<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED March 31, 1999
COMMISSION FILE NUMBER 1-12254
SAUL CENTERS, INC.
------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1833074
--------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number
incorporation or organization)
8401 Connecticut Avenue, Chevy Chase, Maryland 20815
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (301) 986-6200
--------------
Number of shares outstanding of each of the registrant's classes
of common stock, as of May 7, 1999:
Common Stock par value $0.01 per share: 13,074,000
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
YES |X| NO |_|
<PAGE>
SAUL CENTERS, INC.
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)
(a) Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998........................................... 4
(b) Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998............................... 5
(c) Consolidated Statements of Stockholders' Equity as of
March 31, 1999 and December 31, 1998........................ 6
(d) Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998............................... 7
(e) Notes to Consolidated Financial Statements................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Liquidity and Capital Resources............................ 16
(b) Results of Operations
Three months ended March 31, 1999 compared to three months
ended March 31, 1998........................................ 21
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........... 24
Item 6. Exhibits and Reports on Form 8-K.............................. 24
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Basis of Presentation
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments necessary for fair presentation of the
financial position and results of operations of Saul Centers, Inc. All such
adjustments are of a normal recurring nature. These consolidated financial
statements and the accompanying notes should be read in conjunction with the
audited consolidated financial statements of Saul Centers, Inc. for the year
ended December 31, 1998, which are included in its Annual Report on Form 10-K.
The results of operations for interim periods are not necessarily indicative of
results to be expected for the year.
3
<PAGE>
Saul Centers, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate investments
Land $ 63,795 $ 64,339
Buildings and equipment 286,654 283,722
--------- ---------
350,449 348,061
Accumulated depreciation (104,472) (101,910)
--------- ---------
245,977 246,151
Construction in progress 8,941 4,506
Cash and cash equivalents 2,061 2,395
Accounts receivable and accrued income, net 5,661 6,347
Prepaid expenses 6,600 6,873
Deferred debt costs, net 3,510 3,604
Other assets 2,494 1,158
--------- ---------
Total assets $ 275,244 $ 271,034
========= =========
Liabilities
Notes payable $ 291,781 $ 290,623
Accounts payable, accrued expenses and other liabilities 16,423 14,856
Deferred income 2,794 2,839
--------- ---------
Total liabilities 310,998 308,318
--------- ---------
Minority interests -- --
--------- ---------
Stockholders' equity (deficit)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 12,957,468 and 12,836,378 shares issued and
outstanding, respectively 130 129
Additional paid-in capital 35,451 31,967
Accumulated deficit (71,335) (69,380)
--------- ---------
Total stockholders' equity (deficit) (35,754) (37,284)
--------- ---------
Total liabilities and stockholders' equity $ 275,244 $ 271,034
========= =========
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE>
Saul Centers, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
(Dollars in thousands, except per share amounts) 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Revenue
Base rent $ 14,333 $ 13,471
Expense recoveries 2,448 2,320
Percentage rent 780 799
Other 403 553
--------- ---------
Total revenue 17,964 17,143
--------- ---------
Operating expenses
Property operating expenses 1,936 1,971
Provision for credit losses 61 40
Real estate taxes 1,534 1,422
Interest expense 5,530 5,604
Amortization of deferred debt expense 103 101
Depreciation and amortization 2,897 2,725
General and administrative 862 802
--------- ---------
Total operating expenses 12,923 12,665
--------- ---------
Net income before minority interests 5,041 4,478
--------- ---------
Minority interests
Minority share of income (1,381) (1,012)
Distributions in excess of earnings (540) (701)
--------- ---------
Total minority interests (1,921) (1,713)
--------- ---------
Net income $ 3,120 $ 2,765
========= =========
Net income per share (basic and dilutive)
Net income before minority interests $ 0.28 $ 0.27
========= =========
Net income $ 0.24 $ 0.22
========= =========
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
(Dollars in thousands, except per share amounts) Stocks Capital Deficit Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stockholders' equity (deficit):
Balance, December 31, 1997 $ 124 $ 20,447 $ (58,625) $ (38,054)
Issuance of 408,233 shares of
common stock 5 6,629 -- 6,634
Issuance of 405,532 convertible
limited partnership units in the
Operating Partnership -- 4,891 -- 4,891
Net income -- -- 9,129 9,129
Distributions ($1.17 per share) -- -- (14,899) (14,899)
Distributions payable ($.39 per share) -- -- (4,985) (4,985)
--------- --------- --------- ---------
Balance, December 31, 1998 129 31,967 (69,380) (37,284)
Issuance of 121,090 shares of
common stock 1 1,702 -- 1,703
Issuance of 126,702 convertible
limited partnership units in the
Operating Partnership -- 1,782 -- 1,782
Net income -- -- 3,120 3,120
Distributions payable ($.39 per share) -- -- (5,075) (5,075)
--------- --------- --------- ---------
Balance, March 31, 1999 $ 130 $ 35,451 $ (71,335) $ (35,754)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements
6
<PAGE>
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
(Dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,120 $ 2,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 1,921 1,713
Depreciation and amortization 3,000 2,826
Provision for credit losses 61 40
Decrease (increase) in accounts receivable 625 (334)
Decrease (increase) in prepaid expenses (62) 122
Increase in other assets (1,336) (1,508)
Increase in accounts payable and other liabilities 1,567 1,146
Increase (decrease) in deferred income (45) 592
--------- ---------
Net cash provided by operating activities 8,851 7,362
--------- ---------
Cash flows from investing activities:
Additions to real estate investments (2,932) (1,412)
Additions to construction in progress (3,891) (794)
--------- ---------
Net cash used in investing activities (6,823) (2,206)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable 5,808 4,500
Repayments on notes payable (4,650) (3,280)
Additions to deferred debt expense (9) (13)
Proceeds from the issuance of common stock and
convertible limited partnership units in
the Operating Partnership 3,485 1,591
Distributions to common stockholders and holders
of convertible limited partnership units in
the Operating Partnership (6,996) (6,582)
--------- ---------
Net cash used in financing activities (2,362) (3,784)
--------- ---------
Net increase (decrease) in cash (334) 1,372
Cash, beginning of period 2,395 688
--------- ---------
Cash, end of period $ 2,061 $ 2,060
========= =========
</TABLE>
The accompanying notes are an integral part of these statements
7
<PAGE>
Saul Centers, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization, Formation and Structure
Organization
Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland
General Corporation Law on September 10, 1993. The authorized capital stock of
Saul Centers consists of 30,000,000 shares of common stock, having a par value
of $0.01 per share and 1,000,000 shares of preferred stock. Each holder of
common stock is entitled to one vote for each share held. Saul Centers, together
with its wholly owned subsidiaries and the limited partnerships of which Saul
Centers or one of its subsidiaries is the sole general partner, are referred to
collectively as the "Company". Saul Centers operates as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (a "REIT").
Formation and Structure of Company
Saul Centers was formed to continue and expand the shopping center
business previously owned and conducted by the B.F. Saul Real Estate Investment
Trust, the B.F. Saul Company, Chevy Chase Bank, F.S.B. and certain other
affiliated entities (collectively, "The Saul Organization"). On August 26, 1993,
The Saul Organization transferred to Saul Holdings Limited Partnership, a newly
formed Maryland limited partnership (the "Operating Partnership"), and two newly
formed subsidiary limited partnerships (the "Subsidiary Partnerships") 26
shopping center properties, one office property, one research park and one
office/retail property and the management functions related to the transferred
properties. Since its formation, the Company has purchased three additional
community and neighborhood shopping center properties, an office property and
purchased a land parcel which it developed into a community shopping center. The
Company is currently in the predevelopment and approval process of converting an
under-performing shopping center to an industrial / warehouse use. Therefore, as
of March 31, 1999, the Company's properties (the "Current Portfolio Properties")
consisted of 29 operating shopping center properties (the "Shopping Centers"), a
property planned to be converted to an industrial / warehouse facility (the
"Industrial Property") and four predominantly office properties (the "Office
Properties"). To facilitate the placement of collateralized mortgage debt, the
Company established Saul QRS, Inc. and SC Finance Corporation, each of which is
a wholly owned subsidiary of Saul Centers. Saul QRS, Inc. was established to
succeed to the interest of Saul Centers as the sole general partner of Saul
Subsidiary I Limited Partnership.
As a consequence of the transactions constituting the formation of the
Company, Saul Centers serves as the sole general partner of the Operating
Partnership and of Saul Subsidiary II Limited Partnership, while Saul QRS, Inc.,
Saul Centers' wholly owned subsidiary, serves as the sole general partner of
Saul Subsidiary I Limited Partnership. The remaining limited partnership
interests in Saul Subsidiary I Limited Partnership and Saul Subsidiary II
Limited Partnership are held by the Operating Partnership as the sole limited
partner. Through this structure, the Company owns 100% of the Current Portfolio
Properties.
8
<PAGE>
Saul Centers, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
2. Summary of Significant Accounting Policies
Nature of Operations
The Company, which conducts all of its activities through its
subsidiaries, the Operating Partnership and Subsidiary Partnerships, engages in
the ownership, operation, management, leasing, acquisition, renovation,
expansion, development and financing of community and neighborhood shopping
centers and office properties, primarily in the Mid-Atlantic region.
A majority of the Shopping Centers are anchored by several major tenants.
Eighteen of the 29 Shopping Centers are anchored by a grocery store and offer
primarily day-to-day necessities and services. As of December 1998, no single
shopping center accounted for more than 11.4% of the total shopping center gross
leasable area. Only one retail tenant, Giant Food at 7.1%, accounted for more
than 1.7% of the Company's 1998 total revenues. No office tenant other than the
United States General Service Administration, at 10.4%, accounted for more than
1.8% of 1998 total revenues.
Principles of Consolidation
The accompanying consolidated financial statements of the Company include
the accounts of Saul Centers, its subsidiaries, and the Operating Partnership
and Subsidiary Partnerships which are majority owned by Saul Centers. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Real Estate Investment Properties
Real estate investment properties are stated at the lower of depreciated
cost or fair value less cost to sell. Management believes that these assets have
generally appreciated in value and, accordingly, the aggregate current value
exceeds their aggregate net book value and also exceeds the value of the
Company's liabilities as reported in these financial statements. These financial
statements are prepared in conformity with generally accepted accounting
principles, and accordingly, do not report the current value of the Company's
real estate assets. Real estate investment properties are reviewed for potential
impairment losses whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of an individual
property's undiscounted expected future cash flows is less than its carrying
amount, the Company's policy is to recognize an impairment loss measured by the
amount the depreciated cost of the property exceeds its fair value. Fair value
is calculated as the present value of expected future cash flows.
Interest, real estate taxes and other carrying costs are capitalized on
projects under development and construction. Once construction is substantially
completed and the assets are placed in service, their rental income, direct
operating expenses and depreciation are included in
9
<PAGE>
Saul Centers, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
current operations. Expenditures for repairs and maintenance are charged to
operations as incurred. Interest expense capitalized during the three month
periods ended March 31, 1999 and 1998, was $133,000 and $34,000, respectively.
A project is considered substantially complete and available for occupancy
upon completion of tenant improvements, but no later than one year from the
cessation of major construction activity. Substantially completed portions of a
project are accounted for as separate projects. Depreciation is calculated using
the straight-line method and estimated useful lives of 33 to 50 years for
buildings and up to 20 years for certain other improvements. Leasehold
improvements are amortized over the lives of the related leases using the
straight-line method.
Accounts Receivable and Accrued Income
Accounts receivable primarily represent amounts currently due from tenants
in accordance with the terms of the respective leases. In addition, at March 31,
1999 accounts receivable included $1,472,000, representing minimum rental income
accrued on a straight-line basis to be paid by tenants over the terms of the
respective leases. Receivables are reviewed monthly and reserves are established
when, in the opinion of management, collection of the receivable is doubtful.
Accounts receivable in the accompanying financial statements are shown net of an
allowance for doubtful accounts of $718,000 at March 31, 1999.
Deferred Debt Costs
Deferred debt costs consist of financing fees and costs incurred to obtain
long-term financing. These fees and costs are being amortized over the terms of
the respective loans or agreements. Deferred debt costs in the accompanying
financial statements are shown net of accumulated amortization of $693,000 at
March 31, 1999.
Revenue Recognition
Rental and interest income is accrued as earned except when doubt exists
as to collectibility, in which case the accrual is discontinued. When rental
payments due under leases vary from a straight-line basis because of free rent
periods or stepped increases, income is recognized on a straight-line basis in
accordance with generally accepted accounting principles. Expense recoveries
represent property operating expenses billed to the tenants, including common
area maintenance, real estate taxes and other recoverable costs. Expense
recoveries are recognized in the period the expenses are incurred. Additional
rental income based on tenant's revenues ("percentage rent") is accrued at the
time a tenant reports sales exceeding a specified breakpoint.
10
<PAGE>
Saul Centers, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Income Taxes
The Company made an election to be treated, and intends to continue
operating so as to qualify as a REIT under sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, commencing with its taxable year
ending December 31, 1993. A REIT generally will 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% of its REIT taxable income to
stockholders and complies with certain other requirements. Therefore, no
provision has been made for federal income taxes in the accompanying financial
statements.
Per Share Data
Per share data is calculated in accordance with SFAS No. 128, "Earnings
Per Share." The Company has no dilutive securities; therefore, basic and diluted
earnings per share are identical. Net income before minority interests is
presented on a fully converted basis, that is, assuming the limited partners
exercise their right to convert their partnership ownership into shares of Saul
Centers, and is computed using weighted average shares of 17,800,000 and
16,887,000, for the quarters ended March 31, 1999 and 1998, respectively. Per
share data relating to net income after minority interests is computed using
weighted average shares of 12,917,000 and 12,494,000, for the quarters ended
March 31, 1999 and 1998, respectively.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. The reclassifications
have no impact on operating results previously reported.
Minority Interests - Holders of Convertible Limited Partner Units in the
Operating Partnership
The Saul Organization has a 27.5% limited partnership interest,
represented by 4,925,000 convertible limited partnership units in the Operating
Partnership, as of March 31, 1999. These Convertible Limited Partnership Units
are convertible into shares of Saul Centers' common stock on a one-for-one
basis, provided the rights may not be exercised at any time that The Saul
Organization owns, directly or indirectly, in the aggregate more than 24.9% of
the outstanding equity securities of Saul Centers. The impact of The Saul
Organization's 27.5% limited partnership interest in the Operating Partnership
is reflected as minority interests in the accompanying financial statements.
11
<PAGE>
Saul Centers, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Deferred Compensation and Stock Plan for Directors
Saul Centers has established a Deferred Compensation and Stock Plan for
Directors (the "Plan"), for the benefit of its directors and their
beneficiaries. A director may elect to defer all or part of his or her
director's fees to be earned subsequent to the election. A director has the
option to have deferred director's fees paid in cash, in shares of common stock
or in a combination of cash and shares of common stock. If the director elects
to have the deferred fees paid in stock, the number of shares allocated to the
director is determined based on the market value of the common stock on the day
the deferred director's fee was earned. The Company has registered 70,000
shares for use under the Plan, all of which were authorized at March 31, 1999.
As of March 31, 1999, 59,000 shares had been credited to the directors' deferred
fee accounts.
Each director that served on the Board of Directors of the Company as of
February 22, 1999, the record date for the Company's Annual Meeting of
Stockholders, received as additional compensation, an award of 100 shares of the
Company's common stock on April 23, 1999. These shares may not be deferred and
are restricted from transfer by the directors for a period of twelve months
following the award date.
New Accounting Pronouncements
In September 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" which establishes standards for the reporting and display
of comprehensive income in the Company's financial statements. The Company
adopted this standard in the first quarter of 1998. The Company had no
comprehensive income during the three month period ended March 31, 1999.
In September 1997, the FASB issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also established standards for related
disclosures about products and services, geographic areas, and major customers.
Disclosures required by this new standard are presented in Note 6.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. SFAS 133 is effective for
fiscal years beginning after June 15, 1999. The Company doesn't own derivative
instruments nor does it engage in hedging activities, and therefore expects that
SFAS 133 will not have an impact on the Company's financial condition or its
results of operations.
12
<PAGE>
Saul Centers, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Change In Accounting Method
On May 21, 1998, the EITF discussed Issue 98-9 "Accounting for Contingent
Rent In Interim Financial Periods" and reached a consensus that lessors should
defer the accounting recognition of contingent rent, such as percentage rent,
until the specific tenant sales breakpoint is achieved. The Company's prior
accounting method, which was permitted under generally accepted accounting
principles, recognized percentage rent when a tenant's achievement of its sales
breakpoint was considered probable. This EITF consensus was implemented
retroactively to January 1, 1998, as a change in accounting method. The new
accounting method is not expected to materially affect the amount of percentage
rent income reported on an annual basis, but is expected to have an impact on
the recognition of percentage rent income reported on a quarterly basis by
increasing revenues the Company reports in the first and fourth quarters and
decreasing revenues reported in the second and third quarters. The change in
accounting method has no impact on the Company's cash flows. The comparative
three month period financial statements ending March 31, 1998 have not been
restated. Had the accounting method been retroactively applied, net income for
the three month period ended March 31, 1998 would have been $2,179,000.
3. Construction In Progress
Construction in progress includes the costs of active development projects
and other predevelopment project costs. Development costs include direct
construction costs and indirect costs such as architectural, engineering,
construction management and carrying costs consisting of interest, real estate
taxes and insurance. Construction in progress balances as of March 31, 1999 and
December 31, 1998 are as follows:
Construction in Progress
------------------------
(In thousands) March 31, 1999 December 31, 1998
-------------- -----------------
Avenel Business Park V ............... $3,371 $2,800
North WashingtonSt ................... 2,361 --
Shops At Fairfax ..................... 2,091 702
French Market ........................ 980 949
Other ................................ 138 55
------ ------
Total ................................ $8,941 $4,506
====== ======
4. Notes Payable
Notes payable totaled $291.8 million at March 31, 1999, of which $271.2
million (92.9%) was fixed rate debt and $20.8 million (7.1%) was floating rate
debt. As of March 31, 1999, the Company had a $60 million unsecured revolving
credit facility with outstanding borrowings of $19.5 million and additional
borrowing availability of $40.5 million. The facility requires monthly interest
payments at a rate of LIBOR plus 1.5%.
13
<PAGE>
Saul Centers, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
As of March 31, 1999, the Company had a $38.0 million construction loan
secured by the new North Washington Street development in Alexandria, Virginia,
with outstanding borrowings of $1.3 million. The facility requires monthly
interest payments at a rate of LIBOR plus 1.9%.
As of March 31, 1999, the scheduled maturities of all debt for years
ending December 31, were as follows:
Debt Maturity Schedule
----------------------
(In thousands)
April 1 through December 31, 1999................ $ 3,606
2000............................................. 25,148
2001............................................. 6,057
2002............................................. 7,043
2003............................................. 6,215
2004............................................. 16,078
Thereafter....................................... 227,634
--------
Total............................................. $291,781
========
5. Shareholders' Equity and Minority Interests
These financial statements are prepared in conformity with generally
accepted accounting principles and accordingly do not report the current value
of the Company's real estate assets. The Shareholders' Equity reported on the
Consolidated Balance Sheets does not reflect any increase in the value resulting
from the difference between the current value and the net book value of the
Company's assets. Therefore, Shareholders' Equity reported on the Consolidated
Balance Sheets does not reflect the market value of stockholders' investment in
the Company.
The Consolidated Statement of Operations for the three months ended March
31, 1999 includes a charge for minority interests of $1,921,000 consisting of
$1,381,000 related to The Saul Organization's share of the net income for the
1999 quarter and $540,000 related to distributions to minority interests in
excess of allocated net income for the 1999 quarter. The charge for the three
month period ended March 31, 1998 of $1,713,000 consists of $1,012,000 related
to The Saul Organization's share of net income for the 1998 quarter, and
$701,000 related to distributions to minority interests in excess of allocated
net income for the 1998 quarter.
14
<PAGE>
Saul Centers, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
6. Business Segments
The company has two reportable business segments: Shopping Centers and Office
Properties. The accounting policies of the segments presented below are the same
as those described in the summary of significant accounting policies (see Note
1). The Company evaluates performance based upon income train real estate for
the combined properties in each segment.
<TABLE>
<CAPTION>
(Dollars in thousands) Shopping Office Corporate Consolidated
Centers Properties and Other(1) Totals
------- ---------- ------------ ------
<S> <C> <C> <C> <C>
Quarter ended March 31, 1999
Real estate rental operations:
Revenues .................................... $ 13,397 $ 4,566 $ 1 $ 17,964
Expenses .................................... (2,408) (1,121) (2) (3,531)
--------- --------- --------- ---------
Income from Real Estate ....................... 10,989 3,445 (1) 14,433
Interest expense & amortization of debt costs (5,633) (5,633)
General and administrative .................. (862) (862)
--------- --------- --------- ---------
Subtotal ...................................... 10,989 3,445 (6,496) 7,938
Depreciation and amortization ............... (2,004) (871) (22) (2,897)
Minority interests .......................... (1,921) (1,921)
--------- --------- --------- ---------
Net income .................................... $ 8,985 $ 2,574 (8,439) $ 3,120
========= ========= ========= =========
Capital investment ............................ $ 5,420 $ 1,298 $ 105 $ 6,823
========= ========= ========= =========
Total assets .................................. 182,210 $ 70,609 $ 22,425 $ 275,244
========= ========= ========= =========
Quarter ended March 31, 1998
Real estate rental operations:
Revenues ................................... $ 12,668 $ 4,417 $ 58 $ 17,143
Expenses ................................... (2,374) (1,058) (1) (3,433)
========= ========= ========= =========
Income from Real Estate 10,294 3,359 57 13,710
Interest expense & amortization of debt
costs ..................................... (5,705) (5,705)
General and administrative ................. (802) (802)
--------- --------- --------- ---------
Subtotal ...................................... 10,294 3,359 (6,450) 7,203
Depreciation and amortization .............. (1,823) (869) (33) (2,725)
Minority interests ......................... (1,713) (1,713)
--------- --------- --------- ---------
Net income .................................... $ 8,471 $ 2,490 $ (8,196) $ 2,765
========= ========= ========= =========
Capital investment ............................ $ 1,241 $ 945 $ 20 $ 2,206
========= ========= ========= =========
Total Assets .................................. $ 174,218 $ 67,092 $ 22,077 $ 263,387
========= ========= ========= =========
</TABLE>
(1) Includes the Industrial Property, Crosstown
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following discussion is based primarily on the consolidated financial
statements of Saul Centers, Inc. ("Saul Centers") and, together with its wholly
owned subsidiaries and the limited partnerships of which it or one of its wholly
owned subsidiaries is the sole general partner (the "Company"), as of March 31,
1999 and for the three month period ended March 31, 1999.
