prime interest rate or the sum of .5 percent plus the Federal
Funds Rate for such day or (ii) an interest rate equal to 1.75
percent above LIBOR. 134,000 --
Mortgage payable to Salomon Brothers Realty Corp. bearing
interest at 8.375 percent; principal and interest payments of
$221 thousand are due monthly through maturity in January 2006. * 28,182 --
Mortgage payable to CBA Conduit, Inc.; bearing interest at 7.96
percent; interest only payments of $194 thousand are due monthly
through maturity in December 2003. 29,250 --
Mortgage payable to The Riggs National Bank of Washington, D.C.;
bearing interest at 7.50 percent; principal and interest payments
of $49 thousand are due monthly through maturity in February
1999. 6,400 6,447
----------- -----------
$ 452,993 317,374
============ ===========
</TABLE>
As of June 30, 1996, the scheduled maturities of mortgages payable for
years ended December 31 are as follows (in thousands):
1996 $ 1,103
1997 2,249
1998 138,172
1999 11,116
2000 5,450
Thereafter 294,903
-----------
$ 452,993
===========
Restricted cash and cash equivalents primarily consist of escrow
deposits required by lenders to be used for future building
renovations, tenant improvements, or as additional collateral for a
loan or for letters of credit.
* This mortgage payable is held by Carr Redmond Corporation, a
wholly-owned subsidiary of the Company which owns the Redmond East
office campus. The accounts of Carr Redmond Corporation are
consolidated in the Company's financial statements.
13
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(3) Minority Interest
In conjunction with the formation of the Company and its majority-owned
subsidiary, Carr Realty, L.P., persons contributing interests in
properties to Carr Realty, L.P. had the right to elect to receive
either common stock of the Company or Units in Carr Realty, L.P. In
addition, the Company has acquired certain assets since its formation
by issuing dividend paying Units and non-dividend paying Units of Carr
Realty, L.P. and CarrAmerica Realty, L.P. The non-dividend paying Units
are not entitled to any distributions until they automatically convert
into dividend paying Units at various dates in the future. Each
dividend paying Unit, subject to certain restrictions, may be redeemed
for either one share of common stock or, at the option of the Company,
cash equal to the fair market value of a share of common stock at the
time of the redemption. When a Unitholder redeems a dividend paying
Unit for a share of common stock or cash, minority interest is reduced
and the Company's investment in Carr Realty, L.P. or CarrAmerica
Realty, L.P., as the case may be, is increased. During the three and
six month periods ended June 30, 1996, 24,070 and 162,385 dividend
paying Units, of Carr Realty, L.P. or CarrAmerica Realty, L.P.,
respectively, were redeemed for common stock of the Company.
The following table sets forth the operating partnership Units
outstanding at June 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------- ------------------
<S> <C> <C>
Operating partnership Units
owned by the Company 14,943,722 13,409,177
Operating partnership Units owned by
minority interest:
Dividend paying Units 3,969,591 4,079,615
Non-dividend paying Units 667,745 667,745
--------------- ------------
Total operating partnership
Units outstanding 19,581,058 18,156,537
=============== =============
</TABLE>
Minority interest in the accompanying condensed consolidated financial
statements relates primarily to holders of dividend paying and non-
dividend paying Units.
(4) Lease Agreements
The Company receives minimum rentals under noncancelable tenant leases.
Certain leases provide for additional rentals based on increases in the
Consumer Price Index (CPI) and increases in operating expenses. The
increased rentals from operating expenses are generally payable in
equal installments throughout the year, based on estimated increases,
with any differences being adjusted in the succeeding year.
(5) Transactions With Affiliates
In May 1996, the Company purchased the development business of The
Oliver Carr Company for $1.75 million. The principal shareholder of The
Oliver Carr Company is also a director, officer and shareholder of the
Company.
14
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(6) Subsequent Events
On July 24, 1996, the Company sold 7,475,000 shares of common stock to
the public and 2,785,714 shares of common stock to a wholly-owned
subsidiary of Security Capital U. S. Realty ("US Realty"), a current
shareholder, in a concurrent private sale, at a price of $22.00 per
share. The proceeds derived from the sale of the common stock, net of
transaction costs of approximately $9.5 million, were $216.2 million.
No underwriting discount was applied to any shares purchased by US
Realty directly from the Company or in the public offering. The net
proceeds were used to (a) repay $168.0 million outstanding on the
Company's unsecured line of credit, and (b) fund $48.2 million of the
purchase price of a transaction involving the acquisition of 10 office
buildings in Austin, Texas.
From July 1, 1996 to August 14, 1996, the Company has acquired 27
operating office properties, totaling approximately 1.5 million square
feet, land, and options to purchase additional land which will support
the development of up to 2.4 million square feet of additional office
space. The total purchase price for the properties, land, and options
was $189.7 million.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is based primarily on the Condensed
Consolidated Financial Statements of CarrAmerica Realty Corporation and
subsidiaries (the Company) as of June 30, 1996 and December 31, 1995, and for
the three and six months ended June 30, 1996 and 1995. This information should
be read in conjunction with the accompanying condensed consolidated financial
statements and notes thereto. These financial statements include all adjustments
which are, in the opinion of management, necessary to reflect a fair statement
of the results for the interim periods presented, and all such adjustments are
of a normal, recurring nature.
Results of Operations - Three Months Ended June 30, 1996 and 1995
Real Estate Operating Revenue
Total real estate operating revenue increased $10.9 million, or 44.1%,
to $35.7 million for the three months ended June 30, 1996 as compared to $24.8
million for the three months ended June 30, 1995. The increase in revenue was
primarily attributable to a $10.6 million and a $.3 million increase in rental
revenue and real estate service revenue, respectively. The Company experienced
net growth in its rental revenue as a result of its acquisitions since the
second quarter of 1995 which contributed approximately $11.5 million of
additional rental revenue in the three month period ended June 30, 1996. Rental
revenue from properties that were fully operating throughout both periods
decreased by approximately $.9 million as a result of increased vacancies
experienced in these properties. Real estate service revenue increased by $.3
million, or 10.6%, for the three months ended June 30, 1996 to $2.9 million as
compared to $2.6 million for the three months ended March 31, 1995, primarily as
a result of development fees earned by Carr Development & Construction, Inc.,
which was acquired by the Company in May 1996.
Real Estate Operating Expenses
Total real estate operating expenses increased $10.7 million for the
three months ended June 30, 1996, or 54.1%, to $30.4 million as compared to
$19.7 million for the three months ended June 30, 1995. The net increase in
operating expenses was attributable to a $3.2 million increase in property
operating expenses, a $2.0 million increase in interest expense, a $1.2 million
increase in general and administrative expenses, and a $4.3 million increase in
depreciation and amortization. The increase in property operating expenses was
primarily attributable to $2.7 million in operating expenses associated with
property acquisitions since the second quarter of 1995. Exclusive of operating
expenses attributable to new property acquisitions, property operating expenses
increased $.5 million for the three months ended June 30, 1996 predominately as
a result of higher real estate tax assessments and repairs and maintenance
costs. The increase in the Company's interest expense is primarily related to
borrowings for acquisitions. The increase in general and administrative expenses
is predominately a result of the addition of new staff to implement the
Company's new business strategy, the addition of approximately $.4 million of
expenses associated with Carr Development & Construction, Inc., and inflation.
The increase in depreciation and amortization is predominately a result of
additional depreciation and amortization on the Company's real estate
acquisitions.
16
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Other Operating Income (Expense)
Other operating income increased $.5 million for the three months ended
June 30, 1996, to $.7 million as compared to $.2 million for the three months
ended June 30, 1995, primarily due to an increase in interest income and the
addition of equity in earnings of CC-JM II Associates. The Company is a 50%
venturer in this entity, which constructed the Booz-Allen & Hamilton Building
that was placed in service in January 1996.
Net Income
Net income of $4.3 million was earned for the three months ended June
30, 1996 as compared to $3.7 million during the three month period ended June
30, 1995. The comparability of net income between the two periods is impacted by
the acquisitions the Company made and the other changes described above.
Cash Flows
Net cash provided by operating activities increased $1.4 million, or
13.7%, to $11.3 million for the three months ended June 30, 1996 as compared to
$9.9 million for the three months ended June 30, 1995, primarily as a result of
the acquisitions made by the Company. Net cash used by investing activities
increased $151.6 million, to $152.8 million for the three months ended June 30,
1995 as compared to $1.2 million for the three months ended June 30, 1995,
primarily as a result of capital deployed by the Company for acquisitions of
office properties. Net cash provided by financing activities increased $139.5
million to $134.3 million provided for the three months ended June 30, 1996 as
compared to $5.2 million used for the three months ended June 30, 1996,
primarily as a result of the net borrowings necessary for the Company's
acquisitions.
Results of Operations - Six Months Ended June 30, 1996 and 1995
Real Estate Operating Revenue
Total real estate operating revenue increased $14.7 million, or 30.0%,
to $63.8 million for the six months ended June 30, 1996 as compared to $49.1
million for the six months ended June 30, 1995. The increase in revenue was
primarily attributable to a $14.2 million and a $.5 million increase in rental
revenue and real estate service revenue, respectively. The Company experienced
net growth in its rental revenue as a result of its acquisitions since the
second quarter of 1995 which contributed approximately $15.1 million of
additional rental revenue in the six month period ended June 30, 1996. Rental
revenue from properties that were fully operating throughout both periods
decreased by approximately $.9 million due to increased vacancies experienced in
those properties. Real estate service revenue increased by $.5 million, or
10.2%, for the six months ended June 30, 1996 to $5.6 million as compared to
$5.1 million for the six months ended June 30, 1995. The increase was primarily
as a result of an increase in leasing commissions earned in the first quarter of
1996 and development fees earned by Carr Development & Construction, Inc., which
was acquired by the Company in May 1996.
Real Estate Operating Expenses
Total real estate operating expenses increased $14.7 million for the
six months ended June 30, 1996, or 37.1%, to $54.2 million as compared to $39.5
million for the six months ended June 30, 1995. The net increase in operating
expenses was attributable to a $4.6 million increase in property operating
expenses, a $3.3 million increase in interest expense, a $1.4 million increase
in general and administrative expenses, and a $5.4 million increase in
depreciation and amortization. The increase in property operating expenses was
primarily attributable to $4.0
17
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
million in operating expenses associated with property acquisitions since
December 31, 1995. Exclusive of operating expenses attributable to new property
acquisitions, property operating expenses increased by $.6 million for the six
months ended June 30, 1996 predominately as a result of higher real estate tax
assessments and repairs and maintenance costs. The increase in the Company's
interest expense is primarily related to borrowings for acquisitions. The
increase in general and administrative expenses is predominately a result of the
addition of new staff to implement the Company's new business strategy, the
addition of approximately $.4 million of expenses associated with Carr
Development & Construction, Inc., and inflation. The increase in depreciation
and amortization is predominately a result of additional depreciation and
amortization on the Company's real estate acquisitions.
Other Operating Income (Expense)
Other operating income increased $.6 million for the six months ended
June 30, 1996, to $1.1 million as compared to $.5 million for the six months
ended June 30, 1995; primarily due to an increase in interest income and the
addition of equity in earnings of CC-JM II Associates. The Company is a 50%
venturer in this entity, which constructed the Booz-Allen & Hamilton Building
that was placed in service in January 1996.
Net Income
Net income of $7.6 million was earned for the six months ended June 30,
1996 as compared to $6.9 million during the six month period ended June 30,
1995. The comparability of net income between the two periods is impacted by the
acquisitions the Company made and the other changes described above.
Cash Flows
Net cash provided by operating activities increased $2.4 million, or
13.4%, to $20.3 million for the six months ended June 30, 1996 as compared to
$17.9 million for the six months ended June 30, 1995, primarily as a result of
the acquisitions made by the Company. Net cash used by investing activities
increased $306.8 million, to $322.3 million for the six months ended June 30,
1995 as compared to $15.5 million for the six months ended June 30, 1995,
primarily as a result of capital deployed by the Company for acquisitions of
office properties. Net cash provided by financing activities increased $312.5
million to $305.8 million provided for the six months ended June 30, 1996 as
compared to $6.7 million used for the six months ended June 30, 1996, primarily
as a result of the net borrowings necessary for the Company's acquisitions.
Acquisition and Development Activities
During the quarter ended June 30, 1996, the Company acquired $199.4
million of office properties totaling 1,958,000 square feet. The Company
acquired one office property in Orange County, California totaling approximately
104,000 square feet, six office properties in Southeast Denver totaling
approximately 737,000 square feet, one office property in Northern Virginia
totaling approximately 88,000 square feet, ten properties in suburban Seattle
totaling approximately 396,000 square feet, two properties in suburban Chicago
totaling approximately 514,000 square feet and one property in Austin totaling
approximately 119,000 square feet.
In addition, the Company acquired land in suburban Denver and suburban
Chicago which will support the development of up to 100,000 and 900,000 square
feet of office space, respectively.
18
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's total indebtedness at June 30, 1996 was $453.0 million,
of which $134.0 million, or 29.6%, had a LIBOR-based floating interest rate. The
Company's fixed rate indebtedness had a weighted average interest rate of 8.4%
and had a weighted average term to maturity of 6.8 years. In addition to the
indebtedness outstanding, the Company can borrow up to an additional $81.0
million under its unsecured revolving line of credit which bears a LIBOR-based
floating interest rates (see below). Based upon the Company's total market
capitalization at June 30, 1996 of $1,170.1 million (the stock price was $24.00
per share and the total shares/Units outstanding were 29,837,805), the Company's
debt represented 38.8% of its total market capitalization. The Company repaid
all of its floating rate debt on July 24, 1996 with a portion of the proceeds
from the sale of common stock. The Company has since drawn $44.0 million on its
unsecured line of credit in conjunction with various acquisitions.
On May 22, 1996, the Company obtained a $215.0 million unsecured credit
facility from Morgan Guaranty Trust Company of New York. The Company intends to
use the line of credit to finance acquisitions and development activities, for
capital expenditures and for working capital purposes. As of June 30, 1996,
approximately $134.0 million had been advanced under the line of credit.
The Company's operating properties require periodic investments of
capital for tenant-related capital expenditures and for general capital
improvement projects. The Company has recently completed large-scale renovations
of certain of the Company's Washington, D.C. properties to improve these
properties' market position and to bring the properties into compliance with
certain new local and federal laws. As a result, the Company expects that
general capital expenditures for its Washington, D.C. properties will be lower
than the general capital expenditures the Company has incurred for these
properties over the last three years. The Company has recently begun renovating
several garages at its Washington, D.C. properties at an estimated total cost of
approximately $3.5 million, or $1.45 per square foot of the Company's
Washington, D.C. properties, to be spent over the next two years. Exclusive of
the garage renovations, general capital expenditures for the Company's
Washington, D.C. properties are expected to be approximately $1.0 million or
less annually, or $.40 less per square foot annually. With respect to the
Company's recent acquisitions in select suburban growth markets, the Company
expects that the annual capital expenditures for these properties will be
substantially less than the Company has incurred for its Washington, D.C.
properties. Based on current market conditions in its target markets, the
Company expects that tenant-related capital expenditures for its recent
acquisitions will be approximately $7.75 to $8.25 per square foot leased for
leases entered into in the next 12 months. The Company expects that this amount
should decline if market conditions in its target markets continue to improve.
The Company believes that general capital expenditures will average
approximately $.30 per square foot owned on an annual basis for its recent
acquisitions. The Company anticipates funding the capital requirements of its
Washington, D.C. properties and of its new acquisitions with cash flow from
operations and, if necessary, with proceeds from its line of credit.
The Company's estimates regarding capital expenditures set forth above
are forward-looking information representing the Company's best estimates based
on currently available information. As with any estimates, they are based on a
number of assumptions, any of which, if unrealized, could adversely affect the
accuracy of the estimates. These assumptions include that (i) the Company
experiences tenant retention rates consistent with its expectations, (ii) the
supply/demand characteristics for office space in the Company's target markets
do not vary materially from the Company's expectations, (iii) leasing
commissions associated with obtaining new tenants or retaining existing tenants
are consistent with the Company's past experience and future expectation, and
(iv) the Company does not acquire operating office properties in the future that
require substantial renovations.
19
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Net cash provided by operating activities was $11.3 million for the
three months ended June 30, 1996, compared to $9.9 million for the three months
ended June 30, 1995. The increase in net cash provided by operating activities
was primarily as a result of acquisitions made by the Company. The Company's
investing activities used approximately $152.8 million and $1.2 million for the
three months ended June 30, 1996 and 1995, respectively. The Company's
investment activities included the acquisitions of office buildings for
approximately $144.1 million for the three months ended June 30, 1996, as
compared to no acquisition activity during the same period in 1995.
Additionally, the Company invested approximately $.9 million and $2.2 million in
the existing real estate assets for the three months ended June 30, 1996 and
1995, respectively. Net of distributions to the Company's shareholders and
minority interests, the Company's financing activities provided net cash of
$142.0 million and $2.5 million for the three months ended June 30, 1996 and
1995 respectively. For the three months ended June 30, 1996, the Company
borrowed approximately $136.0 million to provide adequate capital for the
Company's investing activities, as compared to approximately $3.0 million for
the three months ended June 30, 1995.
Net cash provided by operating activities was $20.3 million for the six
months ended June 30, 1996, compared to $17.9 million for the six months ended
June 30, 1995. The increase in net cash provided by operating activities was
primarily as a result of acquisitions made by the Company. The Company's
investing activities used approximately $322.3 million and $15.5 million for the
six months ended June 30, 1996 and 1995, respectively. The Company's investment
activities included the acquisitions of office buildings for approximately
$312.3 million for the three months ended June 30, 1996, as compared to no
acquisition activity during the same period in 1995. Additionally, the Company
invested approximately $1.8 million and $5.0 million in the existing real estate
assets for the six months ended June 30, 1996 and 1995, respectively. Net of
distributions to the Company's shareholders and minority interests, the
Company's financing activities provided net cash of $321.2 million and $8.8
million for the six months ended June 30, 1996 and 1995 respectively. For the
six months ended June 30, 1996, the Company borrowed approximately $316.0
million to provide adequate capital for the Company's investing activities, as
compared to approximately $9.7 million for the six months ended June 30, 1995.
Rental revenue and management and leasing fees have been the principal
sources of capital to fund the Company's operating expenses, debt service and
capital expenditures, excluding nonrecurring capital expenditures. The Company
believes that rental revenue and management and leasing fees will continue to
provide the necessary funds for its operating expenses and debt service. The
Company expects to fund capital expenditures, including tenant concession
packages and building renovations from (a) available funds from operations; (b)
existing capital reserves; and (c) if necessary, credit facilities established
with third party lenders. If these sources of funds are insufficient, the
Company's ability to make expected dividends may be adversely impacted. At June
30, 1996, the Company had cash of $21.7 million, of which $8.6 million was
restricted.
The Company's dividends are paid quarterly. Amounts accumulated for
distribution will predominately be invested by the Company in short-term
investments that are collateralized by securities of the United States
Government or any of its agencies.
Management believes that the Company will have access to the capital
resources necessary to expand and develop its business. Accordingly, the Company
may seek to obtain funds through additional equity offerings, joint ventures,
asset sales, or debt financing in a manner consistent with its intention to
operate with a conservative borrowing policy. The Company anticipates that
adequate cash will be available to fund its operating and administrative
expenses, to continue debt service obligations, to pay dividends in accordance
with REIT requirements, and to acquire additional rental properties.
20
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
The Company believes that funds from operations is an appropriate
measure of the performance of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. In accordance with the
final NAREIT White Paper on Funds From Operations as approved by the Board of
Governors of NAREIT on March 3, 1995, funds from operations represents net
income (loss) (computed in accordance with generally accepted accounting
principles), excluding gains (losses) from debt restructuring or sales of
property, plus depreciation and amortization of assets uniquely significant to
the real estate industry and after adjustments for unconsolidated partnerships
and joint ventures. Adjustments for unconsolidated partnerships and joint
ventures will be calculated to reflect funds from operations on the same basis.
The Company's funds from operations for the three and six month periods ended
June 30, 1995 have been restated to conform to the new NAREIT definition of
funds from operations. Funds from operations does not represent net income or
cash flows generated from operating activities in accordance with generally
accepted accounting principles and should not be considered an alternative to
net income as an indication of the Company's performance or to cash flows as a
measure of liquidity or the Company's ability to make distributions.
The following table provides the calculation of the Company's funds
from operations for the three and six month periods ended June 30, 1996 and 1995
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income before minority interest and
extraordinary item $ 5,953 5,258 $10,678 10,006
Adjustments to derive funds from operations:
Add:
Depreciation and amortization 8,026 4,207 13,197 8,323
Deduct:
Minority interests' (non Unitholders)
share of depreciation, amortization and
net income (222) (437) (617) (919)
--------- ----- ------ -----
Funds from operations before allocation to
the minority Unitholders 13,757 9,028 23,258 17,410
Less: Funds from operations allocable to the
minority Unitholders (2,207) (2,141) (4,371) (4,164)
--------- ----- ------- -----
Funds from operations allocable
to CarrAmerica Realty Corporation $ 11,550 6,887 $ 18,887 13,246
========= ===== ======== ======
</TABLE>
Changes in funds from operations are largely attributable to changes in net
income between the periods as previously discussed.
21
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
Building and Lease Information
The following table sets forth certain lease related information about
each operating property as of June 30, 1996:
<TABLE>
<CAPTION>
Company's Average
Effective Net Base Rent
Property Rentable Area Percent Per Leased
Property Ownership (Square Feet)(1) Leased(2) Square Foot (3)
- -------- --------- -------------- ------- ---------------
<S> <C> <C> <C> <C>
Consolidated Properties
- -----------------------
Washington, D.C.:
International Square
1850 K Street 100.0 % 375,897 86.6% $ 32.66
1825 Eye Street 100.0 374,381 96.3 33.48
1875 Eye Street 100.0 267,621 87.7 32.73
1730 Pennsylvania Avenue 100.0 229,500 94.7 38.51
2550 M Street 100.0 187,931 100.0 31.04
1775 Pennsylvania Avenue 100.0 131,149 99.0 22.82
900 19th Street 100.0 101,186 77.5 34.84
1747 Pennsylvania Avenue 89.7 150,352 79.1 31.00
1255 23rd Street 75.0 303,833 70.3 28.33
2445 M Street 74.0 266,902 90.9 28.06
Suburban Maryland:
One Rock Spring Plaza 100.0 205,298 95.9 22.04
Northern Virginia:
Tycon Courthouse 100.0 414,287 96.4 19.17
Three Ballston Plaza 100.0 302,797 99.1 23.03
Reston Quadrangle (3 Properties) 100.0 261,175 99.8 20.48
Parkway One 100.0 87,842 84.5 14.88
Southern California:
Scenic Business Park (4 Properties) 100.0 137,436 89.7 10.50
Harbor Corporate Park(4 Properties) 100.0 149,382 49.2 12.75
Plaza PacifiCare 100.0 104,377 100.0 8.99 (4)
Northern, California:
AT&T Center (6 Properties) 100.0 1,082,032 100.0 14.95 (4)
Denver :
Harlequin Plaza (2 Properties) 100.0 327,623 92.8 12.42
Quebec Court I & II (2 Properties) 100.0 285,829 100.0 9.52
The Quorum (2 Properties) 100.0 123,900 80.8 13.18
Seattle:
Redmond East (10 Properties) 100.0 400,297 97.8 11.42
Suburban Chicago:
Parkway North (2 Properties) 100.0 514,029 95.1 16.37
Austin, Texas::
Norwood Tower 100.0 118,786 92.1 9.16
Total Consolidated Properties: 6,903,842
Weighted Average ========= 92.8 $ 20.74
====== =====
</TABLE>
22
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Company's Average
Effective Net Base Rent
Property Rentable Area Percent Per Leased
Property Ownership (Square Feet)(1) Leased (2) Square Foot (3)
- -------- --------- -------------- ---------- ---------------
<S> <C> <C> <C> <C>
Unconsolidated Properties:
- --------------------------
Washington, DC:
AARP Headquarters 24.0 477,187 99.1 35.29
Bond Building 15.0 162,097 100.0 29.08
1776 Eye Street 5.0 212,774 97.2 34.87
Willard Office/Hotel 5.0 242,787 89.9 36.53
1575 Eye Street 2.0 205,441 94.9 28.61
Virginia:
Booz-Allen & Hamilton Building 50.0 222,989 100.0 14.40 (4)
---------- ----- -----
Total Unconsolidated Properties: 1,523,275
Weighted Average ========== 97.5 $ 30.70
====== =====
All Operating Properties
- ------------------------
Total: 8,427,117
Weighted Average ========== 93.5 $ 22.61
====== =====
<FN>
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
June 30, 1996.
(3) Calculated as total annualized base rent divided by net rentable area leased
as of June 30, 1996.
(4) Base rent is triple-net.
</FN>
</TABLE>
The following table sets forth a schedule of lease expirations for
executed leases as of June 30, 1996, for each of the 10 years beginning with
1996, for the 51 operating properties consolidated for financial statement
purposes, assuming that no tenants exercise renewal options:
<TABLE>
<CAPTION>
Percent of Total
Net Rentable Leased Square
Year of Area Subject to Footage
Lease Expiring Leases Represented by
Expiration (Square Feet) Expiring Leases*
---------------- ------------------ ------------------
<S> <C> <C> <C>
1996 156,086 2.4%
1997 484,313 7.6
1998 1,713,028 26.7
1999 824,823 12.9
2000 551,895 8.6
2001 718,271 11.2
2002 650,433 10.2
2003 271,536 4.2
2004 227,178 3.6
2005 322,745 5.0
2006 and
thereafter 483,387 7.6
============= =========
</TABLE>
* Excludes 500,145 square feet of space vacant and
uncommitted as of June 30, 1996.
23
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company
- --------------------------------------------------------------------------------
The following table sets forth certain lease-related information for
the consolidated operating properties presented in order to show downtown
Washington, D.C. operating properties separate from other operating properties.
The table presents leases that commenced during the twelve month period from
July 1, 1995 to June 30, 1996, excluding the leases for operating properties
that were executed prior to the date of acquisition:
<TABLE>
<CAPTION>
Calculated on a Weighted Average Basis
------------------------------------------------------------------------------------
Downtown Tenant Base
Washington, D.C. Improvements Rent Leasing
Properties Total & Cash per Lease Abatements Commission
Square Allowances per Square Life in in Per Square
Type of Lease Feet Leased Square Foot Foot Years Months Foot
- ------------- ----------- ----------- ---- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Office 98,086 $ 29.54 $ 31.48 8.8 3.3 $ 7.48
Retail 12,684 4.44 26.89 3.7 1.3 2.44
-----------
Total 110,770 26.66 30.96 8.2 3.0 6.90
============ =============== ======== ======= ============= =============
New leases or
expansion space 50,988 28.03 30.55 6.7 2.5 5.36
Renewals of existing
tenants' space 59,782 25.50 31.30 9.5 3.5 8.22
------------
Total 110,770 26.66 30.96 8.2 3.0 6.90
============ =============== ======== ======= =============================
Calculated on a Weighted Average Basis
------------------------------------------------------------------------------------
Tenant Base
All Other Operating Improvements Rent Leasing
Properties Total & Cash per Lease Abatements Commission
Square Allowances per Square Life in in Per Square
Type of Lease Feet Leased Square Foot Foot Years Months Foot
- ------------- ----------- ----------- ---- ----- ------ ----
Office 55,708 $ 4.74 $ 18.05 5.3 1.2 $ 0.50
Retail 0 0.00 0.00 0.0 0.0 0.00
-----------
Total 55,708 4.74 18.05 5.3 1.2 0.50
============ =============== ======== ======= ============= =============
New leases or
expansion space 52,693 5.01 17.98 5.5 1.3 0.53
Renewals of existing
tenants' space 3,015 0.00 19.25 1.3 0.0 0.00
------------
Total 55,708 4.74 18.05 5.3 1.2 0.50
============ =============== ======== ======= ============== =============
</TABLE>
24
<PAGE>
Part II
OTHER INFORMATION
- -----------------
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's annual meeting of its stockholders on June 12, 1996,
the stockholders elected Oliver T. Carr (10,016,525 votes for and
63,138 votes against or withheld), Andrew F. Brimmer (10,016,081 for
and 63,582 votes against or withheld), George R. Puskar (10,019,910
votes for and 59,753 votes against or withheld), and William D.
Sanders (10,015,385 votes for and 64,278 votes against or withheld)
as directors of the Company with terms expiring in 1999. The
stockholders also elected Anthony R. Manno, Jr. (10,019,310 votes for
and 60,353 votes against or withheld) and J. Marshall Peck
(10,014,785 votes for and 64,878 votes against or withheld) as
directors of the Company with terms expiring in 1997.
In addition, the stockholders voted against a stockholder proposal to
declassify the Board of Directors of the Company (3,242,493 votes
for, 4,501,715 votes against, 285,623 votes withheld and 2,250 broker
non-votes). The stockholders also voted against a stockholder
proposal to separate the offices of chairman and chief executive
officer of the Company (1,165,601 votes for, 6,576,004 votes against,
88,227 votes withheld and 2,250 broker non-votes).
Item 5. Other Information.
On August 2, 1996, the Company acquired ten office properties, certain
land and an option to acquire certain additional land in Austin,
Texas for an aggregate purchase price of approximately $98.8 million.
The consideration for these acquisitions was paid through a
combination of cash, repayment of seller indebtedness, issuance of
units of limited partnership interest in CarrAmerica Realty, L.P. and
the assumption of approximately $9.7 million in debt that bears
interest at an annual rate of 7.375% and matures in 1999. The ten
office properties (the "Littlefield Portfolio") contain approximately
894,000 square feet of space. Seven of the office properties
containing approximately 481,000 square feet of space are located in
suburban Austin's Northwest and Southwest sub-markets and three of
the office properties containing approximately 413,000 square feet of
space are located in Austin's central business district. As of June
30, 1996, the office properties were 78% leased to over 100 tenants,
including such major tenants as Holt, Rinehart & Wilson, a publishing
company (occupying 103,000 square feet or 12% of the total space),
First USA, a credit card service (occupying 65,000 square feet or 7%
of the total space), and Blue Cross/Blue Shield, an insurance company
(occupying 32,000 square feet or 4% of the total space). In addition,
the Company acquired land which will support the development of up to
25
<PAGE>
approximately 600,000 square feet of office space in suburban
Austin's Northwest sub-market and up to 130,000 square feet of office
space in suburban Austin's Southwest sub-market and an option to
purchase land which will support the development of up to
approximately 750,000 square feet of space in suburban Austin's
Northwest sub-market.
The historical financial statements relating to the Littlefield
Portfolio required by Item 7 (a) of Form 8-K were filed with the
Commission on a Current Report on Form 8-K on July 11, 1996. It is
impracticable at this time to file the pro forma financial
information relating to the Littlefield Portfolio required by Item 7
(b) of Form 8-K. The Company will file such pro forma financial
statements with the Commission as soon as they are available but not
later than October 16, 1996.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
--------
3.1 First Amended and Restated Agreement of Limited Partnership of
CarrAmerica Realty, L.P., dated as of May 24, 1996, as amended
by a First Amendment dated May 24, 1996, a Second Amendment
dated May 24, 1996, a Third Amendment dated June 27, 1996, and
a Fourth Amendment dated August 2, 1996.
Reports on Form 8-K
-------------------
a. Current Report on Form 8-K dated March 29, 1996 and filed on
April 10, 1996 and Form 8-K/A related thereto and filed on May
14, 1996 relating to the purchase of AT&T Center located in
Alameda County, California.
b. Current Report on Form 8-K dated April 30, 1996 and filed on
May 16, 1996 relating to the closing of the US Realty
Transaction.
c. Current Report on Form 8-K dated May 24, 1996 and filed on May
24, 1996 relating to certain pro forma financial information.
d. Current Report on Form 8-K dated June 27, 1996 and filed on
June 27, 1996, and Form 8-K/A related thereto and filed on
July 16, 1996, relating to the purchase of certain properties
and the presentation of certain historical and pro forma
financial information.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARRAMERICA REALTY CORPORATION
/s/ Thomas A. Carr
- ----------------------------------------
Thomas A. Carr, President and
Chief Operating Officer
/s/ Brian K. Fields
- ----------------------------------------
Brian K. Fields, Chief Financial Officer
Date: August 14, 1996
27
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Description Page
- ------- ----------- ----
3.1 First Amended and Restated Agreement of Limited Partnership of
CarrAmerica Realty, L.P., dated as of May 24, 1996, as amended
by a First Amendment dated as of May 24, 1996, a Second
Amendment dated May 24, 1996, a Third Amendment dated June 27,
1996, and a Fourth Amendment dated August 2, 1996.
</TABLE>
28
Exhibit 3.1
-----------
3.1 First Amended and Restated Agreement of Limited Partnership of
CarrAmerica Realty, L.P., dated as of May 24, 1996, as amended
by a First Amendment dated May 24, 1996, a Second Amendment
dated May 24, 1996, a Third Amendment dated June 27, 1996, and
a Fourth Amendment dated August 2, 1996.
29
<PAGE>
-----------------------------------------
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
CARRAMERICA REALTY, L.P.