Liquidity and Capital Resources
The Company's principal demands for liquidity are expected to be
distributions to its stockholders, debt service and loan repayments, expansion,
renovation, and redevelopment of the Current Portfolio Properties and selective
acquisition and development of additional properties. In order to qualify as a
REIT for federal income tax purposes, the Company must distribute to its
stockholders at least 95% of its "real estate investment trust taxable income,"
as defined in the Internal Revenue Code of 1986, as amended. The Company
anticipates that operating revenues will provide the funds necessary for
operations, debt service, distributions, and required recurring capital
expenditures. Balloon principal repayments are expected to be funded by
refinancings.
Management anticipates that during the current year the Company may: 1)
redevelop certain of the Shopping Centers, 2) develop additional freestanding
outparcels or expansions within certain of the Shopping Centers, 3) acquire
existing neighborhood and community shopping centers and/or office properties
and 4) develop new shopping center or office sites. Acquisition and development
of properties are undertaken only after careful analysis and review, and
management's determination that such property is expected to provide long-term
earnings and cash flow growth. During the current year, any developments,
redevelopments, expansions or acquisitions are expected to be funded with bank
borrowings from the Company's credit line, construction financing, proceeds from
the operation of the Company's dividend reinvestment plan or other external
capital resources available to the Company.
The Company expects to fulfill its long range requirements for capital
resources in a variety of ways, including undistributed cash flow from
operations, secured or unsecured bank and institutional borrowings, private or
public offerings of debt or equity securities and proceeds from the sales of
properties. Borrowings may be at the Saul Centers, Operating Partnership or
Subsidiary Partnership level, and securities offerings may include (subject to
certain limitations) the issuance of additional limited partnership interests in
the Operating Partnership which can be converted into shares of Saul Centers
common stock.
Management believes that the Company's current capital resources, which
includes the Company's credit line of which $40,500,000 was available for
borrowing as of March 31, 1999, will be sufficient to meet its liquidity needs
for the foreseeable future.
16
<PAGE>
Financial Information
For the first quarter of 1999, the Company reported Funds From Operations
("FFO") of $7,938,000. This represents an 7.4% increase over the comparable 1998
period's FFO of $7,388,000. FFO is presented on a fully converted basis and as
the most widely accepted measure of operating performance for REITs is defined
as net income before extraordinary and nonrecurring items and before real estate
depreciation and amortization. The following table represents a reconciliation
from net income before minority interests to FFO:
<TABLE>
<CAPTION>
Funds From Operations Schedule
- ------------------------------
(In thousands)
For the Three Months Ended March 31,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income before minority interests....................... $5,041 $4,478
Add:
Depreciation and amortization of real property......... 2,897 2,725
------ ------
7,938 7,203
Retroactive impact of change in accounting method (1).. - 185
------ ------
Funds From Operations...................................... $7,938 $7,388
====== ======
</TABLE>
(1) Retroactive to January 1, 1998, the Company began recognition of
percentage rental income in accordance with a new accounting
pronouncement. The 1998 first quarter FFO amounts previously
reported have been increased $185,000 to provide comparability.
FFO, as defined by the National Association of Real Estate Investment
Trusts, is calculated as net income excluding gains or losses from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. FFO does
not represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative of
cash available to fund cash needs, which is disclosed in the Consolidated
Statements of Cash Flows for the applicable periods. There are no material legal
or functional restrictions on the use of FFO. FFO should not be considered as an
alternative to net income, as an indicator of the Company's operating
performance, or as an alternative to cash flows as a measure of liquidity.
Management considers FFO a supplemental measure of operating performance and
along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the ability of
the Company to incur and service debt, to make capital expenditures and to fund
other cash needs. FFO may not be comparable to similarly titled measures
employed by other REITs.
17
<PAGE>
Cash flow from operating activities, financing activities and investing
activities for the three months ended March 31, 1999 and 1998 are as follows:
Cash Flow provided by (used in):
- --------------------------------
(In thousands)
For the Three Months Ended March 31,
------------------------------------
1999 1998
---- ----
Operating activities................................... $8,851 $7,362
Investing activities................................... -6,823 -2,206
Financing activities................................... -2,362 -3,784
Capital Strategy and Financing Activity
The Company's capital strategy is to maintain a ratio of total debt to
total asset value of 50% or less, and to actively manage the Company's leverage
and debt expense on an ongoing basis in order to maintain prudent coverage of
fixed charges. Management believes that current total debt remains less than 50%
of total asset value.
In January 1999, the Company closed a $38 million construction loan, which
is anticipated to fully fund the development costs associated with the 230,000
square foot North Wasington Street mixed-use office/retail complex, which the
Company is constructing in Old Town Alexandria, Virginia. The loan has an
initial three year term with an interest rate of LIBOR plus 1.90%, with the
spread over LIBOR declining as leasing of the office and retail space proceeds.
As of April 30, 1999, outstanding borrowings on this construction loan totaled
$1.8 million.
As of April 30, 1999, outstanding borrowings on the Company's $60 million
unsecured credit line totaled $21.5 million, leaving $38.5 million of credit
availability. The Company has fixed interest rates on approximately 92% of its
total debt outstanding, which now has a weighted remaining term of approximately
12 years.
18
<PAGE>
Redevelopment, Renovations and Acquisitions
The Company has been selectively involved in redevelopment, renovation and
acquisition activities. It continues to evaluate land parcels for retail and
office development and potential acquisitions of operating properties for
opportunities to enhance operating income and cash flow growth. The Company also
continues to take advantage of redevelopment, renovation and expansion
opportunities within the portfolio, as demonstrated by its activities at French
Market, Beacon Center, Shops at Fairfax, Avenel, and North Washington Street.
The Company has completed construction on a facade renovation and is
retenanting a 103,000 square foot anchor space at the 213,000 square foot French
Market center in Oklahoma City, Oklahoma. Leasing and occupancy of the first
three new spaces, a 41,000 square foot Bed, Bath and Beyond, an 8,000 square
foot Lakeshore Learning, a children's educational toy store and an 8,000 square
foot BridesMart formal wear retailer were completed in 1998. During the first
quarter of 1999, the Company signed a lease with a 25,000 square foot Staples
office supply store, which leaves only 21,000 square feet remaining to lease.
Staples is scheduled to open in late summer of 1999.
The Company is redeveloping the Beacon Center, located along Route 1 in
Alexandria, Virginia. Beacon Center's central enclosed mall area was demolished
and construction has commenced on a 148,000 square foot Lowe's home improvement
and garden center store, which is scheduled to open in the summer of 1999. The
center's other tenants include anchors Giant Food, Marshalls and Office Depot,
with a complement of small shop space and restaurants. The 356,000 square feet
Beacon Center is now 100% leased. In addition to the new home improvement store,
8,000 square feet of new small shop space adjacent to Lowe's and Giant was
constructed in late 1998 and is fully occupied.
The Company commenced another significant redevelopment during 1998 when
it signed a lease with SuperFresh for a new 53,000 square foot grocery store at
the Shops at Fairfax, located in Fairfax, Virginia. A portion of the shopping
center which includes a small enclosed mall was demolished to allow SuperFresh
to occupy a new building, with construction projected to be completed in the
fall of 1999. An additional 7,500 square feet of shop space is being constructed
adjacent to the supermarket. The facade of the adjacent Boulevard shopping
center, also owned by the Company, is being renovated and modernized. This
renovation was driven by a new 12,000 square foot lease with Party City,
scheduled to open during May 1999, which replaced a previous lease with below
market rents. Redevelopment plans also include new landscaping and a more
efficient parking scheme, which should enhance the property as a desirable
neighborhood shopping center.
Office development and acquisition activities will be an integral part of
the Company's focus during 1999. In July 1998, the Company began development of
approximately 27,000 square feet of additional office / flex space at Avenel
Business Park on excess land that it owns. Construction of this new project
(Avenel V) was substantially completed during January 1999. Approximately 46% of
the space is leased, while leases are in negotiation for a portion of the
remaining space. Including this new development, Avenel Business Park is
currently over 95% leased.
In February 1999, the Company announced the development of a new 230,000
square foot Class A mixed-use office / retail complex along North Washington
Street in historic Old Town Alexandria in Northern Virginia. The project is well
located on a two-acre site along Alexandria's main street. Demolition of the
Company's existing 41,500 square foot building, formerly leased to Mastercraft
furniture, was completed in March 1999. Site
19
<PAGE>
excavation is currently in progress. Construction is scheduled to be completed
by the summer of 2000. Two twin four-story buildings will feature a brick and
cast stone exterior facade with a glass curtain wall overlooking a spacious
courtyard. Amenities will include 3-story atrium lobbies, a fitness center,
concierge service, a 600 space parking structure and the latest computerized
energy management system. The street level will have 45,000 square feet of
retail space. Office space totals approximately 185,000 square feet, with the
top floor containing walkout terraces.
Portfolio Leasing Status
At March 31, 1999, the portfolio consisted of twenty-nine Shopping
Centers, four Office Properties and one Industrial Property, all of which are
located in seven states and the District of Columbia. The Office Properties
consist of one office property and one office/retail property, both located in
the District of Columbia, and one research park located in a Maryland suburb of
Washington, D.C.
At March 31, 1999, 91.5 % of the Company's 5.9 million square feet of
leasable space was leased to tenants, as compared to 89.2 % at March 31, 1998.
The shopping center portfolio was 94.5 % leased at March 31, 1999 versus 91.8 %
as of March 31, 1998. The Office Properties were 95.6 % leased at March 31, 1999
compared to 94.0 % as of March 31, 1998. The overall improvement in the 1999
leasing was primarily caused by the Company's successful leasing at recently
renovated shopping centers: Seven Corners, Great Eastern and Beacon Center as
well as improved leasing at the Van Ness Square office property.
20
<PAGE>
Results of Operations
The following discussion compares the results of the Company for the three
month periods ended March 31, 1999 and 1998, respectively. This information
should be read in conjunction with the accompanying consolidated financial
statements and the notes related thereto. These financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the interim
periods presented.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues for the three month period ended March 31, 1999 (the "1999
Quarter"), totaled $17,964,000 compared to $17,143,000 for the comparable
quarter in 1998 (the "1998 Quarter"). Had the Company retroactively applied the
change in accounting method required by EITF 98-9, total revenues for the 1998
Quarter would have been $17,328,000. The 1999 Quarter's increase on this
comparable basis was $636,000 (3.7%).
Base rent was $14,333,000 for the 1999 Quarter, compared to $13,471,000
for the 1998 Quarter, representing an increase of $862,000 (6.4%). The increase
in base rent resulted primarily from new leases at Seven Corners, Ravenwood and
Avenel IV (which was acquired in April 1998) for the 1999 Quarter that were not
present during the 1998 Quarter.
Expense recoveries were $2,448,000 for the 1999 Quarter compared to
$2,320,000 for the comparable 1998 Quarter, representing an increase of $128,000
(5.5%). Recovery income increased primarily as a result of new leases in place
during 1999 at Seven Corners, Beacon Center, Southside and Avenel IV.
Percentage rent was $780,000 in the 1999 Quarter, compared to $799,000 in
the 1998 Quarter. Had the Company retroactively applied the change in accounting
method required by EITF 98-9, percentage rent for the 1998 Quarter would have
been $984,000. The 1999 Quarter's decrease would have been $204,000 (20.7%). The
decrease in percentage rent resulted primarily from the rollover of a Ravenwood
anchor lease into higher paying base rent in lieu of percentage rent.
Other income, which primarily consists of parking income, kiosk and
temporary leasing, and fees associated with early termination of leases, was
$403,000 in the 1999 Quarter, compared to $553,000 in the 1998 Quarter,
representing a decrease of $150,000 (27.1%). The decrease in other income
resulted primarily from a lease termination payment collected at Avenel
Business Park during the 1998 Quarter.
Operating expenses, consisting primarily of repairs and maintenance,
utilities, payroll, insurance and other property related expenses, decreased
$35,000 (1.8%) to $1,936,000 in the 1999 Quarter from $1,971,000 in the 1998
Quarter. The expense decrease resulted in part from reduced property payroll
expense due to the elimination of maintenance positions associated with former
shopping mall space converted into strip shopping area and reduced legal
expenses connected with collections of tenant receivables.
21
<PAGE>
The provision for credit losses increased $21,000 (52.5%) to $61,000 in
the 1999 Quarter from $40,000 in the 1998 Quarter.
Real estate taxes increased $112,000 (7.9%) to $1,534,000 in the 1999
Quarter from $1,422,000 in the 1998 Quarter. The increase resulted from higher
taxes imposed primarily upon Seven Corners and to a lesser extent several of the
Company's other Virginia properties.
Interest expense of $5,530,000 for the 1999 Quarter represented a decrease
of $74,000 (1.3 %) from $5,604,000 reported for the 1998 Quarter.
Amortization of deferred debt expense increased $2,000 (2.0%) to $103,000
in the 1999 Quarter from $101,000 in the 1998 Quarter.
Depreciation and amortization expense increased $172,000 (6.3%) from
$2,725,000 in the 1998 Quarter to $2,897,000 in the 1999 Quarter, primarily as a
result of depreciation attributable to recently completed redevelopments and
renovations.
General and administrative expense, which consists of payroll,
administrative and other overhead expense, was $862,000 for the 1999 Quarter, an
increase of $60,000 (7.5%) over the 1998 Quarter. The increase in 1999 expenses
compared to 1998 resulted from increases in payroll and state income tax
expenses.
Year 2000 Issue
The year 2000 issue relates to whether computer systems will properly
recognize date sensitive information to allow accurate processing of
transactions and data relating to the year 2000 and beyond. In addition, the
year 2000 issue relates to whether non-Information Technology (IT) systems that
depend upon embedded electronic technology will recognize the year 2000. Systems
that do not properly recognize such information could generate erroneous
information or fail.
In 1995, the Company contracted to replace virtually all of its management
information and accounting systems and install a local area network (LAN). One
of the selection criteria of the new software and hardware was that they be
fully year 2000 compliant. The new LAN and management and accounting information
systems have been installed . Therefore, the Company's management information
and accounting systems are fully year 2000 compliant. As a result of its
efforts, the Company does not expect to incur any additional expense for its
information systems related to the year 2000 issue.
22
<PAGE>
The Company's property management staff has conducted a comprehensive
review of its non-IT systems at its shopping centers and office buildings to
determine whether any computer hardware and software in mechanical systems (i.e.
escalators, elevators, security, heating, ventilating and air conditioning
systems, etc.) are not year 2000 compliant. Work has commenced on repairs and
replacements required to make the Company's non-IT systems year 2000 compliant.
Management has determined that the costs will be less than $100,000 and will be
completed prior to July 1999.
The Company believes there is risk that its operations may be affected by
vendors and tenants who are unable to perform as contracted due to their own
year 2000 exposure. It is very difficult to identify "the most reasonably likely
worst case scenario" at this time. The Company's potential exposure is wide
spread; however there is no known or expected major direct exposure. The Company
believes that the most likely worst case exposure is at this indirect level
where vendors and tenants fail to perform their obligations to the Company. For
example, the Company believes it is possible that certain tenants' information
systems may fail, which may delay the payment of rents. To help minimize this
risk, the Company sent a letter to each tenant prior to January 1, 1999 advising
the tenant that rent payments due January 1, 2000 must be paid on-time. These
reminders will be sent twice again later in 1999. The Company's leases contain
provisions empowering it to take certain actions to enforce it's right to the
timely payment of rent, regardless of the tenant's year 2000 exposure. While it
is not possible at this time to determine the likely impact of these potential
problems, the Company will continue to evaluate these areas and develop
contingency plans, as appropriate.
23
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 23, 1999, the Company held its Annual Meeting of
Stockholders, at which Messrs. B. Francis Saul II, Mark Sullivan III,
James W. Symington and John R Whitmore were reelected to the Board of
Directors, for three year terms expiring at the 2002 Annual Meeting, each
receiving in excess of 90% of the votes of the approximately 12,957,000
shares outstanding and eligible to vote at the meeting. The terms of the
remaining Board members did not expire as of the April 23, 1999 meeting
and such individuals continue as directors of the Company.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
3.(a) First Amended and Restated Articles of Incorporation of Saul
Centers, Inc. filed with the Maryland Department of Assessments and
Taxation on August 23, 1994 and filed as Exhibit 3.(a) of the 1993
Annual Report of the Company on Form 10-K is hereby incorporated by
reference.
(b) Amended and Restated Bylaws of Saul Centers, Inc. as in effect at
and after August 24, 1993 and as of August 26, 1993 and filed as
Exhibit 3 (b) of the 1993 Annual Report of the Company on Form 10-K
is hereby incorporated by reference. The First Amendment to the
First Amended and Restated Agreement of Limited Partnership of Saul
Subsidiary I Limited Partnership, the Partnership of Saul Subsidiary
I Limited Partnership, the Third Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership and the Fourth Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership as filed as Exhibit 3.(b) of the 1997 Annual
Report of the Company on Form 10-K is hereby incorporated by
reference.
10.(a) First Amended and Restated Agreement of Limited Partnership of Saul
Holdings Limited Partnership filed as Exhibit No. 10.1 to
Registration Statement No. 33-64562 is hereby incorporated by
reference. The First Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Holdings Limited
Partnership, the Second Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Holdings Limited
Partnership, and the Third Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Holdings Limited
Partnership filed as Exhibit 10.(a) of the 1995 Annual Report of the
Company on Form 10-K is hereby incorporated by reference. The Fourth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Saul Holdings Limited Partnership
24
<PAGE>
filed as Exhibit 10.(a) of the March 31, 1998 Quarterly Report of
the Company is hereby incorporated by reference.
(b) First Amended and Restated Agreement of Limited Partnership of Saul
Subsidiary I Limited Partnership and Amendment No. 1 thereto filed
as Exhibit 10.2 to Registration Statement No. 33-64562 are hereby
incorporated by reference. The Second Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership, the Third Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership and the Fourth Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership as filed as Exhibit 10.(b) of the 1997 Annual
Report of the Company on Form 10-K is hereby incorporated by
reference.
(c) First Amended and Restated Agreement of Limited Partnership of Saul
II Subsidiary Partnership and Amendment No. 1 thereto filed as
Exhibit 10.3 to Registration Statement No. 33-64562 are hereby
incorporated by reference.
(d) Property Conveyance Agreement filed as Exhibit 10.4 to Registration
Statement No. 33-64562 is hereby incorporated by reference.
(e) Management Functions Conveyance Agreement filed as Exhibit 10.5 to
Registration Statement No. 33-64562 is hereby incorporated by
reference.
(f) Registration Rights and Lock-Up Agreement filed as Exhibit 10.6 to
Registration Statement No. 33-64562 is hereby incorporated by
reference.
(g) Exclusivity and Right of First Refusal Agreement filed as Exhibit
10.7 to Registration Statement No. 33-64562 is hereby incorporated
by reference.
(h) Saul Centers, Inc. 1993 Stock Option Plan filed as Exhibit 10.8 to
Registration Statement No. 33-64562 is hereby incorporated by
reference.
(i) Agreement of Assumption dated as of August 26, 1993 executed by Saul
Holdings Limited Partnership and filed as Exhibit 10. (I) of the
1993 Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(j) Saul Centers, Inc. 1995 Dividend Reinvestment and Stock Purchase
Plan as filed with the Securities and Exchange Commission as File
No. 33-80291 is hereby incorporated by reference.
(k) Deferred Compensation Plan for Directors dated as of December 13,
1993 as filed as Exhibit 10.(r) of the 1995 Annual Report of the
Company on Form 10-K, as amended and restated by the Deferred
Compensation and Stock Plan for Directors, dated as of March 18,
1999, filed herewith.
25
<PAGE>
(l) Deed of Trust, Assignment of Rents, and Security Agreement dated as
of September 9, 1994 by and between Saul Holdings Limited
Partnership and Ameribanc Savings Bank, FSB as filed as Exhibit
10.(t) of the 1995 Annual Report of the Company on Form 10-K is
hereby incorporated by reference.
(m) Deed of Trust Note dated as of January 22, 1996 by and between Saul
Holdings Limited Partnership and Clarendon Station Limited
Partnership, filed as Exhibit 10.(s) of the March 31, 1998 Quarterly
Report of the Company, is hereby incorporated by reference.
(n) Loan Agreement dated as of November 7, 1996 by and among Saul
Holdings Limited Partnership, Saul Subsidiary II Limited Partnership
and PFL Life Insurance Company, c/o AEGON USA Realty Advisors, Inc.,
filed as Exhibit 10.(t) of the March 31, 1998 Quarterly Report of
the Company, is hereby incorporated by reference.
(o) Promissory Note dated as of January 10, 1997 by and between Saul
Subsidiary II Limited Partnership and The Northwestern Mutual Life
Insurance Company, filed as Exhibit 10.(z) of the March 31, 1998
Quarterly Report of the Company, is hereby incorporated by
reference.
(p) Loan Agreement dated as of October 1, 1997 between Saul Subsidiary I
Limited Partnership, as Borrower and Nomura Asset Capital
Corporation, as Lender, is as filed as Exhibit 10.(p) of the 1997
Annual Report of the Company on Form 10-K is hereby incorporated by
reference.
(q) Revolving Credit Agreement dated as of October 1, 1997 by and
between Saul Holdings Limited Partnership and Saul Subsidiary II
Limited Partnership, as Borrower and U.S. Bank National Association,
as agent, is as filed as Exhibit 10.(q) of the 1997 Annual Report of
the Company on Form 10-K is hereby incorporated by reference.