-----------------------------------------
Dated as of May 24, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I DEFINED TERMS.............................................................................1
ARTICLE II ORGANIZATIONAL MATTERS....................................................................12
Section 2.1 Organization.......................................................................12
Section 2.2 Name...............................................................................12
Section 2.3 Registered Office and Agent; Principal Office......................................12
Section 2.4 Term...............................................................................12
ARTICLE III PURPOSE................,.................................................................13
Section 3.1 Purpose and Business...............................................................13
Section 3.2 Powers.............................................................................13
ARTICLE IV CAPITAL CONTRIBUTIONS; ISSUANCES OF
PARTNERSHIP INTERESTS..........................................................................13
Section 4.1 Capital Contributions of the Partners..............................................13
Section 4.2 Issuances of Additional Partnership Interests......................................14
Section 4.3 No Preemptive Rights...............................................................15
ARTICLE V DISTRIBUTIONS..............................................................................15
Section 5.1 Requirement and Characterization of Distributions..................................15
Section 5.2 Amounts Withheld...................................................................16
Section 5.3 Distributions Upon Liquidation.....................................................16
ARTICLE VI ALLOCATIONS...............................................................................16
Section 6.1 Allocations For Capital Account Purposes...........................................16
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS....................................................17
Section 7.1 Management.........................................................................17
Section 7.2 Certificate of Limited Partnership.................................................20
Section 7.3 Title to Partnership Assets........................................................21
Section 7.4 Reimbursement of the General Partner...............................................21
Section 7.5 Outside Activities of the General Partner..........................................22
Section 7.6 Transactions with Affiliates.......................................................23
Section 7.7 Indemnification....................................................................24
Section 7.8 Liability of the General Partner...................................................25
Section 7.9 Other Matters Concerning the General Partner.......................................26
Section 7.10 Reliance by Third Parties.........................................................27
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS..............................................27
Section 8.1 Limitation of Liability............................................................27
Section 8.2 Management of Business.............................................................27
Section 8.3 Outside Activities of Limited Partners.............................................28
Section 8.4 Return of Capital..................................................................28
Section 8.5 Rights of Limited Partners Relating to the
Partnership.............................................................................28
Section 8.6 Redemption Right...................................................................30
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS....................................................31
i
<PAGE>
Section 9.1 Records and Accounting.............................................................31
Section 9.2 Fiscal Year........................................................................32
Section 9.3 Reports............................................................................32
ARTICLE X TAX MATTERS................................................................................32
Section 10.1 Preparation of Tax Returns........................................................32
Section 10.2 Tax Elections.....................................................................33
Section 10.3 Tax Matters Partner...............................................................33
Section 10.4 Organizational Expenses...........................................................35
Section 10.5 Withholding.......................................................................35
ARTICLE XI TRANSFERS AND WITHDRAWALS.................................................................36
Section 11.1 Transfer..........................................................................36
Section 11.2 General Partner's Rights to Transfer..............................................36
Section 11.3 Limited Partners' Rights to Transfer..............................................36
Section 11.4 Substituted Limited Partners......................................................38
Section 11.5 Assignees.........................................................................38
Section 11.6 General Provisions................................................................39
ARTICLE XII ADMISSION OF PARTNERS....................................................................39
Section 12.1 Admission of Successor General Partner............................................39
Section 12.2 Admission of Additional Limited Partners..........................................40
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership.............................................................................40
ARTICLE XIII DISSOLUTION AND LIQUIDATION.............................................................40
Section 13.1 Dissolution.......................................................................40
Section 13.2 Winding Up........................................................................41
Section 13.3 Compliance with Timing Requirements of Regulations................................42
Section 13.4 Deemed Distribution and Recontribution............................................43
Section 13.5 Rights of Limited Partners........................................................43
Section 13.6 Notice of Dissolution.............................................................44
Section 13.7 Cancellation of Certificate of Limited Partnership...............................44
Section 13.8 Reasonable Time for Winding Up....................................................44
Section 13.9 Waiver of Partition...............................................................44
ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS.............................................44
Section 14.1 Amendments........................................................................44
Section 14.2 Meetings of the Partners..........................................................46
ARTICLE XV GENERAL PROVISIONS........................................................................47
Section 15.1 Addresses and Notice..............................................................47
Section 15.2 Titles and Captions...............................................................47
Section 15.3 Pronouns and Plurals..............................................................47
Section 15.4 Further Action....................................................................47
Section 15.5 Binding Effect....................................................................48
Section 15.6 Creditors.........................................................................48
Section 15.7 Waiver............................................................................48
Section 15.8 Counterparts......................................................................48
Section 15.9 Applicable Law....................................................................48
ii
<PAGE>
Section 15.10 Invalidity of Provisions.........................................................48
Section 15.11 Power of Attorney................................................................48
</TABLE>
EXHIBIT A
---------
PARTNERS, CONTRIBUTIONS AND
PARTNERSHIP INTERESTS
EXHIBIT B
---------
CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C
---------
SPECIAL ALLOCATION RULES
EXHIBIT D
---------
NOTICE OF REDEMPTION
iii
<PAGE>
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
CARRAMERICA REALTY, L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated
as of May 24, 1996, is entered into by and among CarrAmerica Realty Corporation
("Carr Realty"), a Maryland corporation, as the General Partner, and the Persons
whose names are set forth on Exhibit A as attached hereto who have been admitted
as limited partners in accordance with the provisions of the Agreement of
Limited Partnership, dated as of March 5, 1996, as amended prior to the date
hereof, as the Limited Partners, together with any other Persons who become
Partners in the Partnership as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
continue the Partnership as a limited partnership under the Delaware Revised
Uniform Limited Partnership Act (6 Del. C. ss. 17-101, et seq.), as amended from
time to time (the "Act"), as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership
Act, as it may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 4.2 hereof and who is shown
as such on the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account
maintained for each Partner as of the end of each Partnership Year (i) increased
by any amounts which such Partner is obligated to restore pursuant to any
provision of this Agreement or is deemed to be obligated to restore pursuant to
the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
<PAGE>
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account
as of the end of the relevant Partnership Year
"Adjusted Property" means any property the Carrying Value of
which has been adjusted pursuant to Exhibit B hereof. Once an Adjusted Property
is deemed distributed by, and recontributed to, the Partnership for federal
income tax purposes upon a termination thereof pursuant to Section 708 of the
Code, such property shall thereafter constitute a Contributed Property until the
Carrying Value of such property is further adjusted pursuant to Exhibit B
hereof.
"Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests, or
(iv) any officer, director, general partner or trustee of such Person or any
Person referred to in clauses (i), (ii), and (iii) above.
"Agreed Value" means (i) in the case of any Contributed
Property as of the time of its contribution to the Partnership, the 704(c) Value
of such property, reduced by any liabilities either assumed by the Partnership
upon such contribution or to which such property is subject when contributed,
and (ii) in the case of any property distributed to a Partner by the
Partnership, the Partnership's Carrying Value of such property at the time such
property is distributed, reduced by any indebtedness either assumed by such
Partner upon such distribution or to which such property is subject at the time
of distribution as determined under Section 752 of the Code and the regulations
thereunder.
"Agreement" means this First Amended and Restated Agreement of
Limited Partnership, as it may be amended, supplemented or restated from time to
time.
"Articles of Incorporation" means the Articles of
Incorporation of the General Partner filed in the State of Maryland on July 9,
1992, as amended or restated from time to time.
"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a Substituted Limited Partner, and who has the rights set forth
in Section 11.5.
"Available Cash" means, with respect to any period for which
such calculation is being made:
-2-
<PAGE>
(a) all cash revenues and funds received by the Partnership
from whatever source (excluding the proceeds of any Capital Contribution) plus
the amount of any reduction (including, without limitation, a reduction
resulting because the General Partner determines such amounts are no longer
necessary) in reserves of the Partnership, which reserves are referred to in
clause (b)(iv) below;
(b) less the sum of the following (except to the extent made
with the proceeds of any Capital Contribution):
(i) all interests, principal and other debt payments
made during such period by the Partnership,
(ii) all cash expenditures (including capital
expenditures) made by the Partnership during such period,
(iii) investments in any entity (including loans made
thereto) to the extent that such investments are permitted
under this Agreement and are not otherwise described in
clauses (b)(i) or (ii), and
(iv) the amount of any increase in reserves
established during such period which the General Partner
determines is necessary or appropriate in its sole and
absolute discretion.
Notwithstanding the foregoing, Available Cash shall not
include any cash received or reductions in reserves, or take into account any
disbursements made or reserves established, after commencement of the
dissolution and liquidation of the Partnership.
"Book-Tax Disparities" means, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax purposes
as of such date. A Partner's share of the Partnership's Book-Tax Disparities in
all of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.
"Capital Account" means the Capital Account maintained for a
Partner pursuant to Exhibit B hereof.
-3-
<PAGE>
"Capital Contribution" means, with respect to any Partner, any
cash, cash equivalents or the Agreed Value of Contributed Property which such
Partner contributes or is deemed to contribute to the Partnership pursuant to
Section 4.1 or 4.2 hereof.
"Carrying Value" means (i) with respect to a Contributed
Property or Adjusted Property, the 704(c) Value of such property reduced (but
not below zero) by all Depreciation with respect to such Property charged to the
Partners' Capital Accounts and (ii) with respect to any other Partnership
property, the adjusted basis of such property for federal income tax purposes,
all as of the time of determination. The Carrying Value of any property shall be
adjusted from time to time in accordance with Exhibit B hereof, and to reflect
changes, additions or other adjustments to the Carrying Value for dispositions
and acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
"Cash Amount" means an amount of cash per Partnership Unit
equal to the Value on the Valuation Date of the REIT Shares Amount.
"Certificate" means the Certificate of Limited Partnership
relating to the Partnership filed in the office of the Delaware Secretary of
State, as amended from time to time in accordance with the terms hereof and the
Act.
"Class A Unit" means a Partnership Unit that is specifically
designated by the General Partner as being a Class A Unit.
"Class B Unit" means a Partnership Unit that is specifically
designated by the General Partner as being a Class B Unit.
"Code" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Consent" means the consent or approval of a proposed action
by a Partner given in accordance with Section 14.2 hereof.
"Contributed Property" means each property or other asset, in
such form as may be permitted by the Act, but excluding cash contributed or
deemed contributed to the Partnership (or deemed contributed to the Partnership
on termination and reconstitution thereof pursuant to Section 708 of the Code).
Once the Carrying Value of a Contributed Property is adjusted pursuant to
Exhibit B hereof, such property shall no longer constitute a Contributed
Property for purposes of Exhibit B hereof, but shall be deemed an Adjusted
Property for such purposes.
"Conversion Factor" means 1.0, provided that in the event that
the General Partner (i) declares or pays a dividend on its outstanding REIT
Shares in
-4-
<PAGE>
REIT Shares or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii)
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Conversion Factor shall be adjusted by multiplying the Conversion Factor by a
fraction, the numerator of which shall be the number of REIT Shares issued and
outstanding on the record date (assuming for such purposes that such dividend,
distribution, subdivision or combination has occurred as of such time), and the
denominator of which shall be the actual number of REIT Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, subdivision or combination. Any adjustment to the
Conversion Factor shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
"Debt" means, as to any Person, as of any date of
determination, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, (ii) all amounts owed by such
Person to banks or other Persons in respect of reimbursement obligations under
letters of credit, surety bonds and other similar instruments guaranteeing
payment or other performance of obligations by such Person, (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by any lien on any property owned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof, and (iv) lease
obligations of such Person which, in accordance with generally accepted
accounting principles, should be capitalized.
"Depreciation" means, for each fiscal year, an amount equal to
the federal income tax depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year, except that if the
Carrying Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such year or other period, Depreciation shall
be an amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Distribution Period" means any calendar quarter or shorter
period with respect to which a distribution of Available Cash is to be made to
the Partners by the Partnership.
"General Partner" means CarrAmerica Realty Corporation or its
successors as general partner of the Partnership.
-5-
<PAGE>
"General Partner Interest" means a Partnership Interest held
by the General Partner that is a general partnership interest. A General Partner
Interest may be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person,
such natural Person's spouse, parents, descendants, nephews, nieces, brothers,
and sisters.
"Incapacity" or "Incapacitated" means, (i) as to any
individual Partner, death, total physical disability or entry by a court of
competent jurisdiction adjudicating him incompetent to manage his Person or his
estate, (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter, (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership, (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership, (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee), or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver of liquidator has not been vacated or stayed within ninety
(90) days of such appointment, or (h) an appointment referred to in clause (g)
is not vacated within ninety (90) days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding
by reason of his status as (A) the General Partner, (B) a Limited Partner, or
(C) a director or officer of the Partnership or the General Partner, and (ii)
such other
-6-
<PAGE>
Persons (including Affiliates of the General Partner or the Partnership) as the
General Partner may designate from time to time, in its sole and absolute
discretion.
"Limited Partner" means any Person named as a Limited Partner
in Exhibit A attached hereto, as such Exhibit may be amended from time to time,
or any Substituted Limited Partner or Additional Limited Partner, in such
Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of
a Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. A Limited Partnership Interest may
be expressed as a number of Partnership Units.
"Liquidator" has the meaning set forth in Section 13.2.
"Net Income" means, for any taxable period, the excess, if
any, of the Partnership's items of income and gain for such taxable period over
the Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Exhibit B. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in Exhibit C, Net Income or the resulting Net Loss, whichever
the case may be, shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any,
of the Partnership's items of loss and deduction for such taxable period over
the Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Exhibit B. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Loss is subjected to the special
allocation rules in Exhibit C, Net Loss or the resulting Net Income, whichever
the case may be, shall be recomputed without regard to such item.
"Nonrecourse Built-in Gain" means, with respect to any
Contributed Properties or Adjusted Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability, the amount of any taxable gain
that would be allocated to the Partners pursuant to Section 2.B of Exhibit C if
such properties were disposed of in a taxable transaction in full satisfaction
of such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership
-7-
<PAGE>
Year shall be determined in accordance with the rules of Regulations Section
1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption
substantially in the form of Exhibit E to this Agreement.
"Partner" means a General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the Amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the
Act and continued pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the
Partnership representing a Capital Contribution by either a Limited Partner or
the General Partner and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Record Date" means the record date established by
the General Partner for the distribution of Available Cash pursuant to Section
5.1 hereof, which record date shall be the same as the record date established
by the General Partner for a distribution to its shareholders of some or all of
its portion of such distribution.
-8-
<PAGE>
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2,
and includes Class A Units, Class B Units and any other classes or series of
Partnership Units established after the date hereof. The number of Partnership
Units outstanding and the Percentage Interests in the Partnership represented by
such Partnership Units are set forth in Exhibit A hereto, as such Exhibit may be
amended from time to time. The ownership of Partnership Units may be evidenced
by a certificate in a form approved by the General Partner.
"Partnership Year" means the fiscal year of the Partnership,
which shall be the calendar year.
"Percentage Interest" means, as to a Partner, its interest in
the Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit may be amended from time
to time.
"Person" means an individual or a corporation, partnership,
trust, unincorporated organization, association or other entity.
"Recapture Income" means any gain recognized by the
Partnership (computed without regard to any adjustment required by Section 734
or 743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Redeeming Partner" has the meaning set forth in Section 8.6
hereof.
"Redemption Amount" means either the Cash Amount or the REIT
Shares Amount, as determined by the General Partner in its sole and absolute
discretion. A Redeeming Partner shall have no right, without the General
Partner's consent, to receive the Redemption Amount in the form of the REIT
Shares Amount.
"Redemption Right" shall have the meaning set forth in Section
8.6 hereof.
"Regulations" means the Income Tax Regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856
of the Code.
"REIT Share" shall mean a share of common stock of the General
Partner.
-9-
<PAGE>
"REIT Shares Amount" shall mean a number of REIT Shares equal
to the product of the number of Partnership Units offered for redemption by a
Redeeming Partner, multiplied by the Conversion Factor; provided that in the
event the General Partner issues to all holders of REIT Shares rights, options,
warrants or convertible or exchangeable securities entitling the shareholders to
subscribe for or purchase REIT Shares, or any other securities or property
(collectively, the "rights") then the REIT Shares Amount shall also include such
rights that a holder of that number of REIT Shares would be entitled to receive.
"Residual Gain" or "Residual Loss" means any item of gain or
loss, as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate
Book-Tax Disparities.
"704(c) Value" of any Contributed Property means the the fair
market value of such property at the time of contribution as determined by the
General Partner using such reasonable method of valuation as it may adopt;
provided, however, that the 704(c) Value of any property deemed contributed to
the Partnership for federal income tax purposes upon termination and
reconstitution thereof pursuant to Section 708 of the Code shall be determined
in accordance with Exhibit B hereof. Subject to Exhibit B hereof, the General
Partner shall, in its sole and absolute discretion, use such method as it deems
reasonable and appropriate to allocate the aggregate of the 704(c) Value of
Contributed Properties in a single or integrated transaction among each separate
property on a basis proportional to its fair market values.
"Specified Redemption Date" means the tenth Business Day after
receipt by the General Partner of a Notice of Redemption; provided that no
Specified Redemption Date with respect to a Partnership Unit shall occur before
one (1) year from the date such Partnership Unit was originally issued; provided
further that if the General Partner combines its outstanding REIT Shares into a
smaller number of REIT Shares, no Specified Redemption Date shall occur prior to
the effective date of such combination.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 11.4.
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership for
cash or a related series
-10-
<PAGE>
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership for cash.
"Unrealized Gain" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
fair market value of such property (as determined under Exhibit B hereof) as of
such date, over (ii) the Carrying Value of such property (prior to any
adjustment to be made pursuant to Exhibit B hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
Carrying Value of such property (prior to any adjustment to be made pursuant to
Exhibit B hereof) as of such date, over (ii) the fair market value of such
property (as determined under Exhibit B hereof) as of such date.
"Valuation Date" means the date of receipt by the General
Partner of a Notice of Redemption or, if such date is not a Business Day, the
first Business Day thereafter.
"Value" means, with respect to a REIT Share, the average of
the daily market price for the ten (10) consecutive trading days immediately
preceding the Valuation Date. The market price for each such trading day shall
be: (i) if the REIT Shares are listed or admitted to trading on any securities
exchange or the NASDAQ-National Market System, the closing price, regular way,
on such day, or if no such sale takes place on such day, the average of the
closing bid and asked prices on such day, (ii) if the REIT Shares are not listed
or admitted to trading on any securities exchange or the NASDAQ-National Market
System, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner, or
(iii) if the REIT Shares are not listed or admitted to trading on any securities
exchange or the NASDAQ-National Market System and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than ten (10) days prior to the date
in question) for which prices have been so reported; provided, if there are no
bid and asked prices reported during the ten (10) days prior to the date in
question, the Value of the REIT Shares shall be determined by the General
Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the REIT Shares Amount includes rights that a holder of REIT Shares would
be entitled to receive, then the Value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
-11-
<PAGE>
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Organization
The Partnership is a limited partnership organized pursuant to
the provisions of the Act and upon the terms and conditions set forth in the
Agreement of Limited Partnership, dated as of March 5, 1996, as amended prior to
the date hereof. The Partners hereby continue the Partnership and amend and
restate such Agreement of Limited Partnership, as amended prior to the date
hereof, in its entirety. Except as expressly provided herein to the contrary,
the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.
Section 2.2 Name
The name of the Partnership is CarrAmerica Realty, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.
Section 2.3 Registered Office and Agent; Principal
Office
The address of the registered office of the Partnership in the
State of Delaware is located at 1209 Orange Street, Wilmington, Delaware, and
the registered agent for service of process on the Partnership in the State of
Delaware at such registered office is Corporation Trust Company. The principal
office of the Partnership is 1700 Pennsylvania Avenue, N.W., Washington, D.C.,
or such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
Section 2.4 Term
The term of the Partnership commenced on March 5, 1996 and
shall continue until December 31, 2095, unless it is dissolved sooner pursuant
to the provisions of Article XIII or as otherwise provided by law.
-12-
<PAGE>
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner at all times to be classified as a REIT, unless the General
Partner ceases to qualify as a REIT, (ii) to enter into any partnership, joint
venture or other similar arrangement to engage in any of the foregoing or the
ownership of interests in any entity engaged in any of the foregoing, and (iii)
to do anything necessary or incidental to the foregoing.
Section 3.2 Powers
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, provided that the Partnership
shall not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole and absolute discretion, (i) could adversely affect
the ability of the General Partner to continue to qualify as a REIT, (ii) could
subject the General Partner to any additional taxes under Section 857 or 4981 of
the Code, or (iii) could violate any law or regulation of any governmental body
or agency having jurisdiction over the General Partner or its securities, unless
such action (or inaction) shall have been specifically consented to by the
General Partner in writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS; ISSUANCES
OF PARTNERSHIP INTERESTS
Section 4.1 Capital Contributions of the Partners
At the time of the execution of this Agreement, the Partners
shall make or shall have made the Capital Contributions as set forth in Exhibit
A hereto. To the extent the Partnership is acquiring any property by the merger
of any other Person into the Partnership, Persons who receive Partnership
Interests in exchange for their interests in the Person merging into the
Partnership shall become Partners and shall be deemed to have made Capital
Contributions as provided in the applicable merger agreement and as set forth in
Exhibit A hereto. The Partners shall own Partnership Units in the amounts set
forth in Exhibit A and shall have a
-13-
<PAGE>
Percentage Interest in the Partnership as set forth in Exhibit A, which
Percentage Interest shall be adjusted in Exhibit A from time to time by the
General Partner to the extent necessary to reflect accurately redemptions,
Capital Contributions, the issuance of additional Partnership Units, or similar
events having an effect on a Partner's Percentage Interest. A number of
Partnership Units held by the General Partner equal to one percent (1%) of all
outstanding Partnership Units shall be deemed to be the General Partner
Partnership Units and shall be the General Partnership Interest. Except as
provided in Section 10.5, the Partners shall have no obligation to make any
additional Capital Contributions or loans to the Partnership. No Partner shall
have any obligation to restore any default that may exist in its Capital
Account, either upon a liquidation of the Partnership or otherwise.
Section 4.2 Issuances of Additional Partnership
Interests
A. General. The General Partner is hereby authorized to cause
the Partnership from time to time to issue to Partners or other Persons other
than the General Partner (including, without limitation, in connection with the
contribution of property to the Partnership) additional Partnership Units or
other Partnership Interests in one or more classes, or one or more series of any
of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined by the General Partner in its sole and absolute discretion subject
to Delaware law, including, without limitation, (i) the allocations of items of
Partnership income, gain, loss, deduction and credit to each such class or
series of Partnership Interests, (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions, and (iii) the
rights of each such class or series of Partnership Interests upon dissolution
and liquidation of the Partnership.
B. Issuances of Additional Partnership Interests to the
General Partner. The General Partner may make Capital Contributions to the
Partnership at such times and in such amounts as the General Partner, in its
sole and absolute discretion, may determine advisable, but under no
circumstances shall the General Partner be obligated to make any such Capital
Contribution. In exchange for each such Capital Contribution, the Partnership
shall issue to the General Partner, at the election of the General Partner in
its sole and absolute discretion, (i) that number of Partnership Units equal to
(a) the amount of the Capital Contribution divided by (b) the Value of a REIT
Share or (ii) or other Partnership Interests, in one or more classes, or one or
more series of any of such classes, with such designations, preferences and
relative, participating, optional or other special rights, powers and duties,
including rights, powers and duties senior to Limited Partnership Interests, all
as shall be determined by the General Partner in good faith, subject to Delaware
law, including, without limitation, (x) the allocations of items of Partnership
income, gain, loss, deduction and credit to each such class or
-14-
<PAGE>
series of Partnership Interests, (y) the right of each such class or series of
Partnership Interests to share in Partnership distributions, and (z) the rights
of each such class or series of Partnership Interests upon dissolution and
liquidation of the Partnership.
Section 4.3 No Preemptive Rights
No Person shall have any preemptive, preferential or other
similar right with respect to (i) additional Capital Contributions or loans to
the Partnership or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of
Distributions
The General Partner shall distribute at least quarterly an
amount equal to one hundred percent (100%) of Available Cash generated by the
Partnership during such quarter or shorter period to the Partners who are
Partners on the Partnership Record Date with respect to such quarter or shorter
period as follows: (i) to the extent that there is sufficient Available Cash,
each holder of Class A Units shall be entitled to a distribution per Class A
Unit equal to any accrued but unpaid distributions payable with respect to such
Class A Unit, if any, for all prior periods with respect to which such Class A
Unit was issued and outstanding (as described in clause (ii) below); (ii) after
the payment of any accrued but unpaid distributions, if any, for all prior
periods in accordance with the foregoing clause (i), to the extent that there is
sufficient Available Cash, each holder of Class A Units shall be entitled to a
distribution per Class A Unit (multiplied by the Conversion Factor) in an amount
equal to the dividend per REIT Share paid by the General Partner for such
quarter multiplied by a fraction, the numerator of which is the number of days
in the quarter or shorter period to which such distribution relates that the
Class A Unit was issued and outstanding, and the denominator of which is the
total number of days in the quarter or shorter period to which such distribution
relates; provided, that to the extent that there is not sufficient Available
Cash to pay the distributions per Class A Unit (multiplied by the Conversion
Factor) in accordance with this clause (ii), such deficit shall cumulate and no
distribution (other than to a Redeeming Partner as provided in Section 8.6.C)
shall be made for any subsequent distribution period pursuant to clauses (ii)
and (iii) hereof, unless all such accrued but unpaid distributions shall have
been paid to the holders of the Class A Units pursuant to clause (i) above for
all prior periods; and (iii) to the extent there is excess Available Cash after
the application of clauses (i) and (ii), such excess shall be distributed to
each holder of Class B Units, on a pro rata basis. Notwithstanding anything to
the contrary
-15-
<PAGE>
contained herein, in no event may a Partner receive a distribution of Available
Cash with respect to a Partnership Unit for a quarter or shorter period if such
Partner is entitled to receive a distribution with respect to a REIT Share for
which such Unit has been redeemed or exchanged.
Section 5.2 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of
any state or local tax law and Section 10.5 hereof with respect to any
allocation, payment or distribution to the General Partner, the Limited Partners
or Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners, or Assignees pursuant to Section 5.1 for all purposes under
this Agreement.
Section 5.3 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction shall be
distributed to the Partners in accordance with Section 13.2.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the Partnership's items
of income, gain, loss and deduction (computed in accordance with Exhibit B
hereof) shall be allocated among the Partners in each taxable year (or portion
thereof) as provided herein below.
A. Net Income. After giving effect to the special allocations
set forth in Section 1 of Exhibit C, Net Income shall be allocated (i) first, to
the General Partner to the extent that Net Losses previously allocated to the
General Partner pursuant to the last sentence of Section 6.1.B exceed Net Income
previously allocated to the General Partner pursuant to this clause (i) of
Section 6.1.A, (ii) second, to the Class A Units in accordance with their
respective Percentage Interests to each Partner until each Class A Unit has been
allocated, on a cumulative basis pursuant to this clause (ii), Net Income equal
to the sum of the distributions paid with respect to such Class A Unit pursuant
to clauses (i) and (ii) of Section 5.1, if any, and (iii) thereafter, to the
Class B Units.
B. Net Losses. After giving effect to the special allocations
set forth in Section 1 of Exhibit C, Net Losses shall be allocated (i) first, to
the Class B Units to the extent that any prior allocations of Net Income to the
Class B Units pursuant to Section 6.1(a)(iii) exceed, on a cumulative basis,
distributions with
-16-
<PAGE>
respect to the Class B Units pursuant to clause (iii) of Section 5.1, (ii)
second, to the Class A Units to the extent that any prior allocations of Net
Income pursuant to Section 6.1(a)(ii) exceed, on a cumulative basis, the
distributions paid with respect to such Class A Units pursuant to clauses (i)
and (ii) of Section 5.1, and (iii) third, to the Partners in accordance with
their respective Percentage Interests, provided that Net Losses shall not be
allocated to any Limited Partner pursuant to this Section 6.1.B to the extent
that such allocation would cause such Limited Partner to have an Adjusted
Capital Account Deficit at the end of such taxable year (or increase any
existing Adjusted Capital Account Deficit). All Net Losses in excess of the
limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.
C. Allocation of Nonrecourse Debt. For purposes of Regulations
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain
and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among
the Partners in accordance with their respective Percentage Interests.
D. Recapture Income. Any gain allocated to the Partners upon
the sale or other taxable disposition of any Partnership asset shall to the
extent possible, after taking into account other required allocations of gain
pursuant to Exhibit C, be characterized as Recapture Income in the same
proportions and to the same extent as such Partners have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Powers of General Partner. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Partnership are exclusively vested in the General Partner, and no Limited
Partner shall have any right to participate in or exercise control or management
power over the business and affairs of the Partnership. The General Partner may
not be removed by the Limited Partners with or without cause. In addition to the
powers now or hereafter granted a general partner of a limited partnership under
applicable law or which are granted to the General Partner under any other
provision of this Agreement, the General Partner shall have full power and
authority to do all things deemed necessary or desirable by it to conduct the
business of the Partnership, to exercise all powers set forth in Section 3.2
hereof and to effectuate the purposes set forth in Section 3.1 hereof,
including, without limitation:
-17-
<PAGE>
(1) the making of any expenditures, the lending or
borrowing of money (including, without limitation,
making prepayments on loans and borrowing money to
permit the Partnership to make distributions to its
Partners in such amounts as will permit the General
Partner (so long as the General Partner qualifies as
a REIT) to avoid the payment of any federal income
tax (including, for this purpose, any excise tax
pursuant to Section 4981 of the Code) and to make
distributions to its shareholders sufficient to
permit the General Partner to maintain REIT status),
the assumption or guarantee of, or other contracting
for, indebtedness and other liabilities, the issuance
of evidences of indebtedness (including the securing
of same by mortgage, deed of trust or other lien or
encumbrance on the Partnership's assets) and the
incurring of any obligations it deems necessary for
the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to
governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all
of the assets of the Partnership or the merger or
other combination of the Partnership with or into
another entity on such terms as the General Partner
deems proper, which powers shall include, without
limitation, the power to pledge any or all of the
assets of the Partnership to secure a loan or other
financing to the General Partner (the proceeds of
which are not required to be contributed or loaned to
the Partnership);
(4) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement and on
any terms it sees fit, including, without limitation,
the financing of the conduct of the operations of the
General Partner, the Partnership or any of the
Partnership's Subsidiaries, the lending of funds to
other Persons (including the Partnership's
Subsidiaries) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person
in which it has an equity investment and the making
of Capital Contributions to its Subsidiaries;
(5) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the
General Partner
-18-
<PAGE>
considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the
General Partner's powers under this Agreement;
(6) the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(7) the selection and dismissal of employees of the
Partnership or the General Partner (including,
without limitation, employees having titles such as
"president", vice president", "secretary" and
"treasurer"), and agents, outside attorneys,
accountants, consultants and contractors of the
General Partner or the Partnership and the
determination of their compensation and other terms
of employment or hiring;
(8) the maintenance of such insurance for the benefit of
the Partnership and the Partners as it deems
necessary or appropriate;
(9) the formation of, or acquisition of an interest in,
and the contribution of property to, any further
limited or general partnerships, joint ventures or
other relationships that it deems desirable
(including, without limitation, the acquisition of
interests in, and the contributions of property to
its Subsidiaries and any other Person in which it has
an equity investment from time to time);
(10) the control of any matters affecting the rights and
obligations of the Partnership, including the conduct
of litigation and the incurring of legal expense and
the settlement of claims and litigation, and the
indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons); and
(12) the determination of the fair market value of any
Partnership property distributed in kind using such
reasonable method of valuation as it may adopt.
B. No Approval by Limited Partners. Each of the Limited
Partners agrees that the General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the
Partnership without
-19-
<PAGE>
any further act, approval or vote of the Partners, notwithstanding any other
provision of this Agreement, the Act or any applicable law, rule or regulation.
The execution, delivery or performance by the General Partner or the Partnership
of any agreement authorized or permitted under this Agreement shall not
constitute a breach by the General Partner of any duty that the General Partner
may owe the Partnership or the Limited Partners or any other Persons under this
Agreement or of any duty stated or implied by law or equity.
C. Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the properties of the Partnership and (ii)
liability insurance for the Indemnitees hereunder.
D. Working Capital Reserves. At all times from and after the
date hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves in such amounts as the General Partner, in its
sole and absolute discretion, deems appropriate and reasonable from time to
time.
E. No Obligations to Consider Tax Consequences of Limited
Partners. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken by it. The General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner pursuant
to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
The General Partner has previously filed the Certificate with
the Secretary of State of Delaware. To the extent that such action is determined
by the General Partner to be reasonable and necessary or appropriate, the
General Partner shall file amendments to and restatements of the Certificate and
do all the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state or the District of Columbia, in
which the Partnership may elect to do business or own property. Subject to the
terms of Section 8.5.A(4) hereof, the General Partner shall not be required,
before or after filing, to deliver or mail a copy of the Certificate or any
amendment thereto to any Limited Partner. The General Partner shall use all
reasonable efforts to cause to be filed such other certificates or documents as
may be reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware and any
other state, or the District of Columbia, in which the Partnership may elect to
do business or own property.
-20-
<PAGE>
Section 7.3 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed
and whether tangible or intangible, shall be deemed to be owned by the
Partnership as an entity, and no Partner, individually or collectively, shall
have any ownership interest in such Partnership assets or any portion thereof.
Title to any or all of the Partnership assets may be held in the name of the
Partnership, the General Partner or one or more nominees, as the General Partner
may determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.4 Reimbursement of the General Partner
A. No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
regarding distributions, payments, and allocations to which it may be entitled),
the General Partner shall not be compensated for its services as general partner
of the Partnership.
B. Responsibility for Partnership Expenses. The Partnership
shall be responsible for and shall pay all expenses relating to the
Partnership's organization, the ownership of its assets and its operations. The
General Partner shall be reimbursed on a monthly basis, or such other basis as
the General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the operation of, or for the benefit of, the
Partnership. The General Partner shall determine in good faith the amount of
expenses incurred by it related to the operation of, or for the benefit of, the
Partnership. In the event that certain expenses are incurred for the benefit of
the Partnership and other entities (including the General Partner), such
expenses will be allocated to the Partnership and such other entities in such a
manner as the General Partner in its sole and absolute discretion deems fair and
reasonable. Such reimbursements shall be in addition to any reimbursement to the
General Partner pursuant to Section 10.3(c) and as a result of indemnification
pursuant to Section 7.7 hereof.
C. Partnership Interest Issuance Expenses. The General Partner
also shall be reimbursed for all expenses it incurs relating to any issuance of
additional Partnership Interests pursuant to Section 4.2 hereof.
-21-
<PAGE>
Section 7.5 Outside Activities of the General Partner
A. General. Nothing contained in this Agreement shall prevent
or prohibit the General Partner or any officer, director, employee, agent,
trustee, Affiliate or shareholder of the General Partner having business
interests and engaging in business activities in addition to those relating to
the Partnership (including, without limitation, owning and operating real estate
and incurring indebtedness in its own name, whether or not the proceeds of such
indebtedness are used for the benefit of the Partnership), including, without
limitation, engaging in other business interests and activities in direct or
indirect competition with the Partnership. Neither the Partnership nor any
Partners shall have any right by virtue of this Agreement or the partnership
relationship established hereby in or to such other ventures or activities or to
the income or proceeds derived therefrom, and the pursuit of such ventures, even
if competitive with the business of the Partnership (including, without
limitation, causing tenants to transfer from one of the Partnership's properties
to other properties in which the General Partner has an interest, directly or
indirectly, without compensation to the Partnership, or taking other actions for
the benefit of the General Partner or other entities affiliated with the General
Partner that are detrimental to the Partnership), shall not be deemed wrongful
or improper. Neither the General Partner nor any Affiliate of the General
Partner shall be obligated to present any particular opportunity to the
Partnership even if such opportunity is of a character which, if presented to
the Partnership, could be taken by the Partnership, and, regardless of whether
or not such opportunity is competitive with the Partnership, the General Partner
or any Affiliate of the General Partner shall have the right to take for its own
account (individually or as a trustee, partner or fiduciary), or to recommend to
others, any such particular opportunity. The General Partner and any Affiliates
of the General Partner may acquire Limited Partnership Interests and shall be
entitled to exercise all rights of a Limited Partner relating to such Limited
Partnership Interests.
B. Sales and Purchases of REIT Shares. The General Partner may
issue additional REIT Shares or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase REIT
Shares ("New Securities"), or purchase and/or redeem REIT Shares, at such times
and in such amounts and for such consideration as the General Partner, in its
sole and absolute discretion, determines. Under no circumstances shall the
General Partner be obligated to contribute to the Partnership all or any part of
the proceeds from any issuance of such New Securities or from the exercise of
rights contained in such New Securities, and the General Partner may, in its
sole and absolute discretion, retain all such proceeds, to be used by the
General Partner as it determines, in its sole and absolute discretion, to be
advisable.
-22-
<PAGE>
Section 7.6 Transactions with Affiliates
A. Permitted Transactions. Subject to Section 7.6.B below, the
Partnership may lend or contribute funds to, borrow funds from, and enter into
any other transactions with (including, without limitation, the purchase or sale
of any property or the transfer of a tenant from one of the Partnership's
properties to other properties in which the General Partner has an interest,
directly or indirectly, without compensation to the Partnership), the General
Partner, the Partnership's Subsidiaries or other Persons in which it has an
equity investment, or Affiliates of the Partnership, the General Partner or such
Subsidiaries or other Persons, on terms and conditions established in the sole
and absolute discretion of the General Partner. The foregoing authority shall
not create any right or benefit in favor of any Subsidiary or any other Person.
The Partnership may transfer assets to joint ventures, other partnerships,
corporations or other business entities in which it is or thereby becomes a
participant upon such terms and subject to such conditions consistent with this
Agreement and applicable law.