(r) Construction Loan Agreement dated as of January 11, 1999 by and
between Saul Holdings Limited Partnership and Saul Centers, Inc. as
Borrower and Wells Fargo Bank, National Association, as Lender, is
filed herewith.
(s) Promissory Note dated as of January 11, 1999 by and between Saul
Holdings Limited Partnership and Saul Centers, Inc. as Borrower and
Wells Fargo Bank, National Association, as Lender, is filed
herewith.
27. Financial Data Schedule
99. Schedule of Portfolio Properties
Reports on Form 8-K
None.
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.
SAUL CENTERS, INC.
(Registrant)
Date: May 11, 1999 /s/ Philip D. Caraci
---------------------- ---------------------------------------
Philip D. Caraci, President
Date: May 11, 1999 /s/ Scott V. Schneider
---------------------- ---------------------------------------
Scott V. Schneider
Senior Vice President, Chief Financial
Officer
<PAGE>
EXHIBIT 10(S)
PROMISSORY NOTE
---------------
$38,000,000.00 January 11, 1999
FOR VALUE RECEIVED, the undersigned, SAUL HOLDINGS LIMITED PARTNERSHIP, a
Maryland limited partnership and SAUL CENTERS, INC., a Maryland corporation
(hereinafter collectively called "Maker"), promises to pay to the order of WELLS
FARGO BANK, NATIONAL ASSOCIATION, a national banking association (hereinafter,
together with all subsequent holders of this Note, called "Payee"), on or before
the 12th day of January, 2002 (the "Maturity Date"), the principal sum of
THIRTY-EIGHT MILLION AND NO/100 DOLLARS ($38,000,000.00), or so much thereof as
may actually be advanced from time to time hereunder, together with interest on
the unpaid principal balance from time to time outstanding at the rate per annum
equal to the "Prime Rate" (as herein defined) of interest as it fluctuates
(hereinafter called the "Applicable Rate"); provided, however, subject to the
limitations stated herein, Maker may elect in accordance with the procedures set
forth below to have interest accrue and be paid on all or a portion of the
outstanding principal balance hereof at a rate per annum equal to the "Fixed
Increment Rate" (as herein defined).
1. Defined Terms. Certain terms used herein shall be defined as set forth
-------------
above or immediately below. All capitalized terms, unless otherwise specifically
defined herein, shall be defined as set forth in the Deed of Trust (as herein
defined).
(a) "Appraisal": An appraisal of the Trust Property, in form and
---------
substance acceptable to Payee, prepared at Maker's expense, by a third-party
appraiser approved by Payee with such adjustments as Payee's appraisal division
may reasonably determine on review.
(b) "Average Rent": The aggregate annual rent from all leases in
------------
question, as Rent is determined in the second sentence of Section 1(t), divided
by the aggregate rentable square feet demised by such leases.
(c) "Business Day": (i) With respect to any borrowing, payment or
------------
rate determination for a Fixed Increment Rate, a day, other than a Saturday or
Sunday, on which Payee is open for business in Washington, D.C. and San
Francisco, California and on which dealings in U.S. dollars are carried on in
the London interbank market; and (ii) for all other purposes, any day, excluding
(x) Saturday and Sunday, (y) any day which is a legal holiday under the laws of
the State of California and the District of Columbia, and (z) any day on which
banking
<PAGE>
institutions located in California or the District of Columbia are required or
authorized by law or other governmental action to close.
(d) "Debt Constant Test": The determination by Payee, in its sole
------------------
but reasonable discretion, that Net Operating Income from the most recent fiscal
quarter multiplied by four (4) is not less than an amount equal to the Loan
Amount (as defined below) multiplied by twelve percent (12%).
(e) "Event of Default": As that term is defined in the Deed of
----------------
Trust.
(f) "Extension Test".: The determination by Payee, in its sole but
-------------- -
reasonable discretion, that (i) there is no Event of Default arising under any
of the Loan Documents, (ii) the Loan to Value Test has been satisfied, and (iii)
the Debt Constant Test has been satisfied.
(g) "First Leasing Requirement". The delivery to Payee of fully
-------------------------
executed leases covering not less than 100,000 rentable square feet of office
space and not less than 25,000 rentable square feet of retail space in the
Improvements on the Trust Property (as such terms are defined in the Deed of
Trust), approved by Payee or which, under the terms of the Deed of Trust, do not
require the approval of Payee generating in the aggregate Average Rent equal to
at least the Minimum Rent.
(h) "Fixed Increment": The portion of the outstanding principal
---------------
balance hereof specified by Maker to Payee effective as of the applicable Fixed
Period Commencement Date (as herein defined); provided, however, in no event
shall the initial Fixed Increment be less than One Million and No/100 Dollars
($1,000,000.00) and all other Fixed Increments shall be available in increments
of Five Hundred Thousand and No/100 Dollars ($500,000.00) or the remaining
outstanding principal balance under this Note.
(i) "Fixed Increment Rate": The interest rate with respect to a
--------------------
Fixed Increment shall be equal to the sum of (i) One and Ninety Hundredths
percent (1.90%) plus (ii) the Fixed LIBO Rate, which Fixed LIBO Rate is divided
by one (1.00) minus the LIBO Rate Reserve Requirement; provided, however, that
upon request of Maker and the submission to Payee of all necessary documentation
evidencing (as determined by Payee) that the First Leasing Requirement (as
herein defined) is satisfied, the interest rate with respect to a Fixed
Increment shall be equal to the sum of (i) One and Seventy Hundredths percent
(1.70%) plus (ii) the Fixed LIBO Rate, which Fixed LIBO Rate is divided by one
(1.00) minus the LIBO Rate Reserve Requirement, provided, further, however, that
upon request of Maker and the submission to Payee of all necessary documentation
evidencing (as determined by Payee) that the Second Leasing Requirement (as
herein defined) is satisfied, the interest rate with respect to a Fixed
Increment shall be equal to the sum of (i) One and Forty-five Hundredths percent
(1.45%) plus (ii) the Fixed LIBO
-2-
<PAGE>
Rate, which Fixed LIBO Rate is divided by one (1.00) minus the LIBO Rate Reserve
Requirement. The Fixed Increment Rate shall be rounded upward to the nearest
whole multiple of one-hundredth of one percent (.01%). Effective on the first
day of the month immediately succeeding the determination by Payee that the
First Leasing Requirement or the Second Leasing Requirement, as applicable, is
satisfied, the interest rate with respect to all Fixed Increments then in effect
shall be reduced to the applicable level set forth in this Paragraph 1(h).
(j) "Fixed LIBO Rate": The rate of interest quoted by Payee as the
---------------
London Inter Bank Offered Rate for deposits in U.S. Dollars at approximately
9:00 A.M. Pacific time, on a Fixed Period Commencement Date, for purposes of
calculating effective rates of interest for loans or obligations making
reference thereto for an amount approximately equal to a Fixed Increment and for
a period of time approximately equal to a Fixed Period. The Fixed LIBO Rate
shall be rounded, if necessary, to the next highest one sixteenth of one percent
(1/16%).
(k) "Fixed Period": A period as designated by Maker of thirty (30),
------------
sixty (60), ninety (90) or one hundred eighty (180) days from the Fixed Period
Commencement Date. Notwithstanding the foregoing, in no event shall any Fixed
Period extend beyond the Maturity Date.
(l) "Fixed Period Commencement Date": The proposed commencement of
------------------------------
the applicable Fixed Period.
(m) "Fixed Rate Notice". A written notice in the form prescribed by
-----------------
Payee which confirms the Fixed Increment Rate for a particular Fixed Increment.
(n) "LIBO Rate Reserve Requirement": The daily average during the
-----------------------------
Fixed Period of the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other schedule changes in reserve requirements
during the Fixed Period) which is imposed under Regulations K and D (defined
below) against Eurocurrency liabilities.
(o) "Loan": The loan advanced under this Note and evidenced hereby
----
and by the other Loan Documents.
(p) "Loan Amount": The principal amount outstanding under this Note
-----------
from time to time.
(q) "Loan Documents": As that term is defined in the Deed of Trust.
--------------
-3-
<PAGE>
(r) "Loan to Value Test": The determination by Payee, in its sole
------------------
but reasonable discretion pursuant to the Appraisal that the Loan to Value Ratio
(as herein defined) does not exceed seventy-five percent (75%).
(s) "Loan to Value Ratio": The ratio obtained by dividing (i) the
-------------------
Loan Amount by (ii) the then current market value of the Trust Property
determined pursuant to the Appraisal dated no earlier than sixty (60) days prior
to the date of calculation of such ratio.
(t) "Minimum Rent": In the case of office space, $20.50 per rentable
------------
square foot triple net with no expense stop or $28.50 per rentable square foot
on a full service basis with an estimated base year expense of $8.00 per
rentable square foot, and in the case of retail space, $27.50 per rentable
square foot triple net with no expense stop. Rent, as used in this paragraph as
applied to each lease, shall mean the nominal rent on an annual basis stated in
such lease less the sum, amortized on an annual basis over the term of such
lease in years, of any and all (i) rent abatements, (ii) tenant improvements in
excess of $25 per rentable square foot funded by Maker, and (iii) other tenant
concessions.
(u) "Net Operating Income": The sum of (i) all net income generated
--------------------
by the Trust Property as determined on a GAAP accrual basis plus (to the extent
deducted in determining such net income) interest, depreciation and amortization
and less rent concessions applicable on a cash basis to the period in question
(to the extent included in receipts in the determination of net income) as
generated pursuant to leases with bona fide third party tenants in possession of
their space pursuant to leases which are in full force and effect and have been
previously approved by Payee (or for which Payee's approval is not required
under the Loan Documents), and (ii) all other income other than from leases
arising from direct operations of or licenses or operating agreements for any
part of the Improvements determined on a GAAP accrual basis. Maker shall provide
Payee with all information and materials required by Payee necessary for the
determination of Net Operating Income.
(v) "Prime Rate": The base rate of interest per annum established
----------
from time to time by Payee, San Francisco, California, and designated as its
prime rate. Changes in the Applicable Rate resulting from changes in the Prime
Rate shall become effective on the date each such change in such Prime Rate is
established by Payee.
(w) "Regulation D": Regulation D of the Board of Governors of the
------------
Federal Reserve System from time to time in effect and shall include any
successor or other regulation of said Board of Governors relating to reserve
requirements applicable to member banks of the Federal Reserve System.
-4-
<PAGE>
(x) "Regulation K": Regulation K of the Board of Governors of the
------------
Federal Reserve System from time to time in effect and shall include any
successor or other regulation of said Board of Governors relating to the
international and foreign activities of United States banking organizations
applicable to member banks of the Federal Reserve System.
(y) "Second Leasing Requirement". Attainment of the First Leasing
--------------------------
Requirement, Substantial Completion of the Base Building, as defined in the
Construction Loan Agreement and the delivery to Payee of fully executed leases
covering not less than eighty-five (85%) of the net rentable square footage of
the Improvements on the Trust Property, approved by Payee or which, under the
terms of the Deed of Trust, do not require the approval of Payee, generating (in
the aggregate) Average Rent equal to at least the Minimum Rent.
(z) "Unmatured Event of Default": Any event, happening or occurrence
--------------------------
which would constitute an Event of Default under the Loan Documents after the
giving of any required notice or expiration of any applicable cure period or
grace period.
2. Interest Rates; Term; Repayment.
-------------------------------
(a) Accrual of Interest; Repayment of Loan. Interest based on a 360-
--------------------------------------
day year will accrue on the number of days funds are actually outstanding.
Interest shall be calculated on a daily basis and shall be payable monthly in
arrears on the first day of each and every month following the date hereof until
the Maturity Date, at which time all accrued and unpaid interest and the unpaid
principal balance hereof shall be due and payable in full.
(b) Extension of Maturity Date. The Maturity Date of this Note may be
--------------------------
extended by Maker for two (2) periods of one (1) year each (an "Extension
Period") upon the written request of Maker given not less than sixty (60) days
nor more than one hundred twenty (120) days prior to the then-effective Maturity
Date to be extended, each such extension being subject to satisfaction of the
following:
(1) Payment at the commencement of each applicable Extension
Period by Maker of an extension fee equal to One Quarter of One percent (0.25%)
of the principal amount of this Note;
(2) Payment prior to the first day of each applicable Extension
Period by Maker of any tax, together with penalties and interest thereon (if
any) due to either the City of Alexandria or the Commonwealth of Virginia in
connection with the Loan or any extension thereof;
(3) The delivery by Maker to Payee of an extension agreement and
such other documentation as Payee may reasonably require in
-5-
<PAGE>
connection therewith, all of which shall be in form and substance acceptable to
Payee (including a modification of this Note to provide that the maximum amount
of interest payable from the date of such modification shall not exceed the
maximum amount payable under law in effect during the applicable Extension
Period);
(4) At the time of such notice and on the first day of the
applicable Extension Period, there shall exist no uncured Event of Default under
any of the Loan Documents ( as defined in the Deed of Trust);
(5) Maker shall, if requested by Payee, deliver to Payee an
opinion of counsel in form and substance acceptable to Payee, stating that,
inter alia, the Loan Documents create valid and binding obligations of Maker and
are enforceable in accordance with their terms, subject to customary
qualifications;
(6) Maker shall deliver to Payee an endorsement to or reissuance
of the existing title insurance policy held by Payee in connection with the
Loan, revising the effective date of the policy to the first day of the
applicable Extension Period and stating that the coverage afforded thereby, or
the agreements thereunder, shall not be adversely affected because of such
extension;
(7) An Appraisal having an effective date not earlier than sixty
(60) days and delivered not later than thirty (30) days prior to the Maturity
Date indicating that the Loan to Value Test is satisfied;
(8) The delivery by Maker to Payee of all financial information
reasonably requested by Payee, as provided for in the Deed of Trust;
(9) Maker shall pay, at its sole cost and expense, all reasonable
costs incurred by Payee in connection with such extension, including appraisal
fees, inspection fees, survey and survey recertification fees, reasonable legal
fees, and fees for environmental studies and reports and such other professional
services which Payee in good faith determines at the time such extension is
requested are necessary to satisfy any Legal Requirement (as defined in the Deed
of Trust) and to protect the value of the Trust Property and Improvements; the
payment by Maker of these costs and expenses shall not be credited, in any way
or to any extent, against any portion of the outstanding balance of this Note;
and
(10) Payee is satisfied that the Extension Test has been met.
(c) No Obligation to Extend. Notwithstanding Maker's right to extend
-----------------------
the Maturity Date of the Loan as set forth hereinabove, Maker hereby
-6-
<PAGE>
agrees that Payee shall have no commitment or obligation to extend the Maturity
Date beyond January 12, 2004.
(d) Election to Fix Interest Rate. Any election to fix the interest
-----------------------------
rate with respect to each Fixed Increment may be made only (i) once during any
thirty (30) day period and (ii) while no Event of Default or Unmatured Event of
Default is in existence hereunder or under any of the other Loan Documents.
Maker, at its option and upon satisfaction of the conditions set forth herein,
may request a Fixed Increment Rate to be used in calculating interest on the
portion of the unpaid principal balance and for the period selected in
accordance with and subject to the following conditions:
(i) One Business Day before requesting a Fixed Increment Rate,
Maker shall give Payee advance telephonic notice that it will request a rate
quotation for a portion of the principal balance of this Note and for a period
of time which conforms to a Fixed Increment and Fixed Period as defined herein.
(ii) At approximately 9:00 A.M. (Pacific time) on the Business
Day next following said advance notice, Maker may telephonically request Payee
to quote telephonically an applicable Fixed Increment Rate for the Fixed
Increment and Fixed Period selected by Maker. At any one time during the term
hereof, no more than five (5) Fixed Increments may be outstanding. Maker shall
not be released from its obligation to pay interest at the Applicable Rate and
Payee shall incur no liability to Maker if Maker is unable to obtain a
telephonic quote on any Business Day.
(iii) If Maker accepts Payee's telephonic quote of the Fixed
Increment Rate requested within five (5) minutes of the quotation thereof by
Payee, interest at said Fixed Increment Rate shall accrue on the Fixed Increment
and for the Fixed Period selected. The date the quoted Fixed Increment Rate is
telephonically accepted by Maker shall be the Fixed Period Commencement Date for
that Fixed Period.
Payee is authorized to rely upon the telephonic request and
acceptance of Scott V. Schneider and William Anhut as Maker's duly authorized
agents, or such additional authorized agents as Maker shall designate in writing
to Payee. Maker's telephonic notices, requests and acceptances shall be directed
to such officers of Payee as Payee may from time to time designate.
If Maker elects the Fixed Increment Rate, but the applicable Fixed
Period will commence on a date which is not a Business Day, such Fixed Period
shall be deemed to commence on the next Business Day after it would otherwise
commence, and any interest which accrues hereunder in the interim shall accrue
at the Applicable Rate.
-7-
<PAGE>
(e) Fixed Rate Notice. Maker's acceptance of a Fixed Increment Rate
-----------------
shall be confirmed by a written Fixed Rate Notice, which Payee shall deliver to
Maker. Payee's failure to deliver the Fixed Rate Notice shall not release Maker
from Maker's obligation to pay interest at the Applicable Rate pursuant to the
terms hereof.
(f) Nonavailability of Funds. Notwithstanding anything contained
------------------------
herein to the contrary, if Maker elects the Fixed Increment Rate to apply but
Payee is unable for any reason to obtain funds in the amount of the Fixed
Increment elected for the Fixed Period elected, interest on such Fixed Increment
shall accrue at the Applicable Rate unless and until a new election of the Fixed
Increment Rate is made by Maker and Payee is then able to obtain such funds.
(g) No Effective Election. In the absence of an effective election by
---------------------
Maker of the Fixed Increment Rate in accordance with the above procedures prior
to the expiration of the then current Fixed Period with respect to any Fixed
Increment, interest on such Fixed Increment shall accrue at the Applicable Rate,
effective immediately upon the expiration of such Fixed Period.
(h) Payment of Fees and Costs. Maker shall (i) pay all legal fees
-------------------------
reasonably incurred by Payee in connection with the preparation of this Note and
any and all other Loan Documents contemplated hereby (including, but not limited
to, any amendments hereto or thereto or consents, releases or waivers hereunder
or thereunder); (ii) reimburse Payee promptly upon demand for all amounts
expended, advanced or incurred by Payee pursuant to the terms of the Loan
Documents to satisfy any obligation of Maker under this Note or any other Loan
Documents, which amounts shall include all court costs, reasonable attorneys'
fees (including, without limitation, for trial, appeal or other proceedings),
fees of auditors and accountants, and investigation expenses reasonably incurred
by Payee in connection with any such matter; and (iii) any and all other costs
and expenses payable by Maker pursuant to the Loan Documents, including, without
limitation, the Loan fee in the amount of $256,750.00, an appraisal fee in the
amount of $12,000.00, an environmental review fee in the amount of $425.00,
documentary taxes and recording, brokerage, reasonable attorneys', surveyors',
accountants', engineers', architects' and inspectors' fees and title insurance
premiums. Except to the extent that certain of these costs and expenses are
included within the definition of Indebtedness (as defined in the Deed of
Trust), the costs and expenses shall not be credited, in any way or to any
extent, against any portion of the Indebtedness.
3. Special Provisions Applicable to Fixed LIBO Rate. Notwithstanding any
------------------------------------------------
other provisions hereof:
(a) Costs of Payee. Maker acknowledges and agrees that Payee may
--------------
incur costs, expenses and losses, including, without limitation, costs, expenses
-8-
<PAGE>
and losses resulting from the occurrence of any of the events referred to in
subsections (b) and (c) below which increase the cost to Payee of maintaining
the Loan on a Fixed LIBO Rate basis. Accordingly, Maker shall pay to Payee
within twenty (20) days of written demand, in addition to all other amounts due
under this Note and under the Loan Documents, all amounts reasonably determined
by Payee required to compensate Payee for all such costs, expenses and losses,
if any, to the extent that such costs, expenses and losses increase the cost to
Payee of maintaining the Loan on a Fixed LIBO Rate basis, provided that Payee
agrees, as soon as reasonably possible, to give Maker notice of any such
increased costs, expenses, or losses, which written notice shall include an
explanatory certificate in reasonable detail as to the increased costs.
(b) Change in Law. If any change in applicable law or regulations or
-------------
any interpretation thereof by any government, central bank, or agency or
instrumentality of either ("Governmental Authority") charged with the
administration thereof shall:
(i) impose, modify, or deem applicable any reserve, special
deposit or special requirements against assets held by, or deposits in or for
the account of, or loans by, or any other acquisition of funds for advances by
Payee; or
(ii) impose on Payee any other conditions regarding this Note; or
(iii) subject Payee (or make it apparent that Payee is subject) to
any tax (including, without limitation, any international interest equalization
tax), levy, impost, duty, charge, fee, deduction or withholding on or from
payment due from Maker under this Note and the other Loan Documents, other than
income and franchise taxes of the United States and its political subdivisions,
or
(iv) change the basis of taxation of payments due from Maker to
Payee hereunder (other than by a change in the statutory rate of taxation of the
overall income of Payee);
and any of the foregoing results in an increase in the cost to Payee of
maintaining the Loan on a Fixed LIBO Rate basis, then upon demand made by Payee
to Maker, Maker shall pay to Payee, from time to time, as reasonably determined
and certified by Payee, additional amounts that shall compensate Payee for such
increased cost. Payee will notify Maker of any event that entitles Payee to such
additional amounts and will furnish Maker with an explanatory certificate in
reasonable detail as to the increased cost as a result of any such event
mentioned in this subsection. Maker shall within twenty (20) days of written
demand pay such additional amounts to Payee. All such determinations by Payee
that are certified to Maker shall be
-9-
<PAGE>
presumed to be correct, absent manifest computational errors, provided they are
made in good faith.
(c) Reserve Cost Requirement. Maker shall pay Payee on the days on
------------------------
which interest is payable under this Note the actual costs to Payee, as
determined in good faith by Payee and evidenced by an explanatory notice
delivered to Maker by Payee, of Payee's complying with any reserve, special
deposit or similar requirements (including, but not limited to, state law
requirements and, to the extent not already paid by Maker by inclusion within
the definition of LIBO Rate Reserve Requirement, Regulations K and D of the
Board of Governors of the Federal Reserve System of the United States) imposed
or deemed applicable against foreign assets held by, or deposits in or for the
account of, or loans by, or any other acquisition of funds for advances by Payee
of any Governmental Authority charged with the administration of such
requirements, to the extent that such requirements increase the cost to Payee of
maintaining the Loan on a Fixed LIBO Rate basis.
4. Prepayment
----------
(a) Ability to Prepay. Maker shall have the right prior to the
-----------------
Maturity Date, upon ten (10) days' prior written notice, to prepay all or any
portion (except any portion constituting a Fixed Increment during its applicable
Fixed Period which may only be prepaid as set forth in the following paragraphs)
of the principal balance owing hereunder from time to time; provided, however,
that (x) if such prepayment is only a partial payment of the then outstanding
principal balance hereof, such prepayment shall be accompanied by the payment of
all accrued but unpaid interest on the portion of the outstanding principal
balance of the Note being so paid through the date the prepayment is made, and
(y) for same day credit all monies shall be received at Payee's office at Wells
Fargo Bank, 2120 East Park Place, Suite 100, E1 Segundo, California 90245 on or
before 11:00 a.m., Pacific Standard Time or Pacific Daylight Time (as
applicable). All monies received after this time shall be deemed received on
the following Business Day and shall continue to accrue interest in accordance
with the terms hereof to the date funds are deemed received.
(b) Prepayment of Fixed Increment. Maker shall have the right to
-----------------------------
prepay any Fixed Increment only upon payment to Payee, at the time of such
prepayment, of an amount equal to all costs, fees and penalties incurred by
Payee in connection with such prepayment, such amounts to include that sum which
is equal to the excess of (i) the interest that would have been payable by Maker
for such Fixed Increment for the remainder of the applicable Fixed Period at the
applicable Fixed Increment Rate had such prepayment not been made by Maker, over
(ii) the interest that would have been payable by Maker for such Fixed Increment
for the remainder of the applicable Fixed Period at the applicable Fixed
Increment Rate in effect on the date of prepayment.
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<PAGE>
(c) Prepayment Resulting from Acceleration. In addition, in any such
--------------------------------------
event, the provisions of the immediately preceding paragraph hereto (relating to
the obligation of Maker to pay to Payee certain amounts in the event of the
prepayment of a Fixed Increment prior to the last day of the applicable Fixed
Period) shall apply with respect to any Fixed Increment prepaid by Maker prior
to the last day of the applicable Fixed Period as a result of the acceleration
by Payee of the outstanding principal balance hereof.
5. General Provisions.
-------------------
(a) Application of Payments. All payments on this Note shall, at the
-----------------------
option of Payee, be applied first to the payment of late charges, if any, then
to the payment of accrued interest, and after all such interest has been paid,
any remainder shall be applied to reduction of the principal balance, and, from
and after the occurrence of an Event of Default, in such order as Payee may
designate. All payments hereunder shall be delivered to Payee at Payee's office
at Wells Fargo Bank, 2120 East Park Place, Suite 100, El Segundo, California
90245 or at such other address as Payee may from time to time designate in
writing to Maker.
(b) Waivers. Except as otherwise specifically provided in the Loan
-------
Documents, Maker and any endorsers hereof jointly and severally waive
presentment and demand for payment, notice of intent to accelerate maturity,
notice of acceleration of maturity, protest or notice of protest and nonpayment,
bringing of suit and diligence in taking any action to collect any sums owing
hereunder or in proceeding against any of the rights and properties securing
payment hereof. Maker and any endorsers hereof agree that the time for any
payments hereunder may be extended from time to time without notice and consent
to the acceptance of further security or the release of any existing security
for this Note, all without in any manner affecting their liability under or with
respect to this Note. No extension of time for the payment of this Note or any
installment hereof shall affect the liability of Maker under this Note even
though Maker is not a party to such agreement.
(c) Acceleration. If an Event of Default shall occur under any of the
------------
Loan Documents, then Payee may, at its option, without further notice or demand,
declare the unpaid principal balance and accrued and unpaid interest on this
Note, together with any other sums owing at the time of such declaration, at
once due and payable; foreclose all security deeds, deeds of trust, mortgages
and liens securing payment hereof; pursue any and all other rights, remedies,
and recourses available to Payee, or pursue any combination of the foregoing,
all remedies hereunder and under the Loan Documents being cumulative.
(d) No Waiver. Failure to exercise any of the foregoing options shall
---------
not constitute a waiver of the right to exercise the same or any other option at
any subsequent time in respect to any other event. The acceptance by Payee of
any
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<PAGE>
payment hereunder that is less than payment in full of all amounts due and
payable at the time of such payment shall not constitute a waiver of the right
to exercise any of the foregoing options at that time or at any subsequent time
or nullify any prior exercise of any such option without the express written
consent of Payee.
(e) Late Charges. If any payment required under this Note (other than
------------
the payment of the principal hereof at the Maturity Date or upon acceleration)
is not paid within ten (10) days after it becomes due and payable, Payee of this
Note may require an additional payment of a late charge for late payment to
compensate for Payee's loss of use of funds and for the expenses of handling the
delinquent payment, in an amount not to exceed three percent (3%) of such
delinquent payment. Said late charge shall be paid in any event not later than
the due date of the next subsequent installment of principal and/or interest.
In the event the maturity of the Indebtedness hereunder is accelerated by Payee,
this paragraph shall apply only to payments overdue prior to the time of such
acceleration. This paragraph shall not be deemed to be a waiver of Payee's
right to accelerate payment of this Note under the terms hereof.
(f) Interest Rate After an Event of Default. Upon the occurrence of
---------------------------------------
an Event of Default, at the option of Payee (i) all amounts hereunder then
bearing interest at a Fixed Increment Rate shall bear interest at the Applicable
Rate, and (ii) all amounts payable hereunder or under the Loan Documents shall
bear interest for the period beginning with the date of occurrence of such
default at a rate of interest per annum (the "Default Rate"), payable on the
first day of each and every month, equal to four percent (4%) above the
Applicable Rate, as it fluctuates, or four percent (4%) above the Fixed
Increment Rate to the extent that Payee does not exercise its option to change
the Fixed Increment Rate to the Applicable Rate, as set forth in subparagraph
(5)(f)(i) above, whichever is applicable, as in effect from time to time and
continuing until such Event of Default shall have been cured.
(g) Default Rate on Outstanding Balance. Notwithstanding any other
-----------------------------------
provision of this Note to the contrary, from and after the Maturity Date of this
Note (as it may have been extended pursuant to the terms hereof), or such
earlier date as the unpaid principal owing on this Note becomes due and payable
upon acceleration or otherwise pursuant to the terms hereof, the whole of the
unpaid principal and interest owing on this Note shall thereafter bear interest
until paid in full at the Default Rate.
(h) Legal Tender; Costs of Collection. All amounts payable hereunder
---------------------------------
are payable in lawful money of the United States of America. Maker agrees to
pay all costs of collection hereof when incurred, including reasonable
attorneys' fees, whether or not any legal action shall be instituted to enforce
this Note.
-12-
<PAGE>
(i) Security. This Note is issued pursuant to that certain
--------
Construction Loan Agreement of even date herewith executed by Maker and Payee
and is secured, inter alia, by the Deed of Trust. All of the agreements,
----- ----
conditions, covenants, warranties, representations, provisions and stipulations
made by or imposed upon Maker under the Loan Documents are hereby made a part of
this Note to the same extent and with the same force and effect as if they were
fully inserted herein, and Maker covenants and agrees to keep and perform the
same, or cause them to be kept and performed, strictly in accordance with their
terms.
(j) Joint and Several Liability. If this Note is executed by more
---------------------------
than one party, each such party shall be jointly and severally liable for the
obligations of Maker under this Note. If Maker is a partnership, each general
partner of Maker shall be jointly and severally liable hereunder, and each such
general partner hereby waives any requirement of law that, in the Event of a
Default hereunder or under any of the Loan Documents, Payee exhaust any assets
of Maker before proceeding against such general partner's assets.
(k) Time of Essence. MAKER AGREES THAT TIME IS OF THE ESSENCE IN THE
---------------
PERFORMANCE OF ALL OBLIGATIONS HEREUNDER.
(l) Governing Law. This Note shall be governed by and construed
-------------
according to the laws of the Commonwealth of Virginia.
(m) Usury. It is expressly stipulated and agreed to be the intent of
-----
Maker and Payee at all times to comply with the applicable law now or hereafter
governing the interest payable on this Note or the Loan (or applicable United
States federal law to the extent that it permits Payee to contract for, charge,
take, reserve, or receive a greater amount of interest than under Virginia law).
If the applicable law is ever revised, repealed, or judicially interpreted so as
to render usurious any amount called for under this Note, or under any of the
Loan Documents, or contracted for, charged, taken, reserved or received with
respect to the Loan, or if Payee's exercise of the option herein contained to
accelerate the maturity of this Note, or if any prepayment by Maker results in
Maker's having paid any interest in excess of that permitted by applicable law,
then it is Maker's and Payee's express intent that all excess amounts
theretofore collected by Payee be credited on the principal balance of this Note
(or if the Note has been paid in full, refunded to Maker), and the provisions of
this Note and the Loan Documents immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced, without the necessity
of the execution of any new document, so as to comply with the then applicable
law, but so as to permit the recovery of the fullest amount otherwise called for
hereunder and thereunder.
(n) Amortization. All sums paid or agreed to be paid to Payee for the
------------
use, forbearance or detention of the indebtedness evidenced hereby and by the
other Loan Documents shall, to the extent permitted by applicable law, be
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<PAGE>
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the usury ceiling from time to time
in effect and applicable to the Loan for so long as debt is outstanding under
the Loan.
(o) Successors and Assigns. The term "Maker" as used in this Note
----------------------
shall mean and have reference to, collectively, all parties and each of them
directly or indirectly obligated for the indebtedness evidenced by this Note,
whether as principal maker, endorser, or otherwise, together with all parties
who have acquired the property conveyed by the Deed of Trust or any portion or
portions thereof, together with the respective heirs, administrators, executors,
legal representatives, successors and assigns of each of the foregoing.
(p) No Merger. Except as may be permitted by the terms of the Deed of
---------
Trust, Maker shall not merge into or with any other company, firm or corporation
without the prior written consent of Payee; provided, however, if any merger
occurs, then the resulting merged company, firm or corporation shall become
liable as Maker under this Note to the same extent as Maker hereunder. Maker
warrants and represents that Maker has full power and authority to make and
execute this Note, and that this Note is fully and legally binding upon Maker.
(q) Notices. All notices or other communications required or
-------
permitted to be given pursuant to this Note shall be in writing and shall be
considered as properly given if mailed by first-class United States mail,
postage prepaid, registered or certified with return receipt requested, or if
sent by Federal Express or other overnight delivery service, or by delivering
same in person to the intended addressee or by prepaid telegram. Notice given in
any manner shall be effective upon receipt. For purposes of notice, the
addresses of the parties shall be as set forth below:
The address of Maker is:
Saul Holdings Limited Partnership
c/o Saul Centers, Inc.
8401 Connecticut Avenue
Chevy Chase, MD 20815
Attention: Chief Financial Officer
With copies of all notices to Maker to:
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, DC 20037
Attention: Sheldon J. Weisel, Esq.
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<PAGE>
The address of Payee is:
Wells-Fargo Bank, National Association
Real Estate Group
2020 K Street, N.W., Suite 420
Washington, D.C. 20006-1806
With copies of all notices to Payee to:
Wells Fargo Bank
Real Estate Group
420 Montgomery Street
San Francisco, CA 94111
Attention: Chief Credit Officer
provided, however that any party hereto shall have the right to change its
address for notice hereunder to any other location within the continental United
States by the giving of fifteen (15) business days' notice to the other party in
the manner set forth hereinabove.
(r) Purpose. The undersigned and all endorsers of this Note, and
-------
other parties primarily or secondarily liable hereon, each represents and
warrants that the amounts advanced or to be advanced under this Note and Loan
Documents and evidenced hereby are greater than $5,000 and are being made
exclusively in connection with a loan made for business or investment purposes
within the meaning and intent of Section 6.1-330.75 of the Code of Virginia
(1950), as amended.
(s) Interpretation. Whenever possible, each provision of this Note
--------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note.
(t) Amendments. This Note may not be changed orally, but only by an
----------
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
(u) WAIVER OF JURY TRIAL. EACH PARTY TO THIS NOTE AND, BY ITS
--------------------
ACCEPTANCE HEREOF, PAYEE, HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS NOTE OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
Initials:_______
-15-
<PAGE>
CONNECTION THEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS NOTE
OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND EACH PARTY AND PAYEE HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS NOTE AND
PAYEE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT
AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO AND PAYEE TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
6. Reduction in Recourse Provision.
--------------------------------
(a) Subject to the exceptions and qualifications described below, upon
(i) Substantial Completion of the Base Building and (ii) receipt by Payee of
estoppel certificates reasonably acceptable to Payee from tenants providing for
in the aggregate Average Rent equal to at least the Minimum Rent under leases
approved by Payee or which do not require the approval of Payee pursuant to the
Deed of Trust, for not less than fifty percent (50%) of the rentable space in
the Improvements, the undersigned shall thereafter no longer be personally
liable for the payment of the indebtedness evidenced by or created or arising
under this Note or arising under the Loan Documents for any amount in excess of
(x) Nineteen Million Dollars ($19,000,000.00) plus (y) any and all interest and
fees set forth in this Note, plus (z) any unreimbursed expenses incurred by
Wells Fargo in protecting, preserving or defending its interests in connection
with the Loan or under the Loan Documents, including, without limitation all
reasonable attorneys' fees and all other expenses incurred by Wells Fargo in
connection with any trustee's sale or foreclosure and/or sale of all or any of
the Trust Property or other collateral covered by the Loan Documents (the
"Adjusted Amount), and any judgment or decree in any action brought to enforce
the obligation of the undersigned to pay such indebtedness in excess of the
Adjusted Amount shall be enforceable against the undersigned only to the extent
of its interest in the property encumbered by the Deed of Trust and the other
Loan Documents and any such judgment or decree shall not be subject to execution
upon or be a lien upon the assets of the undersigned other than its interest in
such property. All proceeds of any trustee's sale or foreclosure and/or sale of
all or any of the Trust Property or other collateral covered by the Loan
Documents applicable by their terms to the amount of this Note shall be
allocated first to the portion of this Note for which Maker is not personably
liable and then to the portion of this Note for which Maker is personably
liable, and Maker acknowledges that Payee may pursue any and all rights,
remedies, and recourses available to Payee under this Note or under the Loan
Initials:_______
-16-
<PAGE>
Documents, or pursue any combination of the foregoing, in such order as Payee
may determine in its sole discretion, and that all rights, remedies and
recourses hereunder and under the Loan Documents are cumulative.
(b) The foregoing limitation of personal liability shall be subject
to the following exceptions and qualifications:
The undersigned shall be fully and personally liable for all costs,
expenses or losses incurred by Payee as a result of any of the following:
(A) Failure to pay taxes, assessments and any other charges which
could result in prior liens against any portion of the property covered by the
Deed of Trust or the other Loan Documents;
(B) Failure to pay and discharge any mechanic's liens,
materialmen's liens or other liens against any portion of the property covered
by the Deed of Trust or the other Loan Documents;
(C) Fraud, misrepresentation or waste;
(D) Retention by the undersigned of any rental income or other
income arising with respect to any property covered by the Deed of Trust or the
other Loan Documents which, under the terms thereof, should have been paid to
Payee hereof;
(E) All insurance proceeds, condemnation awards or other similar
funds or payments attributable to any property covered by the Deed of Trust or
the other Loan Documents which, under the terms thereof, should have been paid
to Payee hereof;
(F) Failure to maintain, repair or restore any property covered
by the Deed of Trust or the other Loan Documents in accordance with the terms
thereof;
(G) The removal, demolition, damage or destruction of any
property covered by the Deed of Trust or the other Loan Documents which is
neither permitted by the terms of the Loan Documents, consented to in writing by
Payee nor is fully compensated for by insurance proceeds or condemnation awards;
and
(H) The failure of the Deed of Trust or any Other Loan Document
to constitute a first and prior lien upon the property subject only to the
exceptions set forth in Exhibit "B" to the Deed of Trust and any exceptions
permitted by any other Loan Document.
Initials:_______
-17-
<PAGE>
(I) Any expense, damage, loss or liability incurred by the Lender
arising from the presence of oil, toxic or hazardous waste on the property
encumbered by the Deed of Trust and the other Loan Documents.
(c) Nothing contained in this paragraph shall affect or limit the
ability of Payee hereof to enforce any of its rights or remedies with respect to
any property encumbered by the Deed of Trust and the other Loan Documents.
(d) Nothing contained in this paragraph shall affect or limit the
rights of Payee hereof to proceed against any person or entity, including the
undersigned or any partner in the undersigned, with respect to the enforcement
of any separate guaranties of payment or guaranties of performance and
completion or other similar rights, but the foregoing shall not be construed to
extend and relate to any obligation of Saul Centers, Inc. arising under this
Note or any other Loan Document executed contemporaneously with this Note, all
of which obligations are subject to the limitations of liability contained in
this Paragraph 6.
(e) The limitation contained in this paragraph shall be void and
completely ineffective in the event that the undersigned or any general partner
of the undersigned shall voluntarily file any petition or commence any case or
proceeding under any provision or chapter of the Federal Bankruptcy Act, the
Federal Bankruptcy Code, or any other federal or state law relating to
insolvency, bankruptcy or reorganization, or the entry of any order of relief
under the Federal Bankruptcy Code with respect to the undersigned or any general
partner in the undersigned.
[The remainder of this page is blank and the next page is a signature page]
Initials:_______
-18-
<PAGE>
IN WITNESS WHEREOF, this Note has been duly executed as of the date first
above written.
WITNESS/ATTEST:
SAUL HOLDINGS LIMITED
PARTNERSHIP, a Maryland limited
partnership
[CORPORATE SEAL] By: Saul Centers, Inc., a Maryland
corporation
General Partner
/S/ By: /S/
- ------------------------ -----------------------
B. Francis Saul II
Chairman
[CORPORATE SEAL] SAUL CENTERS, INC., a Maryland
corporation
/S/ By: /S/
- ------------------------ ---------------------
B. Francis Saul II
Chairman
This signature page is attached to and is a part of that certain Promissory Note
in the original principal amount of Thirty-eight Million and No/100 Dollars
($38,000,000.00), from Saul Holdings Limited Partnership and Saul Centers, Inc.,
collectively as "Maker", to Wells Fargo Bank, National Association, as "Payee."
Initials:_______
-19-
<PAGE>
CERTIFICATE OF IDENTIFICATION
-----------------------------
This Note is secured by a Credit Line Deed of Trust, Security Agreement,
and Assignment of Leases and Rents (the "Deed of Trust") of even date herewith
on property located in the City of Alexandria, Virginia from Saul Holdings
Limited Partnership and Saul Centers, Inc. to Thomas G. McGarry and Joseph B.
Whitebread, Jr., Trustees.
THIS IS TO CERTIFY that this is the Note described in such Deed of Trust
bearing even date herewith, said Deed of Trust and this Note having been
executed in my presence.
/S/
---------------------------
Notary Public
My Commission Expires: ___________________
<PAGE>
EXHIBIT 10(P)
CONSTRUCTION LOAN AGREEMENT
---------------------------
THIS CONSTRUCTION LOAN AGREEMENT (herein called "Agreement") made and
entered into as of the 11th day of January, 1999 by and between WELLS FARGO
BANK, NATIONAL ASSOCIATION, a national banking association (herein called
"Lender"), whose address is c/o Real Estate Group, 2020 K Street, N.W., Suite
420, Washington, D.C. 20006, and SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland
limited partnership (herein called "Holdings"), and SAUL CENTERS, INC., a
Maryland corporation (herein called "SCI") (SCI and Holdings are hereinafter
collectively referred to as "Borrower"), whose address is 8401 Connecticut
Avenue, Chevy Chase, Maryland 20815.
W I T N E S S E T H:
- - - - - - - - - -
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the meanings indicated:
(a) Adjusted Asset Value: Adjusted Asset Value consists of the most
--------------------
recent quarter's annualized "EBITDA" (as defined below) (adjusted for property
acquisitions and dispositions) divided by ten percent (10%).
(b) Adjusted EBITDA: Adjusted EBITDA means EBITDA less a capital
---------------
expenditure reserve equal to three percent (3%) of base rents from all property
owned (beneficially or legally) by Holdings, SCI or any Subsidiary.
(c) Affiliate: Any Person ten percent (10%) or more (but less than
---------
fifty percent (50%)) of the capital stock of any class of which or other equity
interest therein or the economic equivalent thereof, directly or indirectly
(e.g. through any one or more Subsidiaries), is owned separately or in the
aggregate by SCI or Holdings.
(d) Architect: Shalom Baranes Associates.
---------
(e) Base Building. The Improvements other than tenant finishing work
-------------
for space which is intended to be occupied by tenants, such as demising walls,
interior partitions, heating, ventilating and air conditioning laterals, vents
and returns, electrical lines and outlets, lighting fixtures, ceilings, door and
trim work, carpet, paint and wall coverings, all of which is the subject of
disbursement pursuant to this Agreement only under paragraph C.2.(b) of the
Disbursement Schedule attached hereto as Exhibit B.
---------
<PAGE>
(f) B.F. Saul Entities: The current limited partners of Holdings and
------------------
those Persons controlling, controlled by or under common control with such
current limited partners.
(g) Commitment: An agreement, if any, between Borrower and a financial
----------
institution or investor acceptable to Lender providing for the purchase or long-
term financing of the Trust Property upon terms and conditions reasonably
acceptable to Lender. If there is no Commitment currently in effect, then the
provisions of this Agreement pertaining thereto shall become effective at such
time as there is an effective Commitment.
(h) Completion Date: The date Substantial Completion of the Base
---------------
Building occurs, but in no event later than October 31, 2000, which date is
subject to extension due to Force Majeure (as defined herein).