B. Transactions with Certain Affiliates. Except as expressly
permitted by this Agreement, the Partnership shall not, directly or indirectly,
sell, transfer or convey any property to, or purchase any property from, or
borrow funds from, or lend funds to, any Affiliate of the Partnership or the
General Partner that is not a Subsidiary of the Partnership or the General
Partner, except pursuant to transactions that are on terms that are fair and
reasonable and no less favorable to the Partnership than would be obtained from
an unaffiliated third party.
C. Benefit Plans. The General Partner, in its sole and
absolute discretion and without the approval of the Limited Partners, may
propose and adopt on behalf of the Partnership employee benefit plans funded by
the Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
D. Redemption of Partnership Units held by General Partner.
The Partnership is expressly permitted to purchase Partnership Units held by the
General Partner at any time and upon such terms as the General Partner, in its
sole and absolute discretion, shall determine, subject to Section 7.6.B;
provided, that any such purchase of Partnership Units from the General Partner
shall be deemed to have complied with Section 7.6.B if the purchase price per
Partnership Unit is equal to either (i) the Value of a REIT Share or (ii) the
price paid by the General Partner for such Partnership Unit, if such Partnership
Unit has been acquired from a third party.
-23-
<PAGE>
Section 7.7 Indemnification
A. General. The Partnership shall indemnify an Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the Indemnitee actually received an improper personal benefit
in money, property or services, or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 7.7.A. The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 7.7.A. Any indemnification pursuant to this Section 7.7 shall be
made only out of the assets of the Partnership.
B. Advancement of Expenses. Reasonable expenses incurred by an
Indemnitee who is a party to a proceeding may be paid or reimbursed by the
Partnership in advance of the final disposition of the proceeding upon receipt
by the Partnership of (i) a written affirmation by the Indemnitee of the
Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Partnership as authorized in this Section 7.7.A has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
C. No Limitation of Rights. The indemnification provided by
this Section 7.7 shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity.
D. Insurance. The Partnership may purchase and maintain
insurance, on behalf of the Indemnitees and such other Persons as the General
Partner shall determine, against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
-24-
<PAGE>
E. Benefit Plan Fiduciary. For purposes of this Section 7.7,
(i) the Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves services
by, it to the plan or participants or beneficiaries of the plan, (ii) excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of Section
7.7, and (iii) actions taken or omitted by the Indemnitee with respect to an
employee benefit plan in the performance of its duties for a purpose reasonably
believed by it to be in the interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Partnership.
F. No Personal Liability for Limited Partners. In no event may
an Indemnitee subject the Limited Partners to personal liability by reason of
the indemnification provisions set forth in this Agreement.
G. Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
H. Benefit. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and administrators
and shall not be deemed to create any rights for the benefit of any other
Persons.
Section 7.8 Liability of the General Partner
A. General. Notwithstanding anything to the contrary set forth
in this Agreement, the General Partner shall not be liable for monetary damages
to the Partnership, any Partners or any Assignees for losses sustained or
liabilities incurred as a result of errors in judgment or of any act or omission
if the General Partner acted in good faith.
B. No Obligation to Consider Separate Interests of Limited
Partners. The Limited Partners expressly acknowledge that the General Partner is
acting on behalf of the Partnership, other partnerships in which the General
Partner serves as general partner, and the General Partner's shareholders
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (including, without limitation, the
tax consequences to Limited Partners or Assignees) in deciding whether to cause
the Partnership to take (or decline to take) any actions, and that the General
Partner shall not be liable for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with such decisions.
-25-
<PAGE>
C. Actions of Agents. Subject to its obligations and duties as
General Partner set forth in Section 7.1.A hereof, the General Partner may
exercise any of the powers granted to it by this Agreement and perform any of
the duties imposed upon it hereunder either directly or by or through its
agents. The General Partner shall not be responsible for any misconduct or
negligence on the part of any such agent appointed by it in good faith.
D. Effect of Amendment. Any amendment, modification or repeal
of this Section 7.8 or any provision hereof shall be prospective only and shall
not in any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.9 Other Matters Concerning the General
Partner
A. Reliance on Documents. The General Partner may rely and
shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture, or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties.
B. Reliance on Advisors. The General Partner may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisers selected by it, and any act taken or
omitted to be taken in reliance upon the opinion of such Persons as to matters
which such General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
C. Action Through Agents. The General Partner shall have the
right, in respect of any of its powers or obligations hereunder, to act through
any of its duly authorized officers and a duly appointed attorney or
attorneys-in-fact. Each such attorney shall, to the extent provided by the
General Partner in the power of attorney, have full power and authority to do
and perform all and every act and duty which is permitted or required to be done
by the General Partner hereunder.
D. Actions to Maintain REIT Status or Avoid Taxation of the
General Partner. Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner to continue
-26-
<PAGE>
to qualify as a REIT or (ii) to avoid the General Partner incurring any taxes
under Section 857 or 4981 of the Code, is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
Section 7.10 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement,
any Person dealing with the Partnership shall be entitled to assume that the
General Partner has full power and authority to encumber, sell or otherwise use
in any manner any and all assets of the Partnership and to enter into any
contracts on behalf of the Partnership, and such Person shall be entitled to
deal with the General Partner as if it were the Partnership's sole party in
interest, both legally and beneficially. Each Limited Partner hereby waives any
and all defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership, and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this
Agreement except as expressly provided in this Agreement, including Section 10.5
hereof, or under the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General
Partner, any of its Affiliates or any officer, director, employee, partner,
agent or trustee of the General Partner, the Partnership or any of their
Affiliates, in their capacity as
-27-
<PAGE>
such) shall take part in the operation, management or control (within the
meaning of the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Any Limited Partner and any officer, director, employee,
agent, trustee, Affiliate or shareholder of any Limited Partner shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities in direct or indirect competition with the Partnership. Neither the
Partnership nor any Partners shall have any rights by virtue of this Agreement
in any business ventures of any Limited Partner or Assignee. None of the Limited
Partners nor any other Person shall have any rights by virtue of this Agreement
or the partnership relationship established hereby in any business ventures of
any other Person and such Person shall have no obligation pursuant to this
Agreement to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.
Section 8.4 Return of Capital
Except pursuant to the right of redemption set forth in
Section 8.6, no Limited Partner shall be entitled to the withdrawal or return of
his Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. No
Limited Partner or Assignee shall have priority over any other Limited Partner
or Assignee either as to the return of Capital Contributions or, except to the
extent provided by Exhibit C hereof or as permitted by Section 4.2.B, or
otherwise expressly provided in this Agreement, as to profits, losses or
distributions.
Section 8.5 Rights of Limited Partners Relating
to the Partnership
A. General. In addition to other rights provided by this
Agreement or by the Act, and except as limited by Section 8.5.C hereof, each
Limited Partner shall have the right, for a purpose reasonably related to such
Limited Partner's interest as a limited partner in the Partnership, upon written
demand with a
-28-
<PAGE>
statement of the purpose of such demand and at such Limited Partner's own
expense:
(1) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and
Exchange Commission by the General Partner pursuant
to the Securities Exchange Act of 1934;
(2) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership
Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each
Partner;
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with
executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the
amount of cash and a description and statement of any
other property or services contributed by each
Partner and which each Partner has agreed to
contribute in the future, and the date on which each
became a Partner.
B. Notice of Change in Conversion Factor. The Partnership
shall notify each Limited Partner in writing of any change made to the
Conversion Factor within ten (10) Business Days of the date such change becomes
effective.
C. Notice of Extraordinary Transaction of General Partner. The
General Partner shall not make any extraordinary distributions of cash or
property to its shareholders or effect a merger or sale of all or substantially
all of its assets without notifying the Limited Partners of its intention to
make such distribution or effect such merger or sale at least twenty (20)
Business Days prior to the record date to determine shareholders eligible to
receive such distribution or to vote upon the approval of such merger or sale.
D. Confidentiality. Notwithstanding any other provision of
this Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner believes to be in the nature of trade secrets or other information the
disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or (ii) the Partnership is required by law or
by agreements with unaffiliated third parties to keep confidential.
-29-
<PAGE>
Section 8.6 Redemption Right
A. General. Subject to Section 8.6.C, on or after the date one
(1) year after each Partnership Unit is issued, the holder of such Partnership
Unit other than the General Partner, shall have the right (the "Redemption
Right") to require the Partnership to redeem on a Specified Redemption Date such
Partnership Unit at a redemption price equal to and in the form of the
Redemption Amount to be paid by the Partnership. The Redemption Right shall be
exercised pursuant to a Notice of Redemption delivered to the General Partner by
the Limited Partner who is exercising the redemption right (the "Redeeming
Partner"). A Limited Partner may not exercise the Redemption Right for less than
one thousand (1,000) Partnership Units or, if such Limited Partner holds less
than one thousand (1,000) Partnership Units, all of the Partnership Units held
by such Partner. The Redeeming Partner shall have no right, with respect to any
Partnership Units so redeemed, to receive any distributions paid after the
Specified Redemption Date.
B. General Partner Assumption of Right. Notwithstanding the
provisions of Section 8.6.A, the General Partner may, in its sole and absolute
discretion, assume directly and satisfy a Redemption Right by paying to the
Redeeming Partner the Redemption Amount on the Specified Redemption Date,
whereupon the General Partner shall acquire the Partnership Units offered for
redemption by the Redeeming Partner and shall be treated for all purposes of
this Agreement as the owner of such Partnership Units. In the event the General
Partner shall exercise its right to satisfy the Redemption Right in the manner
described in the preceding sentence, the Partnership shall have no obligation to
pay any amount to the Redeeming Partner with respect to such Redeeming Partner's
exercise of the Redemption Right, and each of the Redeeming Partner, the
Partnership, and the General Partner shall treat the transaction between the
General Partner and the Redeeming Partner as a sale of the Redeeming Partner's
Partnership Units to the General Partner for federal income tax purposes. Each
Redeeming Partner agrees to execute such documents as the General Partner may
reasonably require in connection with the issuance of REIT Shares upon exercise
of the Redemption Right. Nothing contained in this Section 8.6.B shall imply any
right of the General Partner to require any Limited Partner to exercise the
Redemption Right afforded to such Limited Partner pursuant to Section 8.6.A
hereof.
C. Payment of Accrued and Unpaid Distributions. On any
Specified Redemption Date occurring on or prior to the tenth anniversary of the
date on which the Redeeming Partner was admitted to the Partnership, the
Partnership shall pay to the Redeeming Partner the amount of all accrued and
unpaid distributions, if any, pursuant to Section 5.1. On any Specified
Redemption
-30-
<PAGE>
Date occurring after the tenth anniversary of the date on which the Redeeming
Partner was admitted to the Partnership, the Partnership shall pay to the
Redeeming Partner the amount of all accrued and unpaid distributions, if any,
pursuant to Section 5.1; provided, however, that no such payment of cumulated
and unpaid distributions shall be required if the Redemption Amount is at least
110% of the sum of (i) the quotient obtained by dividing the Redeeming Partner's
Capital Contribution as set forth on Exhibit A by the number of the Partnership
Units (multiplied by the Conversion Factor) held by such Partner and (ii) all
accrued and unpaid distributions with respect to a Partnership Unit.
D. Exceptions to Exercise of Redemption Right. Notwithstanding
the provisions of Sections 8.6.A and 8.6.B, a Partner shall not be entitled to
exercise the Redemption Right pursuant to Section 8.6.A if the delivery of REIT
Shares to such Partner on the Specified Redemption Date (i) would be prohibited
under the Articles of Incorporation or (ii) would be prohibited under applicable
federal or state securities laws or regulations.
E. Redemption Amount Adjustment in Terminating Transaction.
Notwithstanding any other provision of this Agreement, in the event that
CarrAmerica Realty Corporation shall cease to exist for any reason (including,
without limitation, the merger of CarrAmerica Realty Corporation into another
entity or a sale of all or substantially all of the assets of CarrAmerica Realty
Corporation and distribution of the proceeds therefrom in liquidation) (referred
to as a "Termination Transaction"), the Redemption Amount thereafter shall be
equal to (i) the consideration received for one REIT Share in connection with
the Termination Transaction multiplied by (ii) the Conversion Factor at the time
of the Termination Transaction, which Redemption Amount the General Partner
shall pay upon an exercise of the Redemption Right, at its sole option, either
in the form of the consideration received by the CarrAmerica Realty Corporation
stockholders in connection with the Termination Transaction or in cash in an
amount equal to the value of such consideration at the time the Redemption Right
is exercised, as determined by the General Partner in good faith.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including, without limitation, all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Section 9.3 hereof. Any
records
-31-
<PAGE>
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. Annual Reports. As soon as practicable, but in no event
later than the date on which the General Partner mails its annual report to its
stockholders, the General Partner shall cause to be mailed to each Limited
Partner as of the close of the Partnership Year, an annual report containing
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
for such Partnership Year, presented in accordance with generally accepted
accounting principles, such statements to be audited by a nationally recognized
firm of independent public accountants selected by the General Partner.
B. Quarterly Reports. If and to the extent that the General
Partner mails quarterly reports to its stockholders, as soon as practicable, but
in no event later than the date on such reports are mailed, the General Partner
shall cause to be mailed to each Limited Partner as of the last day of the
calendar quarter (except the last calendar quarter of each year), a report
containing unaudited financial statements of the Partnership, or of the General
Partner, if such statements are prepared solely on a consolidated basis with the
General Partner, and such other information as may be required by applicable law
or regulation, or as the General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and
timely filing of all returns of Partnership income, gains, deductions, losses
and other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety (90)
days of the close of each taxable
-32-
<PAGE>
year, the tax information reasonably required by Limited Partners for federal
and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner
shall, in its sole and absolute discretion, determine whether to make any
available election pursuant to the Code; provided, however, that the General
Partner shall make the election under Section 754 of the Code in accordance with
applicable regulations thereunder. The General Partner shall have the right to
seek to revoke any such election (including, without limitation, the election
under Section 754 of the Code) upon the General Partner's determination in its
sole and absolute discretion that such revocation is in the best interests of
the Partners.
Section 10.3 Tax Matters Partner
A. General. The General Partner shall be the "tax matters
partner" of the Partnership for federal income tax purposes. Pursuant to Section
6223(c)(3) of the Code, upon receipt of notice from the IRS of the beginning of
an administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address and profit interest of each
of the Limited Partners; provided, however, that such information is provided to
the Partnership by the Limited Partners.
B. Powers. The tax matters partner is authorized, but not
required:
1) to enter into any settlement with the IRS
with respect to any administrative or
judicial proceedings for the adjustment of
Partnership items required to be taken into
account by a Partner for income tax purposes
(such administrative proceedings being
referred to as a "tax audit" and such
judicial proceedings being referred to as
"judicial review"), and in the settlement
agreement the tax matters partner may
expressly state that such agreement shall
bind all Partners, except that such
settlement agreement shall not bind any
Partner (i) who (within the time prescribed
pursuant to the Code and Regulations) files
a statement with the IRS providing that the
tax matters partner shall not have the
authority to enter into a settlement
agreement on behalf of such Partner or (ii)
who is a "notice partner" (as defined in
Section 6231 of the Code) or a member of a
"notice group" (as defined in Section
6223(b)(2) of the Code);
-33-
<PAGE>
2) in the event that a notice of a final
administrative adjustment at the Partnership
level of any item required to be taken into
account by a Partner for tax purposes (a
"final adjustment") is mailed to the tax
matters partner, to seek judicial review of
such final adjustment, including the filing
of a petition for readjustment with the Tax
Court or the United States Claims Court, or
the filing of a complaint for refund with
the District Court of the United States for
the district in which the Partnership's
principal place of business is located;
3) to intervene in any action brought by any
other Partner for judicial review of a final
adjustment;
4) to file a request for an administrative
adjustment with the IRS at any time and, if
any part of such request is not allowed by
the IRS, to file an appropriate pleading
(petition or complaint) for judicial review
with respect to such request;
5) to enter into an agreement with the IRS to
extend the period for assessing any tax
which is attributable to any item required
to be taken into account by a Partner for
tax purposes, or an item affected by such
item; and
6) to take any other action on behalf of the
Partners of the Partnership in connection
with any tax audit or judicial review
proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by
the tax matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of the
tax matters partner and the provisions relating to indemnification of the
General Partner set forth in Section 7.7 of this Agreement shall be fully
applicable to the tax matters partner in its capacity as such.
C. Reimbursement. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing his duties as such (including legal and
accounting fees) shall be borne by the Partnership. Nothing herein shall be
construed to restrict the Partnership from engaging an accounting firm to assist
the tax matters partner in discharging his duties hereunder, so long as the
compensation paid by the Partnership for such services is reasonable.
-34-
<PAGE>
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any,
incurred by it in organizing the Partnership ratably over a sixty (60) month
period as provided in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a loan by the Partnership to such Limited Partner, which loan shall
be repaid by such Limited Partner within fifteen (15) days after notice from the
General Partner that such payment must be made unless (i) the Partnership
withholds such payment from a distribution which would otherwise be made to the
Limited Partner or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner (including, without
limitation, the right to receive distributions). Any amounts payable by a
Limited Partner hereunder shall bear interest at the base rate on corporate
loans at large United States money center commercial banks, as published from
time to time in the Wall Street Journal, plus four percentage points (but not
higher than the maximum lawful rate) from the date such amount is due (i.e.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall take such actions as the Partnership or the General Partner shall
request in order to perfect or enforce the security interest created hereunder.
-35-
<PAGE>
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. Definition. The term "transfer," when used in this Article
XI with respect to a Partnership Unit, shall be deemed to refer to a transaction
by which the General Partner purports to assign its General Partner Interest to
another Person or by which a Limited Partner purports to assign its Limited
Partnership Interest to another Person, and includes a sale, assignment, gift,
pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition
by law or otherwise. The term "transfer" when used in this Article XI does not
include any redemption or repurchase of Partnership Units by the Partnership
from a Partner (including the General Partner pursuant to Section 7.6.D) or
acquisition of Partnership Units from a Limited Partner by the General Partner
pursuant to Section 8.6 or otherwise.