(i) Completion Deposit: An amount (if any) calculated by Lender to
------------------
equal the difference between (i) the amount which Lender from time to time
determines to be necessary: to pay all costs to be incurred in connection with
the completion of the development of the Trust Property and the construction,
marketing, ownership, management, maintenance, operation and sale or leasing of
the Improvements in accordance with this Agreement; to pay all sums which may
accrue under the Loan Documents prior to Completion of the Improvements,
including, without limiting the generality of the foregoing, interest on the
Indebtedness to the date of Completion; and to enable Borrower to perform and
satisfy all of the covenants of Borrower contained in the Loan Documents and
(ii) the funds then unadvanced by Lender to Borrower on the Note.
(j) Construction Contracts: Any and all contracts and agreements, if
----------------------
any, written or oral, between Borrower (or any of them) and the General
Contractor and any other original contractor (all such contracts being fixed
price or guaranteed maximum and subject to prior approval of Lender after review
of, among other things, the financial statements of each such contractor)
relating in any way to the construction of the Improvements, including the
performing of labor or the furnishing of standard or specially fabricated
materials in connection therewith. Notwithstanding the foregoing, in the case of
tenant improvements, Lender's approval rights only apply to those contractors
and Construction Contracts for space in excess of 20,000 rentable square feet.
Lender agrees that such consent shall not be unreasonably withheld, conditioned
or delayed and be deemed given if not expressly withheld by Lender in writing
within five (5) business days after request for such consent and submission of
the Construction Contract and financial statements and other requested materials
relating to such contract and Construction Contractor.
(k) Construction Start Date: The date construction of the Improvements
-----------------------
begins, which shall be the date the excavation for the Improvements commences,
but in no event later than June 1, 1999, which date is subject to
2
<PAGE>
extension due to Force Majeure (as defined herein) but in no event to extend
beyond three months from the applicable date set forth above in this paragraph.
(l) Deed of Trust: The Deed of Trust, Security Agreement and
-------------
Assignment of Leases and Rents of even date herewith executed by Borrower
conveying the Trust Property to Thomas G. McGarry and Joseph B. Whitebread, Jr.,
as Trustees, for the benefit of Lender, as Beneficiary, to secure the repayment
of the Indebtedness and performance of the Obligations, and all amendments
thereto.
(m) EBITDA: EBITDA is the sum of the net income for the period
------
analyzed, calculated in accordance with GAAP before deduction or addition of any
extraordinary gains or losses, plus (i) interest expense paid or accrued for the
period, (ii) income taxes paid or accrued for the period, and (iii) depreciation
and amortization expense incurred during the period and (iv) the minority
interests deduction related to operating partnership unit holders. EBITDA shall
include Borrower's pro rata share of EBITDA (as calculated in the foregoing
manner) of Unconsolidated Affiliates.
(n) Event of Default: Any happening or occurrence described in Article
----------------
7 hereof.
(o) Fixed Charges: Fixed Charges shall mean Interest Expense plus
-------------
scheduled principal amortization (excluding balloon payments on loans).
(p) Force Majeure: Any matter beyond the reasonable control of
-------------
Borrower which causes a delay in the performance by Borrower of any of the
terms, covenants, and conditions of this Agreement, which matters shall include,
but not be limited to, labor disputes, governmental regulations or controls,
fire or other casualty, inability to obtain any material or services and acts of
God.
(q) Funds From Operations ("FFO"): FFO shall mean net income, computed
-----------------------------
in accordance with GAAP, before deducting minority interests, gains, or losses
from debt restructurings and sales of properties (inclusive of non-recurring
items such as asset sales or property valuation adjustments), plus real estate
depreciation and amortization expense, and after adjustments for Unconsolidated
Affiliates. Adjustments for Unconsolidated Affiliates will be calculated to
reflect Funds From Operations on the same basis.
(r) General Contractor: The general contractor engaged by Borrower (or
------------------
any of them) and approved by Lender to construct the Improvements or any part
thereof upon in any event review of financial and other information of and
concerning such general contractor to be supplied by Borrower.
(s) Governmental Authority: Any and all courts, boards, agencies,
----------------------
commissions, offices or authorities of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence.
3
<PAGE>
(t) Gross Asset Value: Gross Asset Value consists of Adjusted Asset
-----------------
Value plus (i) construction in progress as shown on Borrower's balance sheet,
and (ii) cash and equivalents (excluding tenant deposits and other restricted
cash).
(u) Improvements: The improvements described in the Plans, being
------------
generally described as two (2) five (5) story office/retail buildings totaling
approximately 225,000 rentable square feet with approximately 660 parking spaces
and with related facilities and amenities and tenant improvements required under
Leases.
(v) Indebtedness: The principal of, interest on and all other amounts,
------------
payments and premiums due under, or secured by the Note, the Deed of Trust, and
any and all other documents now or hereafter executed by Borrower or any other
person or party in connection with the Loan evidenced by the Note.
(w) Independent Inspecting Architect: The architect, engineer, agent,
--------------------------------
consultant or other inspector selected and retained by Lender, at Borrower's
expense, to inspect the construction of the Improvements on behalf of Lender.
(x) Interest Expense: Interest Expense shall mean all paid, accrued or
----------------
capitalized interest for the period, (excluding capitalized interest costs
associated with new construction provided such costs are covered by a
construction loan interest reserve), plus one hundred percent (100%) of any
paid, accrued or capitalized interest incurred, but not previously included for
purposes hereof, on any obligation for which Borrower is wholly or partially
liable under any repayment, interest carry or performance guaranty, plus a pro
rata share of Interest Expense from Unconsolidated Affiliates.
(y) Land: The real estate or interest therein described in Exhibit A
---- ---------
attached hereto and incorporated herein by this reference, all fixtures or other
improvements situated thereon and all rights, titles and interests appurtenant
thereto.
(z) Leases: Any and all leases, subleases, licenses, concessions or
------
other agreements (written or oral, whether now or hereafter in effect) which
grant a possessory interest in and to, or the right to use or enjoy all or any
part of the Trust Property, together with all security and other deposits made
in connection therewith.
(aa) Legal Requirements: (i) Any and all present and future judicial
------------------
decisions, statutes, rulings, rules, regulations, permits, proffers,
certificates or ordinances of any Governmental Authority in any way applicable
to Borrower or the Trust Property, including, without limiting the generality of
the foregoing, the ownership, use, construction, occupancy, possession,
operation, maintenance, alteration, repair or reconstruction thereof; (ii) any
and all covenants, conditions or restrictions contained in any deed or other
form of conveyance or in any other instrument of any nature that relate in any
way or are applicable to the Trust
4
<PAGE>
Property, or the ownership, use or occupancy thereof; (iii) Borrower's presently
or subsequently effective by-laws and articles of incorporation or partnership,
limited partnership, joint venture, trust or other form of business association
agreement; (iv) any and all Leases; and (v) any and all leases and other
contracts (written or oral) of any nature that relate, in any way, to the Trust
Property and to which Borrower may be bound, including, without limiting the
generality of the foregoing, any lease or other contract pursuant to which
Borrower is granted a possessory interest in the Land.
(bb) Loan Documents: This Agreement, the Note, the Deed of Trust, and
--------------
any and all other documents now or hereafter executed by Borrower (or any of
them) or any other person or party to evidence or secure the payment of the
Indebtedness or the performance and discharge of the Obligations and all
amendments thereto.
(cc) Note: The Promissory Note of even date herewith, executed by
----
Borrower, payable to the order of Lender, in the amount of Thirty-Eight Million
and No/100 Dollars ($38,000,000.00), and any and all renewals, amendments,
reinstatements, rearrangements, enlargements, modifications or extensions
thereof or of any promissory note or notes given in substitution therefor.
(dd) Obligations: Any and all of the covenants, warranties,
-----------
representations and other obligations (other than to pay or repay the
Indebtedness) made or undertaken by Borrower (or any of them) to Lender or
others as set forth in the Loan Documents, Leases, Other Agreements or any deed,
conveyance, condition, lease, sublease or other agreement pursuant to which
Borrower is granted a possessory interest in the Land.
(ee) Other Agreements. All agreements, such as architects' contracts,
----------------
engineers' contracts, utility contracts, maintenance agreements and service
contracts, entered into by Borrower which in any way relate to the use,
operation, maintenance, enjoyment or ownership of the Trust Property or which in
any way relate to any Lease, not including Construction Contracts, Leases and
the Loan Documents.
(ff) Permits: Any and all governmental permits, approvals,
-------
inspections, orders, certificates and the like issued to or for the benefit of
Borrower in connection with the development, construction, use and/or occupancy
of the Trust Property, specifically including, but not limited to, all building,
excavation, sheeting, shoring, foundation, grading, and occupancy permits.
(gg) Permitted Change: Any individual change to the Plans which (A)
----------------
involves a cost less than $250,000.00 whether such change increases or decreases
the total approved costs of the Improvements, and (B) does not delay the
Completion Date; provided, however, that when the aggregate value of all such
5
<PAGE>
changes exceeds $750,000.00 then each subsequent change shall not be considered
a Permitted Change;
(hh) Person: A natural person, corporation, partnership, limited
------
liability company, trust or any other form of business organization.
(ii) Plans: Any and all contracts and agreements, written or oral,
-----
between Architect and Borrower, together with the plans and specifications, for
the construction of the Improvements, prepared by the Architect, and all
amendments and modifications thereof, and in all events including tenant
improvements (as and when prepared and included or incorporated into the Plans
and the specifications submitted to Lender) irrespective of whether the tenant
plans are prepared by the owner's architect, the tenant's architect, or
otherwise, a true and correct original counterpart of all of which relating to
the Base Building and for tenant improvements for tenant spaces of 20,000 or
more rentable square feet shall be delivered to Lender. Upon request of Lender,
Plans for tenant improvements for tenant spaces of less than 20,000 square feet
shall be delivered to Lender.
(jj) Subsidiary or Subsidiaries: Any Person fifty percent (50%) or
--------------------------
more of the capital stock of any class or other equity interest therein or the
economic equivalent thereof, directly or indirectly (e.g. through any entity
owned wholly or in part by SCI or Holdings), is owned separately or in the
aggregate by SCI or Holdings or any Subsidiary of either SCI or Holdings, and
whose financial statements are consolidated with those of SCI or Holdings.
(kk) Substantial Completion of the Base Building: When all of the
-------------------------------------------
following have been delivered to Lender: (i) Certificate of Occupancy (or its
equivalent) from the appropriate Governmental Authority having jurisdiction over
the Trust Property for the Base Building, if the same is issuable by such
authority; (ii) Certificate of Substantial Completion from the Architect
relating to the Base Building; (iii) endorsement from the Title Company deleting
any exception in the Title Insurance relating to completion of the Base Building
and other exceptions specified by Lender which may be deleted pursuant to
applicable regulations; (iv) an Affidavit and full release of liens in
recordable form from the General Contractor and, upon request of Lender, any
such other contractor or subcontractor who has performed work on, or materials
furnished for, the Base Building whose contract therefor has a stated value in
excess of $1,000,000.00; (v) any and all "punch list" items or other items which
remain to be completed and having a cost in the aggregate in excess of
$250,000.00 have been fully and finally completed.
(ll) Title Company: The issuer of the Title Insurance.
-------------
(mm) Title Insurance: A mortgagee's policy of title insurance, all in
---------------
form and substance satisfactory to Lender and containing no exceptions (printed
or otherwise) which are unacceptable to Lender, issued by a title company (or,
if Lender so requires, by several title companies on a re-insured or co-insured
basis, at Lender's option) acceptable to Lender, in the face amount of the Note
and insuring
6
<PAGE>
that Lender has a first and prior lien on the Trust Property, and containing
such endorsements (including, without limitation, usury, mechanics' lien,
contiguity, access and zoning endorsements) as Lender may request subject only
to the Permitted Encumbrances described in the Deed of Trust.
(nn) Total Indebtedness: Includes recourse and non-recourse mortgage
------------------
debt, unsecured debt, forward equity sales, letters of credit, forward purchase
obligations, capitalized lease obligations, guarantees of indebtedness,
subordinated debt and defined obligations of Borrower including, without
limitation, (i) one hundred percent (100%) of the recourse liability of Borrower
under (x) guarantees of indebtedness or (y) loans where Borrower is liable for
debt as a general partner, and (ii) Borrower's pro rata share of non-recourse
debt in unconsolidated affiliates.
(oo) Trust Property: The Land, Improvements, Leases and Other
--------------
Agreements, all other property (real, personal or mixed) which is conveyed by
the Deed of Trust or any other Loan Document in which a mortgage, lien or
security interest is therein created and all other property (real, personal or
mixed) assigned or on which a lien or security interest is placed or granted to
secure the repayment of the Indebtedness or the performance and discharge of the
Obligations.
(pp) Unconsolidated Affiliate: An Affiliate whose United States
------------------------
Federal tax returns are not consolidated with those of either SCI or Holdings.
(qq) Unmatured Event of Default: Any happening or occurrence which
--------------------------
with notice, the passage of time, or both, would constitute an Event of Default.
ARTICLE 2
BORROWER'S WARRANTIES AND REPRESENTATIONS
-----------------------------------------
Borrower hereby unconditionally warrants and represents unto Lender as
follows:
2.1 Information: Any and all information, reports, papers and other data
-----------
(including, without limiting the generality of the foregoing, any and all
balance sheets, statements of income or loss, reconciliation of surplus and
financial data of any other kind) heretofore furnished, or hereafter furnished
to Lender by Borrower are, or when delivered will be, to the best of Borrower's
knowledge, information and belief, true and correct in all material respects and
all such materials heretofore furnished to Lender on behalf of Borrower are to
the best of Borrower's knowledge true and correct in all material respects; all
financial data of Borrower have been, or when delivered will have been, prepared
in accordance with generally accepted accounting principles consistently applied
and fully and accurately present, or will present, the financial condition of
the Borrower as of the dates thereof; and with
7
<PAGE>
respect to the financial data of Borrower heretofore furnished, no materially
adverse change has occurred in the financial condition reflected therein since
the dates thereof, except as otherwise disclosed by Borrower to Lender in
writing.
2.2 Litigation: Except as may be otherwise set forth in that certain
----------
Closing Certificate and Affidavit of even date herewith, there are no actions,
suits or proceedings of a material nature pending or, to the knowledge of
Borrower, threatened against or affecting (a) Borrower other than those (i)
which arise out of landlord/tenant disputes and (ii) claims for property damage
or personal injury which are covered by insurance, or (b) Borrower with respect
to the Trust Property, or involving the validity or enforceability of the Deed
of Trust or the priority of the lien created thereby; and no event has occurred
(including specifically Borrower's execution of the respective Loan Documents
and Borrower's consummation of the Loan represented thereby) which will violate,
be in conflict with, result in the breach of or constitute (with due notice or
lapse of time, or both) a default under any Legal Requirement or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever on the Trust Property other than the liens created by or expressly
permitted under the Loan Documents. During the term of the Loan, Borrower will
promptly furnish to Lender written notice of any action, suit or proceeding or
any event the existence or occurrence of which would make the provisions of this
paragraph untrue.
2.3 Compliance with Legal Requirements: Borrower has (or prior to the
----------------------------------
commencement of construction of the Improvements will have) (i) received all
requisite building permits and approvals of the Plans relating to the Base
Building, (ii) filed and/or recorded all requisite plats and other instruments;
and (iii) in general, complied with all Legal Requirements required to be met
prior to commencement of construction of the Improvements. The Trust Property is
a legal parcel lawfully created in full compliance with all subdivision laws and
ordinances.
2.4 Streets, Easements, Utilities and Other Services: All streets,
------------------------------------------------
easements, utilities and related services necessary for the construction of the
Improvements and the operation thereof for their intended purpose are (or,
within thirty (30) days after commencement of construction of the Improvements,
will be) available to the boundaries of the Land, including potable water, storm
and sanitary sewer, gas, electric and telephone facilities and garbage removal.
2.5 Contract and Commencement of Construction: Neither Borrower (or any
-----------------------------------------
of them), nor anyone else on Borrower's behalf has (i) commenced construction of
the Improvements, (ii) purchased, contracted for or otherwise brought upon the
Land any materials specially fabricated or otherwise, to be incorporated into
the Improvements, (iii) entered into any Construction Contracts, or (iv) made
any oral or written contract or arrangement of any kind, the performance of
which by the other party thereto would or could give rise to a lien or claim on
the Trust Property, or any portion thereof.
8
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2.6 Validity of Loan Documents: All action on Borrower's part requisite
--------------------------
for the due authorization, creation, issuance, execution and delivery of the
Loan Documents has been duly and effectively taken, and each such document
constitutes a legal and binding obligation of, and is valid and enforceable
against, Borrower and the Trust Property (as the case may be) in accordance with
the terms thereof.
2.7 Authority of Borrower:
---------------------
(a) If Borrower and any signatory who signs on its behalf is a
corporation, partnership, trust or limited liability company, it is a
corporation duly incorporated, or a partnership, trust or limited liability
company duly organized and validly existing under the laws of the state of its
incorporation or organization and duly qualified to do business in the
Commonwealth of Virginia, with requisite power and authority to (i) incur the
indebtedness evidenced by the Note; (ii) execute this Agreement, and (iii) enter
into any other instruments executed and delivered to Lender concurrently
herewith, and it is in good standing in all such states;
(b) This Agreement, the Note, and all other Loan Documents were
executed in accordance with the requirements of law and, if Borrower or any
signatory who signs on its behalf is a corporation, partnership, trust or
limited liability company, in accordance with any requirements of its articles
of incorporation, articles of partnership, partnership certificate, partnership
agreement, declaration of trust, articles of organization or operating
agreement, and any amendments thereto.
(c) The execution of this Agreement, the Note, and all other Loan
Documents, and the full and complete performance of the provisions thereof, are
authorized by the Borrower's bylaws, articles of partnership, partnership
certificate or partnership agreement, declaration of trust, articles of
organization or operating agreement, or a resolution of its board of directors
or partners or trustees or members if Borrower or any signatory who signs on its
behalf is a corporation, partnership, trust or limited liability company, and
will not result in any breach of, or constitute a default under, or result in
the creation of any lien, charge or encumbrance (other than those contained in
any of the Loan Documents) upon any property or assets of Borrower under any
indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument or agreement to which Borrower is a party or by which Borrower or the
Trust Property is bound or, if applicable, under Borrower's articles of
incorporation, bylaws, articles of partnership, partnership certificate,
agreement, declaration of trust, articles of organization or operating
agreement.
9
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ARTICLE 3
BORROWER'S COVENANTS
--------------------
Borrower hereby unconditionally covenants with Lender as follows:
(a) 3.1 Construction of Improvements: The construction of the
----------------------------
Improvements will be commenced by Borrower on or before the Construction Start
Date, will be prosecuted by Borrower with diligence and continuity to completion
and will be completed by Borrower in a good and workmanlike manner in
substantial accordance with the Plans and other provisions of this Agreement, on
or before the Completion Date (other than for completion of tenant improvements
which shall be completed within the time period provided under each applicable
Lease) and free and clear from all liens, or claims for liens, other than the
lien and security interest created by the Loan Documents (or any of them). It is
expressly understood and agreed that, except for tenant improvements for
particular tenants' spaces which are each less than 20,000 rentable square feet,
(i) construction of the Improvements shall not be commenced unless and until
Borrower has furnished the Plans to Lender and afforded Lender the opportunity
to accept them (which acceptance shall be evidenced, if at all, by the initials
of any authorized representative of Lender thereon), (ii) when the Plans have
been furnished to Lender, no changes of a material nature will be made to them
by, or be permitted to be made to them by, Borrower, Architect or any other
person or entity without the prior written approval therefor of all requisite
Governmental Authorities, prior compliance with all requisite Legal Requirements
and prior acceptance by the Lender in its reasonable discretion; provided,
however, that the Lender's prior consent shall not be required for Permitted
Changes; and (iii) in instances where Lender does accept the Plans (or any
change therein), such acceptance shall be deemed to be strictly limited to an
acknowledgment of Lender's consent to the Improvements being constructed in
accordance therewith and shall not, in any way, be deemed to imply any warranty,
representation or approval by Lender that such Improvements, if so constructed,
will be structurally sound, will comply with all Legal Requirements, will be fit
for any particular purpose or will have a market value of any particular
magnitude. The construction of all tenant improvements to be constructed
pursuant to signed Leases shall be commenced by Borrower as required under such
tenant leases, will be prosecuted by Borrower with diligence and continuity to
completion and will be completed by Borrower in a good and workmanlike manner in
substantial accordance with the Plans and other provisions of the tenant lease,
on or before the completion date provided for in the lease and free and clear
from all liens, or claims for liens, other than the lien and security interest
created by the Loan Documents (or any of them). Lender agrees that its consent
to Plans and specifications and to changes therein shall not be unreasonably
withheld, conditioned or delayed and be deemed given if not expressly withheld
by Lender in writing within ten (10) business days after request for such
consent and submission of the Plans and specifications or revised Plans and
10
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specifications and other requested materials relating to such Plans and
specifications.
3.2 Affirmative Covenants:
---------------------
(a) At all reasonable times during construction of the Improvements,
Borrower will (i) permit Lender, the Independent Inspecting Architect and their
representatives to enter upon the Land and into the Improvements, to inspect the
same and all materials to be used in construction of the Improvements and to
examine the Plans, (ii) comply strictly with any and all Legal Requirements
required to be complied with incidental to such construction, (iii) deliver to
Lender, or its representatives, immediately upon demand, counterparts and/or
conditional assignments of any and all Construction Contracts, bills of sale,
statements, conveyances, receipted vouchers or agreements of any nature under
which Borrower claims title to any materials or supplies used or to be used in
the construction of the Improvements, (iv) erect and maintain on the Land, at
Borrower's sole cost and expense, in a reasonable size and location, a sign
satisfactory to Lender stating that construction financing for the Improvements
has been furnished by Lender, and stating Lender's address and phone numbers,
(v) either cause each Construction Contract having a value in excess of
$1,000,000.00 to contain a provision specifically subordinating any lien right
against the Trust Property to the liens and security interests created by the
Loan Documents or cause the other party thereto to execute any and all
instruments, acceptable in form and substance to Lender, to accomplish the same,
or to provide Lender with lien waivers or releases in accordance with the
provisions of Paragraph 6.4(b)(iv), (vi) furnish to Lender, immediately after
completion of the pouring of all concrete slabs, streets and curbstones within
the Land, and completion of the foundations of the structures forming part of
the Improvements, a survey certified to by a licensed engineer acceptable to
Lender showing all of same and that the location thereof is entirely within the
property lines of the Land and does not encroach upon, breach or violate any
building line, easement or similar restriction, (vii) use all advances made to
it by Lender for, and only for, payment of the costs itemized in Paragraph 6.2
hereof and under no circumstances use, directly or indirectly, any portion of
such advances for any other purpose, including, without limiting the generality
of the foregoing, the defrayment of living expenses or the anticipation of
profit to Borrower, (viii) obtain and maintain, or cause the General Contractor
to obtain and maintain, in full force and effect, an owner's and contractor's
liability insurance policy or policies (including workers' compensation
insurance) and a hazard insurance policy or policies in builder's all risk form
with loss payable endorsements acceptable to Lender insuring the Improvements
and all material and supplies purchased with advances hereunder against all
risks and losses, all such insurance policies to be issued by companies, in
amounts and on terms approved by Lender, and (ix) upon demand of Lender or the
Independent Inspecting Architect, correct any structural defect in the
Improvements or any material departure from the Plans not accepted by Lender
(except for those Plans whose approval by Lender is not required by this
Agreement), it being understood
11
<PAGE>
and agreed that the advance of any Loan proceeds shall not constitute a waiver
of Lender's right to require compliance with this Paragraph 3.2 with respect to
any such defects or departures.
(b) Borrower shall use all commercially reasonable efforts to ensure
that the following are Year 2000 Compliant in a timely manner, but in no event
later than December 31, 1999: (i) the Property and Improvements; (ii) Borrower
itself; and (iii) and other major commercial properties and entities in which
Borrower holds a controlling interest. Borrower shall further make reasonable
inquiries of and request reasonable validation that each of the following are
similarly Year 2000 Compliant: (x) all major tenants or other entities from
which Borrower receives payments; and (y) all major contractors, suppliers,
service providers and vendors of Borrower. As used in this paragraph, "major"
shall mean properties or entities the failure of which to be Year 2000 Compliant
would have a material adverse economic impact upon Borrower. In furtherance of
this covenant, Borrower shall, in addition to any other necessary actions
perform a comprehensive review and assessment of all systems of Borrower, the
Property and Improvements, and, if necessary or warranted based on such review
and assessment, shall adopt a detailed plan, with itemized budget, for the
testing, remediation, and monitoring of such systems. Borrower shall, within
thirty business days of Lender's written request, provide to Lender such
certifications of or other evidence of Borrower's compliance with the terms of
this paragraph as Lender may from time to time reasonably require. Year 2000
Compliant shall mean in regard to any property or entity, that all software,
hardware, equipment, goods or systems utilized by or material to the physical
operations, business operations, or financial reporting of such property or
entity (collectively the "systems") will properly perform date sensitive
functions before, during and after the year 2000.
(c) Borrower shall commence the construction of the Improvements on or
before the Construction Start Date.
3.3 Negative Covenants:
------------------
(a) At no time shall Borrower (i) use, maintain, operate or occupy, or
allow the use, maintenance, operation or occupancy of, any portion of the Trust
Property for any purpose which violates any Legal Requirement or in any manner
which may be dangerous unless safeguarded as required by law or which may
constitute a public or private nuisance or which may make void, voidable or
cancelable or increase the premium of any insurance then in force with respect
thereto unless the insurance premium shall have been paid by such user or by
Borrower, or (ii) create or place, permit to be created or placed or, through
any act or failure to act, acquiesce in the creation or placing of, or allow to
remain, any mortgage, deed of trust, security deed, lien (statutory,
constitutional or contractual), pledge, security interest, encumbrance or charge
or conditional sale or other title retention agreement on the Trust Property (or
any portion thereof) other than those created by or expressly permitted under
the Loan
12
<PAGE>
Documents, regardless of whether same is expressly subordinate to the liens and
security interests created in the Loan Documents. If any such mortgage, deed of
trust, security deed, lien, pledge, security interest, encumbrance or charge is
asserted against the Trust Property (or any portion thereof), Borrower shall
promptly, at its own cost and expense, (a) pay the underlying claim in full or
take any other action necessary to cause same to be released of record or if
permitted by Lender, in its sole discretion, bonded to the satisfaction of
Lender and the Title Company, and (b) within five (5) days from the date
Borrower receives notice that such mortgage, lien, pledge, security interest,
encumbrance or charge has been asserted, give Lender notice thereof. The notice
shall specify who is asserting such mortgage, lien, pledge, security interest,
encumbrance or charge and shall detail the origin and nature of the underlying
claim giving rise to the asserted mortgage, lien, pledge, security interest,
encumbrance or charge.
(b) At no time shall SCI amend or otherwise modify, in a manner which
would materially adversely affect Beneficiary, its Articles of Incorporation
without the prior written consent of Lender.
3.4 Other Covenants:
---------------
(a) At all times, SCI shall maintain a Total Indebtedness to Gross
Asset Value ratio equal to or less than 0.65:1.0.
(b) At all times, SCI shall maintain a minimum Adjusted EBITDA to
Fixed Charge coverage ratio equal to or greater than 1.60:1.
(c) At no time shall SCI make or pay annual distributions or dividends
to its shareholders (other than those reinvested pursuant to a dividend
reinvestment plan), in respect of any fiscal quarter which when aggregated with
such distributions and dividends paid in respect of the preceding three (3)
fiscal quarters exceeds ninety-five percent (95%) of FFO for such four (4)
quarters.
(d) At all times, SCI shall remain listed on the New York Stock
Exchange, and maintain its status as a Real Estate Investment Trust as
determined by the Internal Revenue Service.
(e) At all times, B.F. Saul Entities shall maintain an ownership
interest of thirty percent (30%) of all classes of stock of SCI and of operating
partnership interests in Holdings.
(f) During and upon completion of construction, Borrower shall provide
a marketing/leasing status report for the Trust Property within ten (10) days of
the end of each fiscal quarter in form acceptable to Lender.
(g) After Completion of the Improvements, Borrower shall provide an
operating statement, in a form acceptable to Lender, for the Trust Property
within thirty (30) days of the end of each fiscal quarter.
13
<PAGE>
(h) SCI and Holdings shall each provide, within fifty (50) days of
each quarter end and within one hundred (100) days of each fiscal year end,
respectively, to Lender consolidated financial statements including balance
sheets, income statements, statements of cash flow and such supporting schedules
as may be reasonably requested by Lender.
(i) Borrower shall not enter into Leases other than those approved by
Lender or for which the approval of Lender is not required under Paragraph 10.4
of the Deed of Trust.
3.5 Completion Deposit: If, in the good faith judgment of the Lender, it
------------------
appears at any time or from time to time that the unadvanced Loan proceeds will
be insufficient to (a) pay all costs to be incurred in connection with the
completion of the development of the Trust Property and the construction,
marketing, ownership, management, maintenance, operation and sale or leasing of
the Improvements in accordance with the Plans and with this Agreement, (b) pay
all sums which may accrue under the Loan Documents prior to completion of
construction, including, without limiting the generality of the foregoing,
interest on the Indebtedness, and (c) enable Borrower to perform and satisfy all
of the covenants of Borrower contained in the Loan Documents, Borrower shall
within ten (10) days of written demand by Lender deposit, or shall make
arrangements satisfactory to Lender for the deposit, with Lender, of the
Completion Deposit. The Completion Deposit may be retained by Lender in a non-
interest bearing account, need not be segregated from any of Lender's other
funds and may be disbursed in accordance with the provisions of the Loan
Documents by Lender before Lender makes any further advances on the Note.
Borrower's failure to deposit the Completion Deposit with Lender shall
constitute an Event of Default hereunder. Calculation of the Completion Deposit
shall not include the land cost or the value of the Land free and clear of
encumbrances as described in Paragraph 3.6 of this Agreement.
3.6 Borrower's Contributions: The Borrower shall provide to the Lender
------------------------
prior to the first draw evidence satisfactory to Lender that the Trust Property
is free and clear of all liens and encumbrances, except as otherwise provided in
the Loan Documents. Until the occurrence of an Event of Default, and thereafter
at the option of Lender, the Borrower shall perform the development management
services for the construction and development of the Improvements without
charge.
ARTICLE 4
INSPECTION
----------
4.1 Right of Inspection: Lender, through its officers, agents or
-------------------
employees, shall have the right at all reasonable times at Borrower's expense:
14
<PAGE>
(a) To enter upon the Trust Property and inspect the construction to
determine that it is in conformity with the Plans and all the requirements
hereof; and
(b) To examine, copy and make extracts of the books, records,
accounting data and other documents of Borrower that relate in any way to the
Trust Property, including, without limiting the generality of the foregoing, all
permits, licenses, consents and approvals of all Governmental Authorities having
jurisdiction over Borrower or the Trust Property and, to the extent the Borrower
has the power to do so or can provide assistance, all relevant books and records
of contractors and subcontractors supplying goods and/or services in connection
with the construction of the Improvements. All such books, records and documents
of Borrower shall be made available to Lender promptly upon written demand
therefor; and, at the request of Lender, Borrower shall furnish Lender with
convenient facilities for the foregoing purpose.
4.2 No Duty to Inspect: It is expressly understood and agreed that Lender
------------------
shall have no duty to supervise or to inspect the construction of the
Improvements or any books and records of any party or firm, and that any such
inspection shall be for the sole purposes of determining whether or not the
Obligations of Borrower under this Agreement are being properly discharged and
of preserving Lender's rights hereunder. If Lender, or the Independent
Inspecting Architect acting on behalf of Lender, should inspect the construction
of the Improvements or any books and records, Lender and the Independent
Inspecting Architect shall have no liability or obligation to Borrower or any
third party arising out of such inspection. Inspection not followed by notice of
default shall not constitute an acknowledgment or representation by Lender and
the Independent Inspecting Architect that there has been or will be compliance
with the Plans or that the construction is free from defective materials or
workmanship nor shall it constitute a waiver of Lender's right thereafter to
insist that the Improvements be constructed in accordance with the Plans.
Lender's failure to inspect the construction of the Improvements or any part
thereof or any books and records shall not constitute a waiver of any of
Lender's rights hereunder. Neither Borrower nor any third party shall be
entitled to rely upon any such inspection or review. Lender and the Independent
Inspecting Architect owe no duty of care to Borrower or any third person to
protect against, or inform Borrower or any third person of the existence of,
negligent, faulty, inadequate or defective design or construction of the
Improvements.
4.3 Borrower's Responsibilities: Borrower shall be solely responsible for
---------------------------
all aspects of Borrower's business and conduct in connection with the Trust
Property and Improvements, including, without limiting the generality of the
foregoing:
(a) the quality and suitability of the Plans;
(b) supervision of construction of the Improvements;
15
<PAGE>
(c) the qualifications, financial condition and performance of all
architects, engineers, contractors, subcontractors and material suppliers,
consultants, and property managers;
(d) conformance of construction of the Improvements to the Plans, to
the Legal Requirements and to the requirements of this Agreement;
(e) the quality and suitability of all materials and workmanship;
and
(f) the accuracy of all requests for the disbursement of Loan proceeds
and the proper application of disbursed Loan proceeds.
4.4 Inspection Fee: In furtherance of Lender's rights hereunder, Lender
--------------
may, at its option, (a) require an inspection of the Trust Property by the
Independent Inspecting Architect (i) prior to each advance; (ii) at least once
each month during the course of construction even though no advance is to be
made for that month; (iii) upon Completion of the Improvements, and (iv) at
least semi-annually thereafter; and (b) require costing and a review of the
Plans for the Base Building and for tenant spaces of 20,000 rentable square feet
or more by the Independent Supervising Architect and/or a cost engineering
specialist, or any other party contracted by Lender resulting from a review or
reviews of the initial Plans and all revisions thereof as submitted from time to
time by Borrower. Borrower shall pay all fees incurred by Lender in connection
with this Paragraph 4.4. Furthermore, if Lender determines in connection with
any such costing, review or inspection that extra services will be required of
the Independent Inspecting Architect as a result of noncompliance with the
Plans, or with any Legal Requirement or as a result of deviations from
acceptable construction practices, or as a result of Borrower's failure to
satisfy the requirements of or any other Agreement, the Borrower shall pay, in
addition to the fees for such costing, review of the Plans and inspections, the
cost of all such extra services.
ARTICLE 5
ADDITIONAL SECURITY
-------------------
5.1 Construction Contracts: As additional security for the payment of the
----------------------
Indebtedness, Borrower hereby transfers and assigns to Lender all of Borrower's
right, title and interest, but not its obligations, in, under and to the
Construction Contracts upon the following terms and conditions:
(a) Borrower represents and warrants that each copy of any
Construction Contract furnished to Lender is a true and complete copy thereof
and that Borrower's interest therein is not subject to any claim, setoff or
encumbrance.
(b) Neither this assignment nor any action by Lender shall constitute
any assumption by Lender of any obligations under the Construction
16
<PAGE>
Contracts; and Borrower shall continue to be liable for all obligations of
Borrower thereunder, Borrower hereby agreeing to perform all of its obligations
under the Construction Contracts. Borrower agrees to indemnify and hold Lender
harmless against and from any loss, cost, liability or expense (including, but
not limited to, reasonable attorneys' fees) incurred by Lender and resulting
from any failure of Borrower to so perform.
(c) At any time there shall be an uncured Event of Default, or even in
the absence of an Event of Default at any time that Lender shall believe in good
faith that the General Contractor may cease work on the construction of the
Improvements, but in any event with simultaneous notice to Borrower, Lender
shall have the right at any time (but shall have no obligation) to take, in its
name or in the name of Borrower, such action as Lender may at any time determine
to be necessary or advisable to cure any default under the Construction
Contracts or to protect the rights of Borrower or Lender thereunder. Lender
shall incur no liability if any action so taken by it or in its behalf shall
prove to be inadequate or invalid, and Borrower agrees to hold Lender free and
harmless from any loss, cost, liability or expense (including, but not limited
to, reasonable attorneys' fees) now or hereafter incurred by Lender in
connection with such action.
(d) Borrower hereby irrevocably constitutes and appoints Lender as
Borrower's attorney-in-fact, in Borrower's name or in Lender's name, to enforce
all rights of Borrower under the Construction Contracts; provided, however,
Lender shall have no obligation to enforce such rights.
(e) Prior to an Event of Default, Borrower shall have the right to
exercise its rights as owner under the Construction Contracts; provided,
however, Borrower shall not cancel or amend the Construction Contracts in any
material respect or do, omit to do, or suffer to be done any act which would
impair the security constituted by this Agreement without the prior written
consent of Lender.
(f) This assignment shall inure to the benefit of Lender, its
successors and assigns, including any purchaser upon foreclosure of the Trust
Property or any grantee under a deed in lieu of foreclosure, any receiver in
possession of the Trust Property and any corporation formed by or on behalf of
Lender which assumes Lender's rights and obligations under this Agreement.
5.2 Plans: As additional security for the payment of the Indebtedness,
-----
Borrower hereby transfers and assigns to Lender all of Borrower's right, title
and interest in and to the Plans, and agrees that when the Plans are delivered
to Lender for approval or otherwise such delivery, unless otherwise set forth in
writing accompanying such delivery, such delivery will constitute a
representation and warranty by Borrower that:
(a) The original counterparts of the Plans furnished to Lender are
true and complete;
17
<PAGE>
(b) The schedule of the Plans delivered to Lender is a complete and
accurate description of the Plans; and
(c) The Plans are complete and adequate for the construction of the
Improvements and there have been no modifications thereof except as described in
such schedule. The Plans (other than those for tenant improvements for tenant
space of less than 20,000 square feet) shall not be modified without the prior
written consent of Lender except for Permitted Changes.
5.3 Borrower agrees that:
(a) Lender may use the Plans for any purpose relating to the
Improvements, including, but not limited to, inspections of construction and the
Completion of the Improvements;
(b) Lender's acceptance of the assignment contained in Paragraph 5.2
shall not constitute approval of the Plans by Lender;
(c) Lender has no liability or obligation whatsoever in connection
with the Plans and no responsibility for the adequacy thereof or for the
construction of the Improvements contemplated by the Plans; and
(d) Such assignment shall inure to the benefit of Lender, its
successors and assigns, including any purchaser upon foreclosure of the Trust
Property, any grantee under a deed in lieu of foreclosure, any receiver in
possession of the Trust Property and any corporation formed by or on behalf of
Lender which assumes Lender's rights and obligations under this Agreement.
5.4 Permits: As additional security for the payment of the Indebtedness,
-------
Borrower hereby transfers and assigns to Lender (to the extent assignable) all
of Borrower's right, title and interest, but not its obligations, in, under and
to the Permits upon the following terms and conditions:
(a) Borrower represents and warrants that each copy of any Permits now
or hereafter furnished to Lender is or will be a true and complete copy thereof
and that Borrower's interest therein is not subject to any claim, setoff or
encumbrance.
(b) Neither this assignment nor any action by Lender shall constitute
any assumption by Lender of any obligations under the Permits; and Borrower
shall continue to be liable for all obligations of Borrower thereunder, Borrower
hereby agreeing to perform all of its obligations under the Permits. Borrower
agrees to indemnify and hold Lender harmless against and from any loss) cost,
liability or expense (including, but not limited to, reasonable attorneys' fees)
incurred by Lender and resulting from any failure of Borrower to so perform.
(c) At any time there shall be an uncured Event of Default, or even in
the absence of an Event of Default at any time that Lender shall believe in good
18
<PAGE>
faith that a Permit may be terminated or may expire, but in any event with
simultaneous notice to Borrower, Lender shall have the right at any time (but
shall have no obligation) to take, in its name or in the name of Borrower, such
action as Lender may at any time determine to be necessary or advisable to cure
any default under the Permits, or to protect the rights of Borrower or Lender
thereunder. Lender shall incur no liability if any action so taken by it or in
its behalf shall prove to be inadequate or invalid, and Borrower agrees to hold
Lender free and harmless from any loss, cost, liability or expense (including,
but not limited to, reasonable attorneys' fees) now or hereafter incurred in
connection with such action, and in furtherance of such rights, Borrower hereby
irrevocably constitutes and appoints Lender as Borrower's attorney-in-fact, in
Borrower's name or in Lender's name, to enforce all rights of Borrower under the
Permits; provided, however, Lender shall have no obligation to enforce such
rights.
(d) Prior to an Event of Default, Borrower shall have the right to
exercise its rights as owner under the Permits; provided, however, Borrower
shall not cancel or amend the Permits except as required to cause the same to
conform to the Plans as approved by Lender, including without limitation, any
amendment to or of the Plans, or do, omit to do, or suffer to be done any act
which would impair the security constituted by this Agreement without the prior
written consent of Lender.
(e) This assignment shall inure to the benefit of Lender, its
successors and assigns, including any purchaser upon foreclosure of the Trust
Property or any grantee under a deed in lieu of foreclosure, any receiver in
possession of the Trust Property and any corporation formed by or on behalf of
Lender which assumes Lender's rights and obligations under this Agreement.
ARTICLE 6
LENDER'S COMMITMENT
-------------------
6.1 Loan: Subject to the terms, provisions and conditions of this
----
Agreement, Lender will make and Borrower will accept, in installments, a loan in
the aggregate amount of the principal sum of the Note, it being understood that
interest as called for in the Note shall be calculated only on any sums actually
advanced and only from the dates of such advances.
6.2 Right to Disbursements: Advances shall be made to Borrower or any of
----------------------
them on the principal amount of the Note at the times and otherwise in
accordance with the Disbursement Schedule attached hereto as Exhibit B and
---------
incorporated herein by this reference. The advances on the Note shall be
disbursed, at Lender's option, (i) by Lender's check drawn upon Lender's
disbursement account and delivered to Borrower, (ii) by depositing the amount of
the disbursement to Borrower's account in a bank approved by Lender, or (iii) by
direct or joint check payment to any or all persons entitled to payment for work
performed on or materials delivered to or services performed in connection with
the construction of
19
<PAGE>
the Improvements or the Loan evidenced by the Note. Notwithstanding anything set
forth in the Disbursement Schedule, the advance as to which Borrower shall be
entitled at any one time shall not exceed the cost of the materials, supplies
and equipment purchased for and incorporated into the Improvements or stored on
the Land in a manner acceptable to Lender. Under no circumstances shall any
portion of any advance be used for any purpose other than the payment of those
costs and fees approved by Lender as legitimately relating to the purchase price
for the Land, the cost of constructing the Improvements and the payment of the
Indebtedness. Any sums drawn under any letters of credit which may be issued by
Lender or an affiliate of Lender on behalf of Borrower in connection with the
Loan shall be deemed advances for purposes hereof, effective as of the date the
letter of credit is issued, and shall be secured by the Deed of Trust and the
other Loan Documents.
Except as may be provided otherwise in the Disbursement Schedule, for each
advance made to Borrower hereunder to the extent to be used to fund hard costs
under the Construction Contract, Lender shall retain a sum equal to five percent
(5%) thereof (or a greater percentage, if required by any Legal Requirement) so
that until a period of thirty (30) days after Substantial Completion of the Base
Building (or such longer period if permitted or required by any Legal
Requirement or if, during such longer period, a lien or claim could lawfully be
filed against the Trust Property by anyone performing work or services, or
furnishing materials or goods in connection with the Improvements) Lender shall
have in its possession a fund equal to five percent (5%) of the total cost of
the Base Building under the Construction Contract; provided, however subject to
the provisions of Paragraph 3.6 hereof and so long as Lender maintains minimum
retainage as set forth above, Lender shall advance the excess retainage held
with respect to individual contractors performing work or services, or
furnishing materials or goods in connection with the Improvements at the earlier
of (i) Lender's receipt of such contractor's final waiver of liens or (ii) the
expiration of any statutory time Period within which such contractor could
lawfully file a lien or claim against the Trust Property.