B. General. No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article XI. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article XI shall be null and void.
Section 11.2 General Partner's Rights to Transfer
A. Limited Partnership Interests. The General Partner may
transfer all or any portion of its Limited Partnership Interests, or any of the
rights associated with such Limited Partnership Interests, to any party without
the consent of the Partnership or any Partner (regardless of whether such
transfer triggers a termination of the Partnership for tax purposes under
Section 708 of the Code).
B. General Partner Interest. The General Partner shall not be
permitted to transfer its General Partner Interest except (i) to an Affiliate of
the General Partner, (ii) in connection with a sale of all or substantially all
of the General Partner's assets, or (iii) in connection with a merger,
consolidation or other business combination involving the General partner;
provided, that the foregoing transfers shall be permitted if the Person
succeeding as General Partner pursuant to clause (i), (ii) or (iii) above
assumes all of the obligations of the General Partner under the Partnership
Agreement.
Section 11.3 Limited Partners' Rights to Transfer
A. General. Subject to the provisions of Sections 11.3.C,
11.3.D, 11.3.E and 11.4, a Limited Partner (other than the General Partner) may
transfer,
-36-
<PAGE>
with or without the consent of the General Partner, all or any portion of his
Partnership Interest, or any of such Limited Partner's rights as a Limited
Partner, to an Immediate Family Member or an Affiliate of such Limited Partner,
provided that prior written notice of such proposed transfer is delivered to the
General Partner. No other transfers of a Limited Partnership Interest may be
effected without the consent of the General Partner, which consent may be given
or denied by the General Partner in its sole and absolute discretion.
B. Incapacitated Limited Partners. If a Limited Partner is
subject to Incapacity, the executor, administrator, trustee, committee,
guardian, conservator or receiver of such Limited Partner's estate shall have
all the rights of a Limited Partner, but not more rights than those enjoyed by
other Limited Partners for the purpose of settling or managing the estate and
such power as the Incapacitated Limited Partner possessed to transfer all or any
part of his or its interest in the Partnership. The Incapacity of a Limited
Partner, in and of itself, shall not dissolve or terminate the Partnership.
C. No Transfers Violating Securities Laws. The General Partner
may prohibit any transfer by a Limited Partner of his Partnership Units if, in
the opinion of legal counsel to the Partnership, such transfer would require
filing of a registration statement under the Securities Act of 1933 or would
otherwise violate any federal or state securities laws or regulations applicable
to the Partnership or the Partnership Unit.
D. No Transfers Affecting Tax Status of Partnership. No
transfer by a Limited Partner of his Partnership Units may be made to any Person
if (i) in the opinion of legal counsel for the Partnership, it would result in
the Partnership being treated as an association taxable as a corporation, or
(ii) such transfer is effectuated through an "established securities market" or
a "secondary market (or the substantial equivalent thereof)" within the meaning
of Section 7704 of the Code.
E. No Transfers to Holders of Nonrecourse Liabilities. No
transfer of any Partnership Units may be made to a lender to the Partnership or
any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability without the consent of the General Partner, in its sole
and absolute discretion; provided, as a condition to such consent the lender
will be required to enter into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Redemption Amount any Partnership
Units in which a security interest is held simultaneously with the time at which
such lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
-37-
<PAGE>
Section 11.4 Substituted Limited Partners
A. Consent of General Partner. No Limited Partner shall have
the right to substitute a transferee as a Limited Partner in his place. The
General Partner shall, however, have the right to consent to the admission of a
transferee of the interest of a Limited Partner pursuant to this Section 11.4 as
a Substituted Limited Partner, which consent may be given or withheld by the
General Partner in its sole and absolute discretion. The General Partner's
failure or refusal to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or any Partner.
B. Rights of Substituted Limited Partner. A transferee who has
been admitted as a Substituted Limited Partner in accordance with this Article
XI shall have all the rights and powers and be subject to all the restrictions
and liabilities of a Limited Partner under this Agreement.
C. Amendment of Exhibit A. Upon the admission of a Substituted
Limited Partner, the General Partner shall amend Exhibit A to reflect the name,
address, number of Partnership Units, and Percentage Interest of such
Substituted Limited Partner and to eliminate or adjust, if necessary, the name,
address and interest of the predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion,
does not consent to the admission of any permitted transferee under Section 11.3
as a Substituted Limited Partner, as described in Section 11.4, such transferee
shall be considered an Assignee for purposes of this Agreement. An Assignee
shall be entitled to all the rights of an assignee of a limited partnership
interest under the Act, including the right to receive distributions from the
Partnership and the share of Net Income, Net Losses, gain, loss and Recapture
Income attributable to the Partnership Units assigned to such transferee, but
shall not be deemed to be a holder of Partnership Units for any other purpose
under this Agreement, and shall not be entitled to vote such Partnership Units
in any matter presented to the Limited Partners for a vote (such Partnership
Units being deemed to have been voted on such matter in the same proportion as
all Partnership Units held by Limited Partners are voted). In the event any such
transferee desires to make a further assignment of any such Partnership Units,
such transferee shall be subject to all the provisions of this Article XI to the
same extent and in the same manner as any Limited Partner desiring to make an
assignment of Partnership Units.
-38-
<PAGE>
Section 11.6 General Provisions
A. Withdrawal of Limited Partner. No Limited Partner may
withdraw from the Partnership other than as a result of a permitted transfer of
all of such Limited Partner's Partnership Units in accordance with this Article
XI or pursuant to redemption of all of its Partnership Units under Section 8.6.
B. Termination of Status as Limited Partner. Any Limited
Partner who shall transfer all of his Partnership Units in a transfer permitted
pursuant to this Article XI or pursuant to redemption of all of its Partnership
Units under Section 8.6 shall cease to be a Limited Partner.
C. Timing of Transfers. Transfers pursuant to this Article XI
may only be made on the first day of a fiscal quarter of the Partnership, unless
the General Partner otherwise agrees.
D. Allocations. If any Partnership Interest is transferred
during any quarterly segment of the Partnership's fiscal year in compliance with
the provisions of this Article XI or redeemed or transferred pursuant to Section
8.6, Net Income, Net Losses, each item thereof and all other items attributable
to such interest for such fiscal year shall be divided and allocated between the
transferor Partner and the transferee Partner by taking into account their
varying interests during the fiscal year in accordance with Section 706(d) of
the Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such items for the calendar month in which the
transfer or redemption occurs shall be allocated to the Person who is a Partner
as of midnight on the last day of said month. All distributions of Available
Cash with respect to which the Partnership Record Date is before the date of
such transfer or redemption shall be made to the transferor Partner, and all
distributions of Available Cash thereafter shall be made to the transferee
Partner.
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner's General Partner
Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a
successor General Partner shall be admitted to the Partnership as the General
Partner, effective upon such transfer. Any such transferee shall carry on the
business of the Partnership without dissolution. In each case, the admission
shall be subject to the successor General Partner executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement and such other documents or instruments as may be required to effect
the admission.
-39-
<PAGE>
Section 12.2 Admission of Additional Limited Partners
No Person shall be admitted as an Additional Limited Partner
without the consent of the General Partner, which consent may be given or
withheld in the General Partner's sole and absolute discretion. A Person who
makes a Capital Contribution to the Partnership in accordance with this
Agreement or who exercises an option to receive Partnership Units shall be
admitted to the Partnership as an Additional Limited Partner only with the
consent of the General Partner and only upon furnishing to the General Partner
(i) evidence of acceptance in form satisfactory to the General Partner of all of
the terms and conditions of this Agreement, including, without limitation, the
power of attorney granted in Section 15.11 hereof and (ii) such other documents
or instruments as may be required in the discretion of the General Partner in
order to effect such Person's admission as an Additional Limited Partner. The
admission of any Person as an Additional Limited Partner shall become effective
on the date upon which the name of such Person is recorded on the books and
records of the Partnership, following the consent of the General Partner to such
admission.
Section 12.3 Amendment of Agreement and Certificate of
Limited Partnership
For the admission to the Partnership of any Partner, the
General Partner shall take all steps necessary and appropriate under the Act to
amend the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 15.11 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of
Substituted Limited Partners or Additional Limited Partners or by the admission
of a successor General Partner in accordance with the terms of this Agreement.
Upon the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
("Liquidating Events") :
-40-
<PAGE>
(i) the expiration of its term as provided in Section 2.4
hereof;
(ii) an event of withdrawal of the General Partner, as defined
in the Act (other than an event of bankruptcy), unless, within ninety (90) days
after the withdrawal all the remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the date of
withdrawal, of a substitute General Partner;
(iii) an election to dissolve the Partnership made by the
General Partner, in its sole and absolute discretion;
(iv) entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
(v) the sale of all or substantially all of the assets and
properties of the Partnership in exchange for cash; or
(vi) a final and non-appealable judgment is entered by a court
with appropriate jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a court
with appropriate jurisdiction against the General Partner, in each case under
any federal or state bankruptcy or insolvency laws as now or hereafter in
effect, unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute General Partner.
Section 13.2 Winding Up
A. General. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a majority in interest of
the Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include equity or other securities of the General Partner or any other
entity) shall be applied and distributed in the following order:
-41-
<PAGE>
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors
other than the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General
Partner;
(3) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners;
and
(4) The balance, if any, to the General Partner and
Limited Partners in accordance with their Capital
Accounts, after giving effect to all contributions,
distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
B. Deferred Liquidation. Notwithstanding the provisions of
Section 13.2.A hereof which require liquidation of the assets of the
Partnership, but subject to the order of priorities set forth therein, if prior
to or upon dissolution of the Partnership the Liquidator determines that an
immediate sale of part or all of the Partnership's assets would be impractical
or would cause undue loss to the Partners, the Liquidator may, in its sole and
absolute discretion, defer for a reasonable time the liquidation of any assets
except those necessary to satisfy liabilities of the Partnership (including to
those Partners as creditors) and/or distribute to the Partners, in lieu of cash,
as tenants in common and in accordance with the provisions of Section 13.2.A
hereof, undivided interests in such Partnership assets as the Liquidator deems
not suitable for liquidation. Any such distributions in kind shall be made only
if, in the good faith judgment of the Liquidator, such distributions in kind are
in the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of
Regulations
In the event the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article XIII to the General Partner and Limited Partners who
have positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in his Capital
Account (after giving effect to all
-42-
<PAGE>
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall have no
obligation to make any contribution to the capital of the Partnership with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Partnership or to any other Person for any purpose whatsoever. In the
discretion of the General Partner, a pro rata portion of the distributions that
would otherwise be made to the General Partner and Limited Partners pursuant to
this Article XIII may be: (A) distributed to a trust established for the benefit
of the General Partner and Limited Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership, and paying any
contingent or unforeseen liabilities or obligations of the Partnership or of the
General Partner arising out of or in connection with the Partnership. The assets
of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the General Partner,
in the same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement; or (B) withheld to provide a
reasonable reserve for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations owed to the
Partnership, provided that such withheld amounts shall be distributed to the
General Partner and Limited Partners as soon as practicable.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article XIII, in
the event the Partnership is liquidated within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged, and the Partnership's affairs shall not be
wound up. Instead, the Partnership shall be deemed to have distributed the
Property in kind to the General Partner and Limited Partners, who shall be
deemed to have assumed and taken such property subject to all Partnership
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the General Partner and Limited Partners shall be deemed
to have recontributed the Partnership property in kind to the Partnership, which
shall be deemed to have assumed and taken such property subject to all such
liabilities.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return of his
Capital Contribution and shall have no right or power to demand or receive
property other than cash from the Partnership. No Limited Partner shall have
priority over any other Limited Partner as to the return of his Capital
Contributions, distributions, or allocations.
-43-
<PAGE>
Section 13.6 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs
that would, but for provisions of Section 13.1, result in a dissolution of the
Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and to all other parties
with whom the Partnership regularly conducts business (as determined in the
discretion of the General Partner) and shall publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the discretion of the General
Partner).
Section 13.7 Cancellation of Certificate of Limited
Partnership
Upon the completion of the liquidation of the Partnership cash
and property as provided in Section 13.2 hereof, the Partnership shall be
terminated and the Certificate and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the State of Delaware
shall be canceled and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.8 Reasonable Time for Winding Up
A reasonable time shall be allowed for the orderly winding up
of the business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the
Partnership property.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. General. Amendments to this Agreement may be proposed by
the General Partner or by any Limited Partners holding twenty-five percent (25%)
or more of the Partnership Interests. Following such proposal (except an
amendment pursuant to Section 14.1.B below), the General Partner shall submit
-44-
<PAGE>
any proposed amendment to the Limited Partners. The General Partner shall seek
the written vote of the Partners on the proposed amendment or shall call a
meeting to vote thereon and to transact any other business that it may deem
appropriate. For purposes of obtaining a written vote, the General Partner may
require a response within a reasonable specified time, but not less than fifteen
(15) days, and failure to respond in such time period shall constitute a vote
which is consistent with the General Partner's recommendation with respect to
the proposal. Except as provided in Section 14.1.B, 14.1.C or 14.1.D, a proposed
amendment shall be adopted and be effective as an amendment hereto if it is
approved by the General Partner and it receives the Consent of Partners holding
a majority of the Percentage Interests of the Limited Partners (including
Limited Partnership Interests held by the General Partner).
B. Amendments Not Requiring Limited Partner Approval.
Notwithstanding Section 14.1.A, the General Partner shall have the power,
without the consent of the Limited Partners, to amend this Agreement as may be
required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General
Partner or any Affiliate of the General Partner for
the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination,
or withdrawal of Partners in accordance with this
Agreement (which may be effected through the
replacement of Exhibit A hereto with an amended
Exhibit A);
(3) to set forth the rights, powers, duties, and
preferences of the holders of any additional
Partnership Interests issued pursuant to Section
4.2.A or Section 4.2.B hereof;
(4) to modify the term of the Partnership as set forth in
Section 2.5;
(5) to reflect a change that does not adversely affect
the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any
provision in this Agreement not inconsistent with law
or with other provisions, or make other changes with
respect to matters arising under this Agreement that
will not be inconsistent with law or with the
provisions of this Agreement; and
(6) to satisfy any requirements, conditions, or
guidelines contained in any order, directive,
opinion, ruling or regulation of a federal or state
agency or contained in federal or state law.
-45-
<PAGE>
The General Partner will provide notice to the Limited Partners when any action
under this Section 14.1.B has been taken.
C. Amendments Requiring Limited Partner Approval (Excluding
General Partner). Notwithstanding Section 14.1.A hereof, the General Partner
shall not amend Section 4.2.B, Article V, Article VI, 7.6, 7.8, 8.6 or 11.2
without the Consent of a majority of the Percentage Interests of the Limited
Partners, excluding Limited Partnership Interests held by the General Partner.
D. Amendments Requiring Unanimous Limited Partner Approval.
Notwithstanding anything in this Section 14.1 to the contrary, this Agreement
shall not be amended without the Consent of each Partner adversely affected if
such amendment would (i) convert a Limited Partner's interest in the Partnership
into a general partner's interest, (ii) modify the limited liability of a
Limited Partner, or (iii) amend this Section 14.1.D.
Section 14.2 Meetings of the Partners
A. General. Meetings of the Partners may be called by the
General Partner and shall be called upon the receipt by the General Partner of a
written request by Limited Partners holding 25 percent or more of the
Partnership Interests. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven days nor more than 30 days prior to the date of such meeting.
Partners may vote in person or by proxy at such meeting. Whenever the vote or
Consent of Partners is permitted or required under this Agreement, such vote or
Consent may be given at a meeting of Partners or may be given in accordance with
the procedure prescribed in Section 14.1 hereof. Except as otherwise expressly
provided in this Agreement, the Consent of holders of a majority of the
Percentage Interests shall control.
B. Actions Without a Meeting. Any action required or permitted
to be taken at a meeting of the Partners may be taken without a meeting if a
written consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. Proxy. Each Limited Partner may authorize any Person or
Persons to act for him by proxy on all matters in which a Limited Partner is
-46-
<PAGE>
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited Partner or
his attorney-in-fact. No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.
D. Conduct of Meeting. Each meeting of Partners shall be
conducted by the General Partner or such other Person as the General Partner may
appoint pursuant to such rules for the conduct of the meeting as the General
Partner or such other Person deems appropriate.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
Any notice, demand, request or report required or permitted to
be given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class United States mail or by other means of written communication to
the Partner or Assignee at the address set forth in Exhibit A or such other
address as the Partners shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement
are for convenience only. They shall not be deemed part of this Agreement and in
no way define, limit, extend or describe the scope or intent of any provisions
hereof. Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide
all information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
-47-
<PAGE>
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their heirs, executors, administrators, successors,
legal representatives and permitted assigns.
Section 15.6 Creditors
None of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
Section 15.11 Power of Attorney
A. General. Each Limited Partner and each Assignee constitutes
and appoints the General Partner, any Liquidator, and authorized officers and
-48-
<PAGE>
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all
certificates, documents and other instruments
(including, without limitation, this Agreement and
the Certificate and all amendments or restatements
thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or
continue the existence or qualification of the
Partnership as a limited partnership (or a
partnership in which the limited partners have
limited liability) in the State of Delaware and in
all other jurisdictions in which the Partnership may
conduct business or own property, (b) all instruments
that the General Partner deems appropriate or
necessary to reflect any amendment, change,
modification or restatement of this Agreement in
accordance with its terms, (c) all conveyances and
other instruments or documents that the General
Partner deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation,
(d) all instruments relating to the admission,
withdrawal, removal or substitution of any Partner
pursuant to, or other events described in, Article
XI, XII or XIII hereof or the Capital Contribution of
any Partner, and (e) all certificates, documents and
other instruments relating to the determination of
the rights, preferences and privileges of Partnership
Interests; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and
absolute discretion of the General Partner, to make,
evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or
given by the Partners hereunder or is consistent with
the terms of this Agreement or appropriate or
necessary, in the sole discretion of the General
Partner, to effectuate the terms or intent of this
Agreement.
Nothing contained herein shall be construed as authorizing the
General Partner to amend this Agreement except in accordance with Article XIV
hereof or as may be otherwise expressly provided for in this Agreement.
-49-
<PAGE>
B. Irrevocable Nature. The foregoing power of attorney is
hereby declared to be irrevocable and a power coupled with an interest, in
recognition of the fact that each of the Partners will be relying upon the power
of the General Partner to act as contemplated by this Agreement in any filing or
other action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner, acting in good faith pursuant to such power of attorney; and
each such Limited Partner or Assignee hereby waives any and all defenses which
may be available to contest, negate or disaffirm the action of the General
Partner, taken in good faith under such power of attorney. Each Limited Partner
or Assignee shall execute and deliver to the General Partner or the Liquidator,
within fifteen (15) days after receipt of the General Partner's request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the Liquidator, as the case may be, deems necessary to
effectuate this Agreement and the purposes of the Partnership.
-50-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
GENERAL PARTNER:
CARRAMERICA REALTY CORPORATION
By: /s/ Brian K. Fields
------------------------------------
Name:
----------------------------------
Title: Chief Financial Officer
---------------------------------
LIMITED PARTNERS:
ENGLEWOOD JOINT VENTURE NO. 1
By: Quebec Partners III,
General Partner
By: Plaza Developers Holdings LLC,
General Partner
By: /s/ John W. Madden, Jr.
------------------------------
Name:
-----------------------------
Title: Manager
---------------------------
QUEBEC COURT JOINT VENTURE NO. 2
By: Quebec Court Joint Venture No. 1,
General Partner
By: Plaza Developers Holdings LLC,
General Partner
By: /s/ John W. Madden, Jr.
------------------------------
Name:
-----------------------------
Title: Manager
---------------------------
-51-
<PAGE>
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Class A Class B Agreed Initial
Partnership Partnership Capital Percentage
Name and Address of Partner Units Units Account Interest
--------------------------- ----- ----- ------- --------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
CarrAmerica Realty Corporation 16,207 $ 396,259 1.00%
1700 Pennsylvania Avenue, N.W. Class B Units (100% of
Washington D.C. 20006 Class B Units)
LIMITED PARTNERS:
Quebec Court Joint Venture No. 2 686,808 $16,792,457 42.38%
7600 East Orchard Road Class A Units (42.8% of
Suite 430N Class A Units)
Englewood, CO 80111
Englewood Joint Venture No. 1 917,675 $22,437,158 56.62%
7600 East Orchard road Class A Units (57.2% of
Suite 430N Class A Units)
Englewood, CO 80111 --------- ---------- ----------- -----------
TOTAL: 1,604,483 16,207 $39,625,874 100.00%
========= ========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
--------------------------------
A. The Partnership shall maintain for each Partner a separate
Capital Account in accordance with the rules of Regulations Section
l.704-l(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions and any other deemed contributions made by such
Partner to the Partnership pursuant to this Agreement and (ii) all items of
Partnership income and gain (including income and gain exempt from tax) computed
in accordance with Section 1.B hereof and allocated to such Partner pursuant to
Section 6.1.A of the Agreement and Exhibit C hereof, and decreased by (x) the
amount of cash or Agreed Value of all actual and deemed distributions of cash or
property made to such Partner pursuant to this Agreement and (y) all items of
Partnership deduction and loss computed in accordance with Section 1.B hereof
and allocated to such Partner pursuant to Section 6.1.B of the Agreement and
Exhibit C hereof.
B. For purposes of computing the amount of any item of income,
gain, deduction or loss to be reflected in the Partners' Capital Accounts,
unless otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a) (1) of the Code shall be included in taxable income or loss),
with the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of
income, gain, loss and deduction shall be made
without regard to any election under Section 754 of
the Code which may be made by the Partnership,
provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of
the distribution of property by the Partnership to a
Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital
Accounts) shall be reflected in the Capital Accounts
of the Partners in the manner and subject to the
limitations prescribed in Regulations Section
l.704-1(b)(2)(iv) (m)(4).
(2) The computation of all items of income, gain, and
deduction shall be made without regard to the fact
that items described in Sections 705(a)(l)(B) or
705(a)(2)(B) of the Code are not includable gross
income or are neither currently deductible nor
capitalized for federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be
determined as if the adjusted basis of such property
as of such date of disposition were equal in amount
to the Partnership's Carrying Value with respect to
such property as of such date.
(4) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in
computing such taxable income or loss, there shall be
taken into account Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership
Asset is adjusted pursuant to Section 1.D hereof, the
amount of any such adjustment shall be taken into
account as gain or loss from the disposition of such
asset.
<PAGE>
(6) Any items specially allocated under Section 2 of
Exhibit C hereof shall not be taken into account.
C. Generally, a transferee (including any Assignee) of a
Partnership Unit shall succeed to a pro rata portion of the Capital Account of
the transferor; provided, however, that, if the transfer causes a termination of
the Partnership under Section 708(b)(l)(B) of the Code, the Partnership's
properties shall be deemed, solely for federal income tax purposes, to have been
distributed in liquidation of the Partnership to the holders of the Partnership
units (including transferee) and recontributed by such Persons in reconstitution
of the Partnership. In such event, the Carrying Values of the Partnership
properties shall be adjusted immediately prior to such deemed distribution
pursuant to Section 1.D(2) hereof. The Capital Accounts of such reconstituted
Partnership shall be maintained in accordance with the principles of this
Exhibit B.
D. (1) Consistent with the provisions of Regulations
Section 1.704-1(b)(2)(iv)(f), and as provided in
Section 1.D(2), the Carrying Values of all
Partnership assets shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized
Loss attributable to such Partnership property, as of
the times of the adjustments provided in Section
1.D(2) hereof, as if such Unrealized Gain or
Unrealized Loss had been recognized on an actual sale
of each such property and allocated pursuant to
Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following
times: (a) immediately prior to the acquisition of an
additional interest in the Partnership by any new or
existing Partner in exchange for more than a de
minimis Capital Contribution; (b) immediately prior
to the distribution by the Partnership to a Partner
of more than a de minimis amount of property as
consideration for an interest in the Partnership; and
(c) immediately prior to the liquidation of the
Partnership within the meaning of Regulations Section
1.704-l(b)(2)(ii)(g), provided however that
adjustments pursuant to clauses (a) and (b) above
shall be made only if the General Partner determines
that such adjustments are necessary or appropriate to
reflect the relative economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-
l(b)(2)(iv)(e), the Carrying Value of Partnership
assets distributed in kind shall be adjusted upward
or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership
property, as of the time any such asset is
distributed.
(4) In determining Unrealized Gain or Unrealized Loss for
purposes of this Exhibit B, the aggregate cash amount
and fair market value of all Partnership assets
(including cash or cash equivalents) shall be
determined by the General Partner using such
reasonable method of valuation as it may adopt, or in
the case of a liquidating distribution pursuant to
Article XIII of the Agreement, shall be determined
and allocated by the Liquidator using such reasonable
methods of valuation as it may adopt. The General
Partner, or the Liquidator, as the case may be, shall
allocate such aggregate fair market value among the
assets of the Partnership (in such manner as it
determines in its sole and absolute discretion to
arrive at a fair market value for individual
properties).
E. The provisions of the Agreement (including this Exhibit B
and the other Exhibits to the Agreement) relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section 1.704-1(b), and shall
be interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify
2
<PAGE>
the manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification
without regard to Article XIV of the Agreement, provided that it is not likely
to have a material effect on the amounts distributable to any Person pursuant to
Article XIII of the Agreement upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
l.704-l(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section l.704-1(b).
2. No Interest
-----------
No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
3. No Withdrawal
-------------
No Partner shall be entitled to withdraw any part of his
Capital Contribution or his Capital Account or to receive any distribution from
the Partnership, except as provided in Articles IV, V, VII and XIII of the
Agreement.
3
<PAGE>
EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules.
-------------------------
Notwithstanding any other provision of the Agreement or this
Exhibit C, the following special allocations shall be made in the following
order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of
Section 6.1 of the Agreement or any other provisions of this Exhibit C, if there
is a net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f) (6). This
Section 1.A is intended to comply with the minimum gain chargeback requirements
in Regulations Section 1.704-2(f) and for purposes of this Section 1.A only,
each Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 of this Agreement with respect to such
Partnership Year and without regard to any decrease in Partner Minimum Gain
during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Section 6.1 of this Agreement or any other provisions of this
Exhibit C (except Section 1.A hereof ), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
Year, each Partner who has a share of the Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i) (5), shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i) (5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each General
Partner and Limited Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(i) (4). This
Section 1.B is intended to comply with the minimum gain chargeback requirement
in such Section of the Regulations and shall be interpreted consistently
therewith. Solely for purposes of this Section 1.B, each Partner's Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to Section 6.1 of the Agreement or this Exhibit with respect to such
Partnership Year, other than allocations pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-l(b)(2)(ii)(d)(4), l.704-1(b)(2)(ii)(d)(5), or 1.704-
l(b)(2)(ii)(d)(6), and after giving effect to the allocations required under
Sections 1.A and 1.B hereof, such Partner has an Adjusted Capital Account
Deficit, items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) and shall be specifically allocated to such Partner in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, its Adjusted Capital Account Deficit created by such adjustments,
allocations or distributions as quickly as possible. This Section 1.C is
intended to constitute a "qualified income offset" under Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
D Nonrecourse Deductions. Nonrecourse Deductions for any
Partnership Year shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse
<PAGE>
Deductions must be allocated in a different ratio to satisfy the safe harbor
requirements of the Regulations promulgated under Section 704(b) of the Code,
the General Partner is authorized, upon notice to the Limited Partners, to
revise the prescribed ratio for such Partnership Year to the numerically closest
ratio which would satisfy such requirements.
E. Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Partnership Year shall be specially allocated to the Partner
who bears the economic risk of loss with respect to the Partner Nonrecourse Debt
to which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section
1.704-l(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such item of gain or loss shall be
specially allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
Section of the Regulations.
2. Allocations for Tax Purposes
----------------------------
A. Except as otherwise provided in this Section 2, for federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Section 6.1 of
the Agreement and Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities
attributable to a Contributed Property or Adjusted Property, items of income,
gain, loss, and deduction shall be allocated for federal income tax purposes
among the Partners as follows:
(1) (a) In the case of a Contributed Property, such
items attributable thereto shall be
allocated among the Partners consistent with
the principles of Section 704(c) of the Code
to take into account the variation between
the 704(c) Value of such property and its
adjusted basis at the time of contribution
(taking into account Section 2.C of this
Exhibit C); and
(b) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall
be allocated among the Partners in the same
manner as its correlative item of "book"
gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1
of this Exhibit C.
(2) (a) In the case of an Adjusted Property, such
items shall
(i) first, be allocated among the Partners
in a manner consistent with the principles
of Section 704(c) of the Code to take into
account the Unrealized Gain or Unrealized
Loss attributable to such property and the
allocations thereof pursuant to Exhibit B,
and
(ii) second, in the event such property was
originally a Contributed Property, be
allocated among the Partners in a manner
consistent with Section 2.B(1) of this
Exhibit C; and
2
<PAGE>
(b) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall
be allocated among the Partners in the same
manner its correlative item of "book" gain
or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this
Exhibit C.
(3) all other items of income, gain, loss and deduction
shall be allocated among the Partners the same manner
as their correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement
and Section 1 of this Exhibit C.
C. To the extent Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit a Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall, subject to the following, have the
authority to elect the method to be used by the Partnership and such election
shall be binding on all Partners. With respect to the Contributed Property
transferred to the Partnership pursuant to certain Contribution Agreements dated
May 24, 1996 by and between the Partnership and certain contributors, the
Partnership shall elect to use the "traditional method" set forth in Treasury
Regulation ss. 1.704-3(b).
3
<PAGE>
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) redeems _________
Partnership Units in CarrAmerica Realty, L.P. in accordance with the terms of
the Agreement of Limited Partnership of CarrAmerica Realty, L.P., as amended,
and the Redemption Right referred to therein, (ii) surrenders such Partnership
Units and all right, title and interest therein, and (iii) directs that the Cash
Amount or REIT Shares Amount (as determined by the General Partner) deliverable
upon exercise of the Redemption Right be delivered to the address specified
below, and if REIT Shares are to be delivered, such REIT Shares be registered or
placed in the name(s) and at the address(es) specified below. The undersigned
hereby represents, warrants, and certifies, that the undersigned (a) has
marketable, and unencumbered title to such Partnership Units, free and clear of
the rights of or interests of any other person or entity, (b) has the full
right, power and authority to redeem and surrender such Partnership Units as
provided herein, and (c) has obtained the consent or approval of all persons or
entities, if any, having the right to consult or approve such redemption and
surrender.
Dated: _______________________ Name of Limited Partner: __________________
--------------------------------
(Signature of Limited Partner)
--------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
--------------------------------
If REIT Shares are to be issued, issue to:
Name:
Please insert social security or identifying number:
<PAGE>
FIRST AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CARRAMERICA REALTY, L.P.
THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CARRAMERICA REALTY, L.P. (this "First Amendment"),
dated May 24, 1996, is entered into by CarrAmerica Realty Corporation, a
Maryland corporation, as general partner (the "General Partner") of CarrAmerica
Realty, L.P. (the "Partnership"), for itself and on behalf of the limited
partners of the Partnership.
WHEREAS, Englewood Joint Venture No. 1 ("Englewood JV"), which
held 917,675 Class A units of limited partnership interest ("Class A Units"),
has distributed 911,949 of such Class A Units to ColTel II, Inc. and 5,726 of
such Class A Units to Quebec Partners III, which 5,726 Class A Units were
subsequently distributed to Plaza Developers Holdings LLC;
WHEREAS, Quebec Court Joint Venture No. 2 ("Quebec Court JV")
received 686,808 Class A Units has distributed 681,082 of such Class A Units to
ColTel I, Inc. and 5,726 of such Class A Units to Quebec Court Joint Venture
No.1, which 5,726 Class A Units were subsequently distributed to Plaza
Developers Holdings LLC; and
WHEREAS, the General Partner subsequently purchased 911,949
Class A Units from ColTel II, Inc. and 681,082 Class A Units from ColTel I, Inc.
pursuant to a Unit Purchase Agreement dated as of May 24, 1996 by and among the
General Partner, ColTel I, Inc. and ColTel II, Inc.;
WHEREAS, pursuant to the authority granted to the General
Partner pursuant to the Partnership Agreement, the General Partner desires to
amend the Partnership Agreement to admit Plaza Developers Holdings LLC ("Plaza
Developers") and the General Partner as Substituted Limited Partners of the
Partnership as a result of the foregoing transactions, and to amend and restate
Exhibit A to reflect the admission of each such partner as a Substituted Limited
Partner and the holder of a specified number of Class A Units; and
WHEREAS, Plaza Developers desires to become a party to the
Partnership Agreement and to be bound by all of the terms, conditions and other
provisions of the Partnership Agreement.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement as
follows:
<PAGE>
1. Plaza Developers hereby agrees to become a party to the
Partnership Agreement and to be bound by all of the terms, conditions and other
provisions of the Partnership Agreement.
2. Exhibit A hereby is amended by replacing such Exhibit A
with the Exhibit A attached to this First Amendment, and each of Plaza
Developers and the General Partner hereby is admitted as a Substituted Limited
Partner.
All capitalized terms used in this First Amendment and not
otherwise defined shall have the meanings assigned in the Partnership Agreement.
Except as modified herein, all terms and conditions of the Partnership Agreement
shall remain in full force and effect, which terms and conditions the General
Partner hereby ratifies and affirms.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this First
Amendment as of the date first set forth above.
CARRAMERICA REALTY CORPORATION, as
General Partner of CarrAmerica
Realty, L.P.
By: /s/ Brian K. Fields
------------------------------
Name:
------------------------------
Title: Chief Financial Officer
------------------------------
PLAZA DEVELOPERS HOLDINGS LLC
By: /s/ John W. Madden, Jr.
------------------------------
Name:
-----------------------------
Title: Manager
----------------------------
<PAGE>
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Effective as of May 24, 1996
Class A Class B Agreed Initial
Partnership Partnership Capital Percentage
Name and Address of Partner Units Units Account Interest
--------------------------- ----- ----- ------- --------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
CarrAmerica Realty Corporation 16,207 $ 396,259 1.00%
1700 Pennsylvania Avenue, N.W. Class B Units (100% of
Washington D.C. 20006 Class B Units)
LIMITED PARTNERS:
CarrAmerica Realty Corporation 1,593,031 $38,949,615 98.29%
1700 Pennsylvania Avenue, N.W. Class A Units (99.3% of
Washington, D.C. 20006 Class A Units)
Plaza Developers Holding LLC 11,452 $280,000 0.71%
7600 East Orchard road Class A Units (0.7% of
Suite 430N Class A Units)
Englewood, CO 80111 --------- ---------- ----------- -----------
TOTAL: 1,604,483 16,207 $39,625,874 100.00%
========= ========== =========== ===========
</TABLE>
<PAGE>
SECOND AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CARRAMERICA REALTY, L.P.
THIS SECOND AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CARRAMERICA REALTY, L.P. (this "Second Amendment"),
dated May 24, 1996, is entered into by CarrAmerica Realty Corporation, a
Maryland corporation, as general partner (the "General Partner") of CarrAmerica
Realty, L.P. (the "Partnership"), for itself and on behalf of the limited
partners of the Partnership.