6.3 Conditions to Closing: Lender shall not be obligated to make the
---------------------
first advance to Borrower unless and until:
(a) Borrower has performed its obligations set forth in Paragraph 3.6
of this Agreement and has made any Completion Deposit which may be required at
that time.
(b) Lender has received true, legible and correct copies of the
following, in form and substance satisfactory to Lender in all respects:
(1) the Construction Contract with the General Contractor;
(2) the Plans which have been approved by Lender;
(3) a certificate from the Architect, and the Independent
Inspecting Architect, stating that the Plans have been approved by him or them
and
20
<PAGE>
that the Construction Contracts are acceptable to him or them and satisfactorily
provide for the construction of the Improvements for the Base Building;
(4) all authorizations and permits which are then procurable and
required by any Legal Requirement for the construction and proposed use of the
Improvements;
(5) four (4) original copies of a current survey of the Land
containing the certification of the surveyor in form and substance satisfactory
to Lender and showing the perimeter of the Land by courses and distances, all
easements and rights-of-way, the boundary lines of the streets abutting the Land
and the width thereof, any encroachments and the extent thereof in feet and
inches, all acceptable to the Title Company to modify the "areas, boundaries and
encroachments" exception to the maximum extent permitted by law;
(6) the policies of insurance required by the Loan Documents
accompanied by evidence of the payment of the premium therefor;
(7) a soils investigation report from a soils engineer
satisfactory to Lender;
(8) evidence satisfactory to Lender that the Land is not located
within the 100-year flood plain or identified as a special flood hazard area as
defined by the Federal Insurance Administration;
(9) a complete project budget in form and substance satisfactory
to Lender (which is attached hereto as Exhibit E), which includes (without
---------
limitation) an allocation for tenant improvements, interest reserve and
contingency line item amounts, together with the guaranteed maximum price
contained in the Construction Contract;
(10) the tax identification number(s) assigned to the Trust
Property (i.e., county, city and school, etc.), the approximate date tax
---
statement(s) are to be issued and the date(s) taxes would become delinquent if
not paid;
(11) an enforceability and authority opinion of counsel for
Borrower satisfactory to Lender, dated as of the date of the closing and
relating to such matters with respect to this Agreement and the transaction
contemplated hereby as Lender may reasonably request ;
(12) a copy of the form of office and retail tenant lease
satisfactory to Lender to be used by Borrower in connection with the Leases;
(13) copies of all existing leases and tenant estoppels;
(14) if Borrower and any partner or venturer of Borrower is a
corporation, a partnership, a trust or a limited liability company, a copy of
Borrower's and such partner's or venturer's articles of incorporation and
bylaws,
21
<PAGE>
partnership agreement and certificate of partnership, declaration of trust,
articles of organization and operating agreement, whichever may be applicable,
and all amendments thereto, certified by Borrower to be true, correct and
complete;
(15) a copy of the agreement between Borrower and the Architect with
respect to the Improvements, and any and all existing or future extensions,
renewals, modifications, amendments thereto (the "Architect's Contract") and a
certificate from the Architect with respect to legal, zoning, architectural
barriers and other requirements concerning the property and the Improvements
(the "Architect's Certificate");
(16) the consent of the Architect to the assignment to Lender of all
of Borrower's right, title and interest in and to the Architect's Contract and
in and to the Plans and to Lender's use thereof, and the agreement of the
Architect to perform certain services for Lender at Lender's request;
(17) Subordination, Non-disturbance and Attornment Agreements
executed by all of Borrower's tenants leasing space in the Trust Property in
effect on the date of this Agreement;
(18) a copy of the demolition permit covering the demolition of the
Existing Improvements (as defined in the Deed of Trust);
(19) a copy of any engineering agreements or any management
agreement, development agreement/asset management agreement;
(20) an Appraisal (as defined under the Note);
(21) consents to the assignment of any engineering agreements, and
the General Contractor's agreement, provided Borrower has entered into such
agreements before Closing;
(22) a current Phase One environmental report for the Land;
(23) a project cost analysis by the Independent Inspecting Architect;
(24) a copy of current tax bills for the Trust Property;
(25) evidence satisfactory to Lender of current zoning approvals for
the Improvements; and
(26) any other documents and information Lender may reasonably
require.
(c) The Loan Documents have been duly authorized, executed and
recorded or filed in accordance with applicable Legal Requirements and original
22
<PAGE>
counterparts thereof delivered to Lender; current Uniform Commercial Code
searches have been made in the records of the Office of the Clerk of the Circuit
Court for Alexandria, Virginia, the Virginia State Corporation Commission, and
the Maryland Department of Assessments and Taxation covering Borrower, and show
no filings relating to or which could relate to the Trust Property or
Improvements;
(d) The Title Company has issued an irrevocable and unconditional
commitment to issue the Title Insurance immediately upon recordation of the Deed
of Trust and the other Loan Documents which are to be recorded;
(e) Borrower has executed, or caused to be executed, and delivered to
Lender the Disbursement Request Form attached hereto as Exhibit C or in such
other form acceptable to Lender certifying in acceptable detail the expenditures
made or expenses incurred by Borrower of the type described in Paragraph 6.2
hereinabove, with such supporting data as Lender may require, and that the
amount requested represents sums actually spent or indebtedness actually
incurred; and
(f) Borrower pays to Lender, or any other person or party entitled
thereto, all fees and costs then due and payable in connection with this
Agreement and the subject hereof including, without limiting the generality of
the foregoing, any matter set forth in Paragraph 9.1 hereof and a commitment fee
of Two Hundred Thousand Fifty-Six Seven Hundred Fifty and No/100 Dollars
($256,750.00), plus all appraisal fees, which amounts shall in no event be
refundable by Lender.
Notwithstanding the foregoing, it is agreed that the documents listed in
Exhibit D hereto need not be furnished to Lender prior to the first advance, but
- ---------
rather shall be submitted to and approved by Lender before Lender shall be
obligated to make cumulative advances in excess of $3,000,000.00.
6.4. Disbursement Requests: Lender shall not be obligated to make any
---------------------
subsequent advance to Borrower unless and until subparagraphs (a) through (f)
hereinbelow are first complied with for such advance. Notwithstanding anything
to the contrary contained in or inferable from any of Article 6, Lender shall
not be required to make any advance hereunder if, at the time of the requested
advance, any of the events or circumstances set forth in the following
subparagraphs (g) through (r) hereinbelow has occurred or exists:
(a) For disbursement up to Three Million and No/100 Dollars
($3,000,000.00), Borrower has executed, and delivered to Lender a Disbursement
Request Form as described in Paragraph 6.3(e) hereinabove and the data referred
to therein. For all disbursements over Three Million and No/100 Dollars
($3,000,000.00), Architect and, if Lender requests, the Independent Inspecting
Architect shall have, together with Borrower, executed, and delivered to Lender
a Disbursement Request Form.
23
<PAGE>
(b) Lender shall have received (i) an endorsement to the Title
Insurance increasing the coverage thereof to the full amount of the sum
advanced, the first such endorsement after completion of foundations reflecting
no encroachments caused by construction of the Improvements and reflecting no
changes in the status of title or the Title Insurance since the previous
advance, except as permitted under the Loan Documents, (ii) certification from
the Architect and, if Lender elects, the Independent Inspecting Architect
stating that, in their opinion, the construction of the Improvements theretofore
performed has been in substantial accordance with the Plans, (iii) the survey
called for in Paragraph 3.2(a)(vi) hereinabove and as may be required by the
Title Company to issue the endorsement or other evidence referred to in
Paragraph (b)(i) above, (iv) at the request of Lender, lien waivers or releases
(in recordable form) from all contractors, subcontractors, laborers and
materialmen employed or furnishing materials in connection with the construction
of the Improvements whose contract exceeds $1,000,000.00, (v) all amendments,
modifications and revisions satisfactory to Lender in the form of tenant lease,
if any, (vi) at the request of Lender, a written certification signed by
Borrower as to all Leases and the names of the tenants and rents payable
thereunder, together with copies of all such Leases, and (vii) such other
certifications or evidence of cost and completion as Lender may reasonably
request.
(c) Borrower shall have performed to date its obligations under
Paragraph 3.6 above.
(d) Lender shall have received a duplicate original of all executed
Construction Contracts in form approved by Lender.
(e) Borrower is in compliance with requirements of the attached
Disbursement Schedule.
(f) The funding limitations (as applicable) set forth in Exhibit B
---------
hereto have been satisfied, as determined by Lender in its sole determination.
(g) An Event of Default or Unmatured Event of Default exists
hereunder or under any other Loan Document.
(h) The requested advance, plus the sum of the previous advances
(including retained amounts deemed to have been advanced pursuant to Paragraph
6.2 above) or other sums disbursed by Lender under the Loan Documents, exceeds
the face amount of the Note.
(i) In the good faith judgment of the Lender, Completion of the
Improvements will not occur on or before the Completion Date, regardless of the
cause of such failure of completion.
(j) In the good faith judgment of Lender, the sum of the unadvanced
Loan proceeds, plus other sums being held by Lender in escrow for
24
<PAGE>
Borrower, is insufficient to complete the Improvements in substantial accordance
with the Plans and this Agreement.
(k) The Trust Property (or any portion thereof) is demolished or
substantially destroyed, or condemnation or similar type proceedings are
commenced with reference thereto until such time as any revision to the project
budget, construction schedule and disbursement schedule made necessary by such
event in the reasonable judgement of Lender has been agreed upon by Borrower and
Lender.
(l) Any change in the status of title to the Land or the Improvements
has occurred subsequent to the date hereof without Lender's prior written
consent.
(m) Borrower is unable to satisfy any of the requirements for a
disbursement set forth in Paragraphs 6.2 or 6.3 above.
(n) Any event has occurred which has or could give rise to a lien
claim equal or superior to the liens and security interests intended to be
created by the Loan Documents and such event shall not have been cured by
Borrower within thirty (30) days of notice thereof from Lender.
(o) An order or decree of any court of competent jurisdiction exists
enjoining the construction of the Improvements or enjoining or prohibiting
Borrower or Lender or either of them from performing their respective
obligations under this Agreement.
(p) Any material deviation from the Plans exists in the construction
of the Improvements without the prior written approval of Lender, or it
appears to Lender or Lender's Inspecting Architect that there are material
defects in the workmanship or materials .
(q) Any encroachment on or off the Land exists which has occurred
without the approval of Lender.
(r) Construction (except as scheduled) has ceased prior to
Substantial Completion of the Base Building or prior to substantial completion
of any tenant improvements for a continuous period of twenty (20) days or more
for causes other than those beyond the control of Borrower or those consented to
in writing by Lender.
6.5. Disbursements to Lender. Notwithstanding anything to the contrary
-----------------------
contained in this Article 6 or elsewhere in this Agreement, Lender shall have
the right to disburse to itself as an advance under the Loan any and all amounts
due Lender on account of the Loan (including interest and other amounts required
under the Loan Documents), without the necessity of any disbursement request or
other action by Borrower. In no event shall any such disbursement be
25
<PAGE>
construed as a waiver of any Event of Default or any other condition to any
other disbursements to or for the benefit of Borrower.
6.6. Third-Party Beneficiaries: All conditions precedent to Lender's
-------------------------
obligation to make advances hereunder are imposed solely and exclusively for
Lender's benefit. No person or entity other than Lender shall have any standing
to require satisfaction of such conditions, or be entitled to assume that Lender
will refuse to make advances absent strict compliance therewith, and any or all
of such conditions may be freely waived (in whole or in part) by Lender at any
time or times.
ARTICLE 7
EVENTS OF DEFAULT
-----------------
Each and any of the following shall constitute an Event of Default
hereunder:
7.1 Conditions to Advances: If, at any time, Borrower is unable to
----------------------
satisfy any condition or cure any circumstance specified in Article 6 above,
including specifically the occurrence of any circumstance described in Paragraph
6.4(g) through 6.4(r), the satisfaction or curing of which being precedent to
its right to receive an advance hereunder, and such inability continues for a
period in excess of thirty (30) days after notice thereof by Lender; provided
however, that if such default is susceptible of cure but is not cured within
said thirty (30) days, so long as Borrower is diligently and continuously
pursuing such cure Lender shall permit Borrower an additional thirty (30) days
to effectuate such cure.
7.2 Voluntary Bankruptcy: If Borrower shall (a) voluntarily be
--------------------
adjudicated as bankrupt or insolvent, (b) file any petition or commence any case
or proceeding under any provision or chapter of the Federal Bankruptcy Code or
any other federal or state law relating to its insolvency, bankruptcy,
rehabilitation, liquidation or reorganization, (c) make a general assignment for
the benefit of its creditors, (d) have an order for relief entered under the
Federal Bankruptcy Code with respect to it, (e) convene a meeting of its
creditors, or any class thereof, for the purpose of effecting a moratorium upon
or extension or composition of its debts, (f) fail to pay its debts as they
mature, (g) admit in writing that it is unable to pay its debts as they mature
or generally not pay its debts as they mature, or (h) become insolvent.
7.3 Involuntary Bankruptcy: If (a) a petition is filed or any case or
----------------------
proceeding described in Paragraph 7.2 above is commenced against Borrower, or
against the assets of Borrower, unless such petition and the case or proceeding
initiated thereby is dismissed within sixty (60) days from the date of the
filing, (b) an answer is filed by Borrower admitting the allegations of any such
petition, or (c) a court of competent jurisdiction enters an order, judgment or
decree appointing, without the consent of Borrower or any of the parties
directly or indirectly comprising Borrower or a custodian, trustee, agent or
receiver for it, or for all or any part of its property or authorizing the
taking possession by a custodian, trustee,
26
<PAGE>
agent or receiver of it, of all or any part of its property unless such
appointment is vacated or dismissed or such possession is terminated within
thirty (30) days from the date of such appointment or commencement of such
possession but not later than five (5) days before the proposed sale of any
assets of Borrower by such custodian, trustee, agent or receiver, other than in
the ordinary course of the business of Borrower.
7.4 Payment of Indebtedness: If Borrower shall fail, refuse or neglect
-----------------------
to pay, in full, any installment or portion of the Indebtedness, whether at the
date which is the due date thereof stipulated in the Loan Documents, or at the
date which is a date fixed for payment, or by acceleration or otherwise and such
failure shall continue for more than five (5) days after notice thereof to
Borrower from Lender.
7.5 Failure in Performance of Obligations. If Borrower shall fail,
-------------------------------------
refuse or neglect to perform and discharge fully and timely any of the
Obligations as and when called for, and such failure, refusal or neglect shall
either be incurable or, if curable, shall remain uncured for a period of thirty
(30) days after notice thereof is given by Lender to Borrower, or with respect
to a material failure by Borrower to perform a material Obligation, of which
failure Borrower had actual knowledge, shall remain uncured for a period of the
longer of thirty (30) days from the date when Borrower had such actual knowledge
or ten (10) days after notice thereof is given by Lender to Borrower. In the
event that such failure, refusal or neglect, is susceptible of cure but is not
cured within such thirty (30) or ten (10) day period (as applicable), so long as
Borrower is diligently and continuously pursuing such cure, Lender shall permit
Borrower an additional thirty (30) days to effectuate such cure provided,
however, that with respect to an Unmatured Event of Default, notice to Borrower
of which was given on or before the date an Extension Period (as defined in the
Note) commenced, such extended cure period shall terminate not later than thirty
(30) days after such Extension Period commences.
7.6 False Representation. If any representation, warranty or statement
--------------------
made by Borrower or others in, under or pursuant to the Loan Documents or any
affidavit or other instrument executed in connection with the Loan Documents
shall be false or misleading in any material respect as of the date hereof
(i) and if, and only if, such representation, warranty or
statement was false or misleading due to mere inadvertence on the part of
Borrower, and was not deliberate or due to gross negligence, and Borrower shall
not take such steps to cure and cure such circumstances so as to make such
representation, warranty or statement no longer false or misleading within
thirty (30) days of the assertion of the false or misleading nature thereof by
notice from Lender to Borrower, or
(ii) with respect to a representation or warranty made in
Paragraphs 2.1, 2.3, 2.6 or 2.7 of this Agreement, which becomes false or
misleading at any time prior to repayment in full of the Indebtedness, Borrower
shall not take such steps to cure and cure such circumstances so as to make such
representation, warranty or
27
<PAGE>
statement no longer false or misleading within thirty (30) days of the assertion
of the false or misleading nature thereof by notice from Lender to Borrower.
7.7 Dissolution, Change or Encumbrance of Ownership: If (a) Borrower
-----------------------------------------------
(if a natural person) shall die or shall (if not a natural person) dissolve,
terminate or liquidate, or (b) shall amend or modify, in a manner which would
materially adversely affect Lender, its articles of incorporation, bylaws,
articles or partnership, certificate of partnership, articles of organization,
operating agreement or other charter or enabling documents, and Lender has not
given its prior written consent to such amendments or modifications.
7.8 Disposition of Trust Property and Beneficial Interest in
--------------------------------------------------------
Borrower: If there occurs a Disposition (as defined in the Deed of Trust)
- --------
without the prior written consent of Lender, it is expressly agreed that in
connection with determining whether to grant or withhold such consent, Lender
may (but is not obligated to) among other things: (i) consider the
creditworthiness of the party to whom such Disposition will be made and its
management with respect to the Trust Property, (ii) consider whether or not the
security for repayment of the Indebtedness and the performance of the
Obligations, or Lender's ability to enforce its rights, remedies and recourses
with respect to such security, will be impaired in any way by the proposed
Disposition, (iii) require as a condition to granting such consent, an increase
in the rate of interest payable under the Note or any other change in the terms
and provisions of the Note and other Loan Documents, (iv) require that Lender be
reimbursed for all costs and expenses incurred by Lender in investigating the
creditworthiness and management ability of the party to whom such Disposition
will be made and in determining whether Lender's security will be impaired by
the proposed Disposition, (v) require the payment to Lender of a transfer fee to
cover the cost of documenting the Disposition in its records, (vi) require the
payment of its reasonable attorney's fees in connection with such Disposition,
(vii) require the express assumption of payment of the Indebtedness and
performance of the Obligations by the party to whom such Disposition will be
made (with or without the release of Borrower from liability for such
Indebtedness and Obligations), (viii) require the execution of assumption
agreements, modification agreements, supplemental security documents and
financing statements satisfactory in form and substance to Lender, (ix) require
endorsements (to the extent available under applicable law) to any existing
Title Insurance insuring Lender's liens and security interests covering the
Trust Property, and (x) require additional security for the payment of the
Indebtedness and performance of the Obligations.
7.9 Encumbrance Upon Trust Property: Subject to the terms of this
-------------------------------
Agreement with respect to mechanics and materialmen's liens, if the Borrower
shall, without the prior written consent of Lender, create, place or permit to
be created or placed, or through any act or failure to act, acquiesce in the
placing of, or (if involuntary) allow to remain, any deed of trust, mortgage,
pledge, lien (statutory, constitutional or contractual), security interest,
encumbrance or charge on, or conditional sale or other title retention
agreement, with respect to the Trust
28
<PAGE>
Property, Construction Contracts or the Plans except to the extent otherwise
permitted in the Loan Documents.
7.10 Destruction of Improvements: Sixty (60) days after the Trust
---------------------------
Property (other than the Existing Improvements as defined in the Deed of Trust)
is demolished, destroyed or substantially damaged in respect of which
demolition, destruction or damage either there are no insurance proceeds payable
or Borrower is not entitled to have insurance proceeds made available for
restoration pursuant to Paragraph 4.8 of the Deed of Trust.
7.11 Change in Financial Condition. If prior to the Substantial
-----------------------------
Completion of the Base Building, Lender reasonably determines that the
likelihood of completion of the Base Building Improvements or the completion of
any tenants improvements required by any then existing Lease is threatened by
reason of a material adverse change in the financial condition or credit
standing of Borrower or, following the Substantial Completion of the Base
Building payment of the Indebtedness or performance of the Obligations is
threatened by reason of a material adverse change in the financial condition or
credit standing of Borrower.
7.12 Foreclosure of Other Liens: If the holder of any lien or
--------------------------
security interest on the Trust Property (without hereby implying Lender's
consent to the existence, placing, creating or permitting of any such lien or
security interest) institutes foreclosure or other proceedings for the
enforcement of its remedies thereunder.
7.13 Event of Default Under Loan Documents: If an Event of Default
-------------------------------------
shall occur under any of the Loan Documents.
7.14 Failure to Complete or Prosecute Construction of Improvements:
-------------------------------------------------------------
If Completion of the Improvements does not occur on or prior to the Completion
Date or if Borrower fails to prosecute with diligence and continuity the
construction of the Improvements in accordance with the provisions hereof.
7.15 Substantial Deviation from Plans: If Borrower, without prior
--------------------------------
written consent from Lender, shall deviate in the construction of the
Improvements from the Plans previously approved by Lender, except for any
Permitted Change, or if defective materials or workmanship shall appear in the
Improvements, and has not commenced a cure thereof within five (5) days after
notice from Lender or, if the same do not relate to matters which Lender deems
to be of an emergency nature, within forty-five (45) days after written notice
thereof from Lender.
7.16 Failure to Keep Permits Effective: If Borrower shall neglect,
---------------------------------
fail or refuse to keep in full force and effect any permit, license, consent or
approval required for the construction of the Improvements or otherwise required
hereunder, or in the event of a curtailment in availability to the Land or
Improvements of utilities or other public services necessary for the full
occupancy and utilization of the Improvements for their intended purpose, and
has not commenced a cure thereof within five (5) days after notice from Lender
or, if the same do not relate to
29
<PAGE>
matters which Lender deems to be of an emergency nature, within thirty (30) days
after written notice thereof from Lender.
7.17 Rezoning: If the Trust Property is rezoned so as to have a
--------
material adverse effect on Lender's security.
7.18 Failure to Deposit Funds: If Borrower shall fail to make any
------------------------
deposit of funds required hereunder or under the Deed of Trust, including, but
not limited to the Completion Deposit required hereunder, within the time period
provided therefor.
7.19 Failure to Deliver Tax Statements and Receipts: The failure of
----------------------------------------------
Borrower to provide to Lender the tax statements and adequate documentation
evidencing payment of taxes as provided for in Paragraph 9.16 herein which
failure is not cured within five (5) days after notice of such failure from
Lender.