WHEREAS, on the date hereof, the General Partner has sold back
to the Partnership 1,075,404 Class A units of limited partnership interest
("Class A Units") in the Partnership acquired by it from third parties, and
517,627 additional Class A Units previously owned by the General Partner have
been converted to Class B units of limited partnership interest ("Class B
Units"), all pursuant to a Unit Redemption Agreement dated as of May 24, 1996 by
and between the Partnership and the General Partner (the "Unit Redemption
Agreement"); and
WHEREAS, pursuant to the authority granted to the General
Partner pursuant to the Partnership Agreement, the General Partner desires to
amend the Partnership Agreement to amend and restate Exhibit A thereto to
reflect the transactions effected by the Unit Redemption Agreement.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends Exhibit A to the Partnership
Agreement by replacing such Exhibit A with the Exhibit A attached to this Second
Amendment.
All capitalized terms used in this Second Amendment and not
otherwise defined shall have the meanings assigned in the Partnership Agreement.
Except as modified herein, all terms and conditions of the Partnership Agreement
shall remain in full force and effect, which terms and conditions the General
Partner hereby ratifies and affirms.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Second
Amendment as of the date first set forth above.
CARRAMERICA REALTY CORPORATION, as
General Partner of CarrAmerica
Realty, L.P.
By: /s/ Brian K. Fields
-------------------------------
Name:
------------------------------
Title: Chief Financial Officer
-----------------------------
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
Effective as of May 24, 1996
Class A Class B Agreed Initial
Partnership Partnership Capital Percentage
Name and Address of Partner Units Units Account Interest
--------------------------- ----- ----- ------- --------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
CarrAmerica Realty Corporation 5,453 $ 133,326 1.00%
1700 Pennsylvania Avenue, N.W. Class B Units (1.02% of
Washington D.C. 20006 Class B Units)
LIMITED PARTNERS:
CarrAmerica Realty Corporation 528,381 $12,918,915 96.90%
1700 Pennsylvania Avenue, N.W. Class B Units (98.98% of
Washington D.C. 20006 Class A Units)
Plaza Developers Holdings LLC 11,452 $280,000 2.10%
7600 East Orchard road Class A Units (100% of
Suite 430N Class A Units)
Englewood, CO 80111 -------- --------- ---------- ----------
TOTAL: 11,452 533,834 $13,332,241 100.00%
========= ========== =========== ===========
</TABLE>
<PAGE>
THIRD AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CARRAMERICA REALTY, L.P.
THIS THIRD AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CARRAMERICA REALTY, L.P. (this "Third Amendment"),
dated as of June 27, 1996, is entered into by CarrAmerica Realty Corporation, a
Maryland corporation ("CARC"), as general partner of CarrAmerica Realty, L.P.
(the "Partnership"), for itself and on behalf of the limited partners of the
Partnership, CarrAmerica Realty GP Holdings, Inc., a Delaware corporation and a
wholly owned subsidiary of CARC ("GP Holdings"), and CarrAmerica Realty LP
Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of CARC
("LP Holdings").
WHEREAS, pursuant to a Contribution Agreement of even date
herewith (the "Contribution Agreement"), (i) CARC is transferring its General
Partner Interest in the Partnership to GP Holdings, an Affiliate of CARC, and GP
Holdings is assuming all of the obligations of the general partner of the
Partnership under the Partnership Agreement, and (ii) CARC is transferring its
Limited Partner Interest in the Partnership to LP Holdings, an Affiliate of
CARC; and
WHEREAS, pursuant to the authority granted to the General
Partner pursuant to the Partnership Agreement, the General Partner desires to
amend the Partnership Agreement to reflect the transactions described above.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
1. GP Holdings hereby is admitted to the Partnership as
successor General Partner of the Partnership. GP Holdings agrees to become a
party to the Partnership Agreement, to be bound by all of the terms, conditions
and other provisions of the Partnership Agreement, and to assume all of the
obligations of the General Partner under the Partnership Agreement.
2. LP Holdings hereby is admitted as a Substituted Limited
Partner of the Partnership. LP Holdings agrees to become a party to the
Partnership Agreement and to be bound by all of the terms, conditions and other
provisions of the Partnership Agreement.
<PAGE>
3. References in the Partnership Agreement to the "General
Partner," when previously referring to CARC in its capacity as a publicly-traded
real estate investment trust rather than in its capacity as general partner of
the Partnership, shall from hereafter be deemed to be references to CARC.
Without limiting the foregoing in any way, the term "REIT Share" specifically
shall be deemed to mean a share of common stock of CARC. References in the
Partnership Agreement to the "General Partner," when previously referring to
CARC in its capacity as general partner of the Partnership, shall continue to be
references to the General Partner of the Partnership.
All capitalized terms used in this Third Amendment and not
otherwise defined shall have the meanings assigned in the Partnership Agreement.
Except as modified herein, all terms and conditions of the Partnership Agreement
shall remain in full force and effect, which terms and conditions the General
Partner hereby ratifies and affirms.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Third
Amendment as of the date first set forth above.
CARRAMERICA REALTY CORPORATION
By: /s/ Brian K. Fields
-------------------------------
Name:
------------------------------
Title: Chief Financial Officer
-----------------------------
CARRAMERICA REALTY GP HOLDINGS, INC.
By: /s/ Brian K. Fields
-------------------------------
Name:
------------------------------
Title: Chief Financial Officer
-----------------------------
CARRAMERICA REALTY LP HOLDINGS, INC.
By: /s/ Brian K. Fields
-------------------------------
Name:
------------------------------
Title: Chief Financial Officer
-----------------------------
3
<PAGE>
FOURTH AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CARRAMERICA REALTY, L.P.
THIS FOURTH AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CARRAMERICA REALTY, L.P. (this "Fourth Amendment"),
dated August 2, 1996, is entered into by CarrAmerica Realty GP Holdings, Inc., a
Delaware corporation, as general partner (the "General Partner") of CarrAmerica
Realty, L.P. (the "Partnership"), for itself and on behalf of the limited
partners of the Partnership, and Littlefield Liquidating Trust, a Texas trust.
WHEREAS, on the date hereof, certain partnerships and
corporations (the "Contributors") are receiving Class A units and Class C units
of limited partnership interest ("Class C Units") in the Partnership in exchange
for the office properties known as Great Hills Plaza, Park North, Balcones
Center, First State Bank (Lone Star Tower), The Setting, The Littlefield
Complex, Riata and Aubrey Smith (collectively, the "Contributed Properties") and
certain other assets pursuant to a closing under that certain Contribution
Agreement dated as of June 26, 1996 by and between the Partnership and various
parties thereto (the "Contribution Agreement");
WHEREAS, pursuant to Section 2.1(c) of the Contribution
Agreement, the Contributors have requested that the Partnership issue the Class
A Units and Class C Units to Littlefield Liquidating Trust, a trust in which the
Contributors are partners or beneficiaries (the "Contributors' Designee");
WHEREAS, pursuant to the authority granted to the General
Partner pursuant to Section 14.1 of the Partnership Agreement, the General
Partner desires to amend the Partnership Agreement (i) to establish a new class
of Units, to be entitled Class C Units, and to set forth the designations,
rights, powers, preferences and duties of such Class C Units, (ii) to admit the
Contributors' Designee as a Substituted Limited Partner of the Partnership,
(iii) to amend and restate Exhibit A to reflect the admission of each such
Contributors' Designee as a Substituted Limited Partner and the holder of a
specified number of Class A Units and Class C Units, and (iv) to make certain
other changes to the Partnership Agreement;
WHEREAS, the Contributors' Designee is agreeing to become,
upon execution hereof, a party to the Partnership Agreement and to be bound by
all of the terms, conditions and other provisions of the Partnership Agreement;
and
<PAGE>
WHEREAS, the General Partner and CarrAmerica Realty LP
Holdings, Inc. (or their predecessors in interest) have previously contributed
capital to the Partnership pursuant to contribution agreements in exchange for
Class B Units, and the General Partner desires to amend the Partnership
Agreement to amend and restate Exhibit A thereto to reflect such transactions.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement as
follows:
1. Article I hereby is amended to add the following
definition:
"Class C Unit" means a Partnership Unit with such
designations, preferences, rights, powers and duties as are
described in Section 4.2.C hereof and that is specifically
designated by the General Partner as being a Class C Unit.
2. Article I hereby is amended by adding the following text to
the end of the definition of "Conversion Factor":
; it being intended that (i) adjustments to the Conversion
Factor are to be made in order to avoid unintended dilution or anti-dilution as
a result of transactions of the type described above, and (ii) if a Specified
Redemption Date shall fall between the record date and the effective date of any
event of the type described above, that the Conversion Factor applicable to such
redemption shall be adjusted to take into account such event.
3. Article I hereby is amended by replacing the words "Exhibit
E" with "Exhibit D" in the definition of "Notice of Redemption."
4. Article I hereby is amended by deleting the proviso
beginning with "provided further that" from the definition of "Specified
Redemption Date."
5. Section 4.2 hereby is amended by adding after Section 4.2.B
the following section:
C. Class C Units. Under the authority granted to it
by Section 4.2.A hereof, the General Partner hereby establishes an additional
class of Partnership Units entitled "Class C Units." Class C Units shall have
the designations, preferences, rights, powers and duties as set forth in Exhibit
E hereto.
6. Section 5.1 hereby is amended by (i) adding the words
"together with any accrued interest thereon," after the words "if any," at the
end of the seventh line thereof, (ii) adding the words ", and shall accrue
interest at a rate of
2
<PAGE>
eight percent (8%) per annum," after the word "cumulate" in the twenty-first
line thereof, and (iii) adding the words "(including any accrued interest
thereon)" after the word "distributions" in the twenty-third line thereof.
7. Exhibit A hereby is amended by replacing such Exhibit A
with the Exhibit A attached to this Fourth Amendment, and Contributors' Designee
hereby is admitted to the Partnership as a Substituted Limited Partner.
8. Exhibit E hereby is added, and shall read as follows:
EXHIBIT E
CLASS C UNITS
Notwithstanding any other provision of the Partnership
Agreement, including the provisions of Exhibits A through D thereof, Class C
Units shall have the following designations, preferences, rights, powers and
duties:
(1) General. Except as otherwise provided below, each Class C
Unit shall have the same designations, preferences, rights, powers and duties as
each Class A Unit.
(2) Distributions. No distributions of Available Cash as
described in Section 5.1 of the Agreement shall be made with respect to a Class
C Unit while such Class C Unit is outstanding.
(3) Redemption Right. A holder of Class C Units shall not have
the Redemption Right under Section 8.6 of the Agreement with respect to such
Class C Units. The Redemption Right for a holder of Class A Units received with
respect to such holder's Class C Units pursuant to clause (4) below shall be the
same as set forth in Section 8.6 of the Agreement, except that such Redemption
Right shall be exercisable immediately (or on such other terms as may be set
forth in the contribution agreement pursuant to which such Class C Units are
issued).
(4) Conversion to Class A Units.
----------------------------
(a) Beginning on the third anniversary of the date of
issuance of a Class C Unit and on each anniversary thereafter, up to and
including the seventh anniversary of such issuance, each holder of a Class C
Unit shall receive a number of Class A Units, with respect to each Class C Unit
owned as of such date, equal to (A) the greater of (y) one (1) or (z) $24.125
divided by the average of the daily market price for the ten (10) consecutive
trading days immediately preceding such anniversary date of a REIT Share
(determining the "market price" consistent with the method set forth in the
definition of "Value" in the Agreement), multiplied by (B) .20. On each date of
issuance of Class A Units pursuant to this
3
<PAGE>
subparagraph (a), one-fifth of the Class C Units held by each holder thereof
immediately prior to such date shall be canceled and retired.
(b) If, prior to the fifth anniversary of the date
hereof, the Partnership consummates the sale of any of the Contributed
Properties (other than The Littlefield Complex) in a transaction that triggers
gain for a Contributor under Section 704(c) of the Internal Revenue Code of
1986, as amended, then, upon the closing of any such sale, each holder of a
Class C Unit shall receive a number of Class A Units, with respect to each Class
C Unit, equal to (A) the greater of (y) one (1) or (z) $24.125 divided by the
average of the daily market price for the ten (10) consecutive trading days
immediately preceding such closing date (determining the "market price"
consistent with the method set forth in the definition of "Value" in the
Agreement, multiplied by (B) a fraction, the numerator of which is the
"Contribution Value" for the Contributed Property so sold, as set forth in
Schedule 1 of the Contribution Agreement, and the denominator of which is the
total "Contribution Value," as set forth in Schedule 1 to the Contribution
Agreement. On each date of issuance of Class A Units pursuant to this
subparagraph (b), a number of Class C Units held by each holder thereof
immediately prior to such date equal to (i) the number of Class C Units held by
such holder immediately prior to such date, multiplied by (ii) the fraction set
forth in clause (B) above, shall be canceled and retired.
(c) Notwithstanding the provisions of subparagraph
(a) or (b) above, each holder of a Class C Unit shall receive a number of Class
A Units, with respect to each Class C Unit, equal to the greater of (y) one (1)
or (z) $24.125 divided by the average of the daily market price for the ten (10)
consecutive trading days immediately preceding the date of the occurrence of any
of the events described below (determining the "market price" consistent with
the method set forth in the definition of "Value" in the Agreement), immediately
upon the occurrence of any of the following events: (i) the Partnership enters
into a binding agreement that would result in a Terminating Capital Transaction;
(ii) a Liquidating Event occurs (as defined in Section 13.1 of the Partnership
Agreement); (iii) the General Partner enters into a binding agreement to
transfer its General Partner Interest, except for a transfer (y) to an Affiliate
of the General Partner (in which event the term REIT Share shall continue to
mean a share of common stock of CarrAmerica Realty Corporation) or (z) in
connection with a merger, consolidation or other business combination involving
the General Partner and in which individuals who immediately prior to such
merger, consolidation or other business combination constituted the board of
directors of the General Partner constitute a majority of the board of directors
of the successor General Partner; or (iv) during any consecutive two-year period
commencing on or after the date hereof, individuals who at the beginning of such
period constituted the board of directors of the General Partner (together with
any new directors whose election by the board of directors or whose nomination
for election by stockholders of the General Partner was approved by a vote of at
least a majority of the members of the board of directors then in office who
4
<PAGE>
either were members of the board of 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 members of the board of directors
then in office. Upon the occurrence of any of the events described in this
subparagraph (b), each Class C Unit shall be canceled and retired. The General
Partner shall provide each holder of Class C Units with prompt notice of any of
the events described in this subparagraph (b), so as to enable such holder to
avail itself of the Redemption Right with respect to the Class A Units into
which such Class C Units are converted pursuant to this subparagraph (b).
(5) Capital Accounts. A Capital Account shall be maintained
with respect to each Class C Unit. The Capital Account for each Class C Unit
initially shall be $24.125, which Capital Account shall be reduced by 20% each
year beginning on the third anniversary of the date of issuance of such Class C
Unit, until the seventh anniversary of the date of such issuance, at which time
the Capital Account for such Class C Unit shall equal zero (unless a Class A
Unit shall have been issued pursuant to clause (4)(b) above, at which time the
Capital Account for such Class C Unit shall equal zero). The Capital Account for
each Class A Unit issued with respect to a Class C Unit pursuant to clause (4)
above initially shall be $24.125.
(6) Allocations. No allocations of Partnership items of
income, gain, loss and deduction will be made for tax purposes with respect to
the Class C Units, except as may be required by Section 704(c) of the Code and
the corresponding provisions of the Agreement. For purposes of the Section
704(c) allocations attributable to property transferred in exchange for the
Class C Units, the Partnership shall use a modified "traditional method" whereby
special curative allocations of gain on the disposition of the property are made
to a Partner holding the Class C Units.
9. Any amendments to this Fourth Amendment shall require the
consent of the holders of a majority of the Class C Units.
10. Contributors' Designee hereby agrees to become a party to
the Partnership Agreement and to be bound by all of the terms, conditions and
other provisions of the Partnership Agreement.
* * * *
All capitalized terms used in this Fourth Amendment and not
otherwise defined shall have the meanings assigned in the Partnership Agreement.
Except as modified herein, all terms and conditions of the Partnership Agreement
shall remain in full force and effect, which terms and conditions the General
Partner hereby ratifies and affirms.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Fourth
Amendment as of the date first set forth above.
CARRAMERICA REALTY GP HOLDINGS, INC.,
as General Partner of CarrAmerica Realty, L.P.
and on behalf of existing Limited Partners
By: /s/ Brian K. Fields
-----------------------------------------
Name:
-----------------------------------------
Title: Chief Financial Officer
-----------------------------------------
LITTLEFIELD LIQUIDATING TRUST
By: /s/ Jeffrey Minch
-----------------------------------------
Name:
-----------------------------------------
Title: Trustee
-----------------------------------------
6
<PAGE>
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Effective as of August 2, 1996
Class A Class B Class C Agreed Initial
Partnership Partnership Partnership Capital Percentage
Name and Address of Partner Units Units Units Account Interest
--------------------------- ----- ----- ----- ------- --------
<S> <C> <C> <C> <C> <C>
GENERAL PARTNER:
CarrAmerica Realty GP 56,108 $ 1,329,687 1.00%
Holdings, Inc. Class B Units (1.19% of
1700 Pennsylvania Avenue, N.W. Class B Units)
Washington D.C. 20006
LIMITED PARTNERS:
CarrAmerica Realty LP 4,648,250 $110,326,514 82.85%
Holdings, Inc. Class B Units (98.81% of
1700 Pennsylvania Avenue, N.W. Class B Units)
Washington D.C. 20006
15.95%
Littlefield Liquidating Trust 355,384 539,593 $21,591,333 (96.88% of
c/o Jeffrey L. Minch Class A Units Class C Units Class A Units,
1402 Etheredge 100% of
Austin, Texas 78703 Class C Units
Plaza Developers Holdings LLC
7600 East Orchard Road 11,452 $280,000 0.20%
Suite 430N Class A Units (3.12% of
Englewood, Colorado 80111 Class A Units)
-------- ---------- --------- ----------- ----------
TOTAL: 366,836 4,704,358 539,593 $133,527,534 100.00%
========= ========== ========= ============ ===========
</TABLE>