ARTICLE 8
REMEDIES
--------
8.1 Rights, Remedies and Recourses: Upon the happening of any Event
------------------------------
of Default, Lender shall have, in addition to any and all other rights, remedies
and recourses available to it under any of the Loan Documents or otherwise
available at law or in equity, including specifically, but without limitation,
the right to declare immediately due and payable the unpaid advanced principal
and unpaid accrued interest on the Note and to foreclose any and all liens and
security interests securing the repayment of same, the right (a) to take
exclusive possession of the Trust Property, (b) to use any funds of Borrower,
including the Completion Deposit (if any) and any sums which may remain
unadvanced hereunder, to complete the Improvements, (c) to make such changes in
and revisions to the Plans as Lender may deem desirable, (d) to prosecute and
defend all actions or proceedings relating to the construction of the
Improvements, (e) to pay, settle or compromise all existing bills and claims
which are or may be liens against the Trust Property, or may be necessary or
desirable for the Completion of the Improvements or the clearance of title, (f)
to execute in Borrower's name all applications, certificates and other
instruments which may be required by any Construction Contracts, (g) to do any
and every act with respect to the construction of the Improvements which
Borrower may do in its own behalf, and (h) to employ such contractors,
subcontractors, agents, attorneys, architects, accountants, watchmen and
inspectors as Lender may deem desirable to accomplish any of the above purposes.
For these purposes, Borrower hereby constitutes and appoints Lender its true and
lawful attorney-in-fact with full power of substitution, which appointment shall
be coupled with an interest and irrevocable. All sums expended by Lender for any
of the above purposes shall be deemed to be advances hereunder and shall be
secured by the Loan Documents.
30
<PAGE>
8.2 Cessation of Lender's Obligations: Upon the happening of any such
---------------------------------
Event of Default, all obligations of Lender hereunder, including specifically
any obligation to advance funds hereunder, shall immediately cease and
terminate.
8.3 Acceleration: Notwithstanding anything to the contrary herein
------------
contained or inferable from any provision of this Agreement, upon the happening
of an Event of Default as set forth in Paragraphs 7.2 (except as set forth
therein), 7.3 (except as set forth therein), 7.6 (except as set forth therein),
or 7.7 through 7.14, or 7.16 through 7.19 above, Lender may declare the
Principal Balance (defined hereby as meaning the then unpaid principal balance
on the Note), the accrued interest and any other accrued but unpaid portion of
the Indebtedness to be immediately due and payable, without further notice,
presentment, protest, demand or action of any nature whatsoever (each of which
is expressly waived by Borrower) whereupon the same shall become immediately due
and payable, at the option of Lender without notice (except as may be
hereinafter provided) or demand, which is hereby expressly waived.
ARTICLE 9
GENERAL TERMS AND PROVISIONS
----------------------------
9.1 Performance at Borrower's Expense: Without in any way limiting
---------------------------------
Paragraph 8.1 hereof, Borrower shall pay to Lender immediately upon demand all
costs and expenses incurred by Lender in connection with: (a) the preparation of
this Agreement and any and all other Loan Documents contemplated hereby
(including any amendments hereto or thereto or consents, releases or waivers
hereunder or thereunder); (b) the administration of this Agreement and the other
Loan Documents for the term of the Note as provided for in the Loan Documents;
and (c) the enforcement or satisfaction by Lender of any of Borrower's
Obligations under this Agreement or under the Loan Documents. For all purposes
of this Agreement, Lender's costs and expenses shall include, without
limitation, all appraisal fees incurred in connection with the making of the
Loan described in the Loan Documents or the extension of the Maturity Date as
provided for in the Note, the cost of engineering and inspection fees,
architectural fees, legal fees (including, without limitation, fees for trial,
appeal or other proceedings), accounting fees, environmental consultant fees (if
any), auditor fees, and the cost to Lender of any documentary taxes, recording
fees, brokerage fees, title insurance premiums and title surveys. In addition,
Borrower recognizes and agrees that formal written appraisals of the Trust
Property by a licensed independent appraiser may be required by federal
regulatory reporting requirements on an annual and/or specialized basis and,
after the occurrence of an Event of Default, by Lender's internal procedures,
and Borrower shall pay such costs if Lender incurs them. Except to the extent
that certain of these costs and expenses are included within the definition of
Indebtedness, the payment by Borrower of any of these costs and expenses shall
not be credited, in any way or to any extent, against any portion of the
Indebtedness.
31
<PAGE>
9.2 Brokerage Fees and Commissions: Borrower hereby indemnifies Lender
------------------------------
from any responsibility and/or liability for the payment of any commission,
charge, or brokerage fee which may be payable to any party in connection with
the Loan, it being understood that all such charges, if any, will be paid by the
Borrower. Lender agrees that it has not engaged any broker in connection with
this Loan.
9.3 Time: Time is of the essence of this Agreement and each provision
----
hereof of which time is an element.
9.4 Attorneys' Fees: If Lender finds it necessary to obtain the services
---------------
of an attorney to collect all or any portion of the principal of the Note or
enforce any of its rights under the Loan Documents, Borrower shall pay such
reasonable attorneys' fees (except in connection with the enforcement of its
rights under the Loan Documents), whether or not suit is brought, or if brought,
prosecuted to judgment.
9.5 Intentionally Deleted
9.6 Approval of Lender and Further Assurances: Except as may be otherwise
-----------------------------------------
specifically provided in the Loan Documents, all instruments of insurance to be
executed and/or delivered to Lender, and all procedures to be taken in
connection with this Agreement and the Loan provided for herein, and all persons
or parties responsible in any way for the construction of the Improvements
pursuant to any of the Construction Contracts or any obligation to be performed
hereunder, or under the other Loan Documents, shall be subject to the acceptance
of Lender as to form, substance, coverage and identity. Immediately upon request
of Lender, Borrower will execute, acknowledge and deliver to Lender such further
instruments and do such further acts as Lender may deem necessary to carry out
more effectively the purpose of this Agreement or to subject to the liens and
security interests of the Loan Documents any property intended by the terms
thereof to be covered thereby, including specifically, but without limitation,
any renewals, additions, substitutions, replacements, betterments or
appurtenances to the Trust Property.
9.7 No Waiver: Any failure by Lender to insist, or any election by Lender
---------
not to insist, upon Borrower's (or any of them) strict performance of any of the
terms, provisions or conditions of the Loan Documents shall not be deemed to be
a waiver of same or of any other term, provision or condition thereof and Lender
shall have the right at any time thereafter to insist upon strict performance by
Borrower of any and all of same. In particular, no advance by Lender of any Loan
proceeds hereunder notwithstanding Borrower's failure to strictly comply with
Article 6 hereinabove shall, in any way, preclude Lender from thereafter
declaring such failure to comply to be a default or an Event of Default
hereunder as may be provided with respect to such failure.
9.8 Modification: This Agreement shall not be amended, waived, discharged
------------
or terminated orally but only by an instrument executed by the party
32
<PAGE>
against enforcement of the amendment, waiver, discharge or termination is
sought.
9.9 Applicable Law: This Agreement has been executed under, and shall be
--------------
construed and enforced in accordance with, the laws of the Commonwealth of
Virginia from time to time in effect; except to the extent superseded by United
States federal law. This Agreement and all of the Loan Documents are intended
to be performed in accordance with and only to the extent permitted by, all
applicable Legal Requirements, but the foregoing shall not be construed to limit
the terms of the Loan Documents by application of any provision of Borrower's
Articles of Incorporation, By-laws, or Partnership, Limited Partnership, Joint
Venture, Trust, Articles of Organization, Operating Agreement or other form of
business association agreement. It is expressly stipulated and agreed to be the
intent of Borrower and Lender at all times to comply with the applicable law now
or hereafter governing the interest payable on the Indebtedness. If the
applicable law is ever revised, repealed or judicially interpreted so as to
render usurious any amount called for under the Note or under any of the Loan
Documents or contracted for, charged, taken, reserved or received with respect
to the Indebtedness, or if Lender's exercise of the option herein contained to
accelerate the maturity of the Indebtedness, or if any prepayment by Borrower
results in Borrower's having paid any interest in excess of that permitted by
applicable law, then it is Borrower's and Lender's express intent that all
excess amounts theretofore collected by Lender be credited to the principal
balance of the Note or any other principal indebtedness of Borrower to Lender
(or, if the Note and all of such other indebtedness have been paid or would
thereby be paid in full, refunded to Borrower), and the provisions of the Note,
the Deed of Trust, this Agreement and the other Loan Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder and thereunder. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of the
Indebtedness shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such Indebtedness
until payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the usury ceiling from time to time in effect and
applicable to the Indebtedness, if any, for so long as the Indebtedness is
outstanding.
9.10 Severability: If any provision hereof or of any of the other Loan
-------------
Documents or the application thereof to any person or circumstance shall, for
any reasons and to any extent, be invalid or unenforceable, neither the
application of such provision to any other person or circumstance, nor the
remainder of the instrument in which such provisions is contained, shall be
affected thereby, but rather shall be enforced to the greatest extent permitted
by law.
9.11 Rights, Remedies and Recourses Cumulative: All rights, remedies and
-----------------------------------------
recourses afforded Lender by the Loan Documents or otherwise available at law or
in equity, including specifically, but without limitation, those granted by the
33
<PAGE>
Uniform Commercial Code in effect in the Commonwealth of Virginia (a) shall be
deemed cumulative and concurrent, (b) may be pursued separately, successively or
concurrently against Borrower or anyone else obligated under any or all of the
Loan Documents, or against the Trust Property, or against any one or more of
them, at the sole discretion of Lender, (c) may be exercised as often as the
occasion therefor shall arise, it being understood by Borrower that the
exercise, failure to exercise or election to exercise any of the same shall in
no event be construed as a waiver of same or of any other right, remedy or
recourse available to Lender, and (d) are intended to be, and shall be,
nonexclusive.
9.12 Successors and Assigns: This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective heirs,
successors, legal representatives and assigns; provided, however, that Borrower
may not assign, transfer or in any way hypothecate its interest in the Loan
Documents or the Trust Property (or any portion thereof) without Lender's prior
written consent.
9.13 Notices: All notices or other communications required or permitted to
-------
be given pursuant to the provisions of this Agreement shall be in writing and
shall be considered as properly given if mailed by first class United States
mail, postage prepaid, registered or certified with return receipt requested, or
sent by Federal Express or other overnight delivery service, or by delivering
same in person to the intended addressee, or by prepaid telegram. Notice so
mailed shall be effective upon its receipt. For purposes of notice, the
addresses of the parties shall be as set forth below, provided, however, that
either party shall have the right to change its address for notice hereunder to
any other location within the continental United States by the giving of fifteen
(15) business days' notice to the other party in the manner set forth
hereinabove.
Borrower: Saul Holdings Limited Partnership
c/o Saul Centers, Inc.
8401 Connecticut Avenue
Chevy Chase, MD 20815
Attention: Chief Financial Officer
With copy to: Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, DC 20037
Attention: Sheldon J. Weisel, Esq.
Lender: Wells Fargo Bank, National Association
Real Estate Group
Suite 420
2020 K Street, N.W.
Washington, D.C. 20006
Attention: Loan Administration Manager
34
<PAGE>
With copy to: Wells Fargo Bank, National Association
Real Estate Group
420 Montgomery Street
San Francisco, California 94111
Attention: Chief Credit Officer
9.14 Assignments and Participations: Lender may, at any time, sell,
------------------------------
transfer, assign or grant participations in any Loan or in any Loan Documents
that Borrower or the partners or joint venturers of Borrower have entered into,
executed, or granted in favor of Lender, and Lender may forward to each
participant and prospective participant all documents and information relating
to any such Loan, whether furnished by Borrower or otherwise, as Lender
determines necessary or desirable.
9.15 Lender's Right to Perform the Obligations: If Borrower shall fail,
-----------------------------------------
refuse or neglect to make any payment or perform any act required by the Loan
Documents, then Lender at any time thereafter and in any circumstance where
Lender determines that an emergency exists with simultaneous or prompt notice
thereafter to or demand upon Borrower and in other circumstances with notice to
Borrower and Borrowers' failure to cure such failure, refusal or neglect within
thirty (30) days of such notice, and without waiving or releasing any other
right, remedy or recourse Lender may have because of same, may (but shall not be
obligated to) make such payment or perform such act for the account of and the
expense of Borrower, and shall have the right to enter the Land and Improvements
for such purpose and to take all such action thereon and with respect to the
Trust Property as it may deem necessary or appropriate and Borrower hereby
irrevocably constitutes and appoints Lender as its attorney-in-fact, which
appointment shall be deemed coupled with an interest, to take the actions
described in this paragraph. If Lender shall elect to pay any statement,
invoice, tax bill or other sums due with reference to the Trust Property, Lender
may do so in reliance on any bill, statement or assessment procured from the
appropriate Governmental Authority or other issuer thereof without inquiring
into the accuracy or validity thereof. Similarly, in making any payments to
protect the security intended to be created by the Loan Documents, Lender shall
not be bound to inquire into the validity of any apparent or threatened adverse
title, lien, encumbrance, claim or charge before making an advance for the
purpose of preventing or removing the same. Borrower shall indemnify Lender for
all losses, expenses, damages, claims and causes of action, including reasonable
attorneys' fees, incurred or accruing by reason of any acts performed by Lender
pursuant to the provisions of this Paragraph 9.15 or pursuant to any other
provision in the Loan Documents, except those due to Lender's gross negligence
or willful misconduct. All sums paid by Lender pursuant to this Paragraph 9.15,
together with all other sums expended by Lender to which it shall be entitled to
be indemnified, together with interest thereon at the Default Rate (as defined
in the Note) from the date of such payment or expenditure, shall constitute
advances on and additions to the Indebtedness, shall be secured by the Loan
35
<PAGE>
Documents and shall be paid by Borrower to Lender upon demand. Prior payment by
Lender shall not be a condition precedent to the obligations of Borrower under
this indemnity.
9.16 Taxes and Assessments. Subject to Borrower's right to contest as
---------------------
provided for under the Loan Documents, Borrower shall submit to Lender copies of
tax statements and adequate documentation evidencing the due and punctual
payment of all real estate and personal property taxes, charges and assessments
levied or imposed upon the Trust Property on or before ten (10) days of the due
date of any such taxes.
9.17 Waiver of Right to Trial By Jury. Each party to this Agreement
--------------------------------
hereby expressly waives any right to trial by jury of any claim, demand, action
or cause of action (1) arising under this Agreement or any other instrument,
document or agreement executed or delivered in connection therewith, or (2) in
any way connected with or related or incidental to the dealings of the parties
hereto or any of them with respect to this Agreement or any other instrument,
document or agreement executed or delivered in connection herewith, or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and each party hereby agrees and consents that any such
claim, demand, action or cause of action shall be decided by court trial without
a jury, and that any party to this Assignment may file an original counterpart
or a copy of this paragraph with any court as written evidence of the consent of
the parties hereto to the waiver of their right to trial by jury.
9.18 Headings: The captions hereof are inserted for convenience of
--------
reference only and shall in no way alter, modify or define, or be used in
construing the text of this Agreement.
9.19 Supplement to Deed of Trust: The provisions of this Agreement are
---------------------------
not intended to supersede the provisions of the Deed of Trust but shall be
construed as supplemental thereto. In the event of any inconsistency between the
provisions hereof and those of the Deed of Trust, other than the selection of
laws provision, this Agreement shall be controlling. This Agreement shall remain
in effect until the Indebtedness has been paid in full.
9.20 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall have the force and effect of an original, and
all of which shall constitute but one document.
EXECUTED under seal as of the date first above written.
WITNESS/ATTEST: BORROWER:
SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland
limited partnership
36
<PAGE>
[CORPORATE SEAL] By: Saul Centers, Inc., a Maryland corporation
General Partner
__________________________ By: /s/
---------------------------------
B. Francis Saul II
Chairman
[CORPORATE SEAL] SAUL CENTERS, INC., a Maryland corporation
By: /s/
__________________________ ---------------------------------------
B. Francis Saul II
Chairman
WELLS FARGO BANK, NATIONAL
ASSOCIATION, a national banking association
__________________________ By: /s/
---------------------------------------
Christopher J. Jordan
Senior Vice President
37
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
All that certain property located in the City of Alexandria, Virginia, more
particularly described as follows:
All that entire square of ground located in the City of Alexandria, Virginia
bounded by Washington, St. Asaph, Pendleton and Wythe Streets.
38
<PAGE>
EXHIBIT B
---------
DISBURSEMENT SCHEDULE
---------------------
A. TIMING OF DISBURSEMENTS. Unless another provision of this Agreement
-----------------------
specifies otherwise, Borrower shall submit to Lender, not more frequently than
monthly, a Disbursement Request and a written itemized statement ("Progress
Certificate and Request for Payment Form") attached hereto, signed by Borrower
setting forth:
1. The total amount incurred, expended and/or due for each requested item
less prior disbursements; and
2. A description of the work performed, material supplied and/or costs
incurred or due with respect to each item for which disbursement is requested.
Each Disbursement Request submitted by Borrower shall constitute a
representation and warranty by Borrower to Lender that Borrower is in compliance
with all the conditions precedent as specified in Article 6 of this Agreement.
B. LENDER'S RIGHT TO CONDITION DISBURSEMENTS. Lender shall have the right to
-----------------------------------------
condition any disbursement upon Lender's receipt and approval of the following:
1. Architect's, inspector's and/or engineer's periodic certifications of
the percentage and/or stage of construction that has been completed and
requirements based upon any such architect's, inspectors' and/or engineer's
periodic, physical inspection of the Trust Property and Improvements;
2. Borrower's compliance with the provisions of Article 6 of this
Agreement.
The foregoing requirements shall apply to each of the disbursement categories
described in "C" below.
C. LOAN PROCEEDS ALLOCATION. The Loan proceeds in the maximum amount of
------------------------
$38,000,000.00 shall be disbursed as follows:
1. INITIAL DISBURSEMENT. Upon recordation of the Deed of Trust and
--------------------
delivery to Lender of the documents required under Paragraph 6.3 of this
Agreement, except as set forth in Exhibit D, Lender shall disburse the
approximate sum of $805,812.00 as indicated below:
(a) The sum of $256,750.00 shall be disbursed to Lender representing the
loan fee;
39
<PAGE>
(b) The sum of $81,900.00 shall be disbursed to Commercial Settlements,
Inc. representing the title and recording charges;
(c) The sum of $425.00 shall be disbursed to Lender representing
reimbursement for the environmental review fee;
(d) The sum of $12,000.00 shall be disbursed to Lender representing
reimbursement for the Appraisal and Appraisal review fee;
(e) The sum of $38,370.00 shall be disbursed to Commercial Settlements,
Inc. representing the legal fees to be reimbursed to Wilkes, Artis, Hedrick &
Lane;
(f) The sum of $322,071.00 shall be disbursed to Commercial
Settlements, Inc. for reimbursement to Borrower of Architectural and Engineering
Costs.
(g) The sum of $9,363.00 shall be disbursed to Commercial Settlements,
Inc. for reimbursement to Borrower of Marketing Costs.
(h) The sum of $84,933.00 shall be disbursed to Commercial Settlements,
Inc. for reimbursement to Borrower of Operating Costs.
2. FUTURE DISBURSEMENTS. The balance of the Loan's proceeds in the
--------------------
approximate amount of $37,194,188.00 shall be disbursed as follows:
(a) CONSTRUCTION COSTS. In no event shall the aggregate of the
------------------
disbursements under this Paragraph 2(a) exceed the total sum of $20,000,700.00.
If the aggregate actual costs are more or less than the maximum amount
hereunder, then such additional excess amount may be reallocated from or to
Paragraph C.2(k) Hard Cost Contingency Reserve, upon Lender's approval.
(1) Upon request of Borrower, Lender shall make disbursements to
Borrower for the cost of work completed on the Improvements, which total costs
are itemized in the Progress Certificate and Request for Payment Form. Such
disbursement shall be in the amount of 95% of the aggregate amount of additional
invoices, vouchers, statements, affidavits, payroll records and/or other
documents approved by Lender, or previously submitted to Lender, which together
substantiate costs incurred on the project to justify such an advance, as of the
date of the Disbursement Request. Such disbursement shall be made upon delivery
to Lender of the above documents, less prior disbursements, but in no event
shall the aggregate of such disbursements hereunder exceed the sum of
$19,000,665.00.
(2) The five percent (5%) of costs not disbursed under this
Paragraph C.2(a)(1) above in the aggregate amount of $1,000,035.00 shall be
disbursed to Borrower when the conditions of Paragraph E of this Exhibit B
---------
Agreement have been fully complied with.
(b) TENANT IMPROVEMENT COSTS. Proceeds for tenant improvements shall
------------------------
be disbursed in the same manner as provided for in
40
<PAGE>
Paragraph 2(a) above, except that the aggregate of such payments to Borrower
shall not exceed the sum of $6,405,000.00. Lender may require receipt and
approval of a cost breakdown, final Plans and specifications and leases. If the
actual costs are more or less than the maximum amount hereunder, then such
additional or excess amount may be reallocated from or to Paragraph C.2(k) Hard
Cost Contingency Reserve, upon Lender's approval.
(c) SITEWORK. The sum of $3,999,300.00 representing sitework shall be
--------
disbursed to Borrower upon Borrower's written request and approval by Lender. If
the actual costs are more or less than the maximum amount hereunder, then such
additional or excess amount may be reallocated from or to Paragraph C.2(k) Hard
Cost Contingency Reserve, upon Lender's approval.
(d) PROMOTION AND ADVERTISING. The sum of $90,637.00 representing
-------------------------
Promotion and Advertising shall be disbursed to Borrower upon Borrower's written
request accompanied by such invoices, statements and other supporting evidence,
as Lender may require, and upon Lender's approval. If the actual costs are more
or less than the maximum amount hereunder, then such additional or excess amount
may be reallocated from or to Paragraph C.2(l) Soft Cost Contingency Reserve,
upon Lender's approval.
(e) OPERATING COST. The sum of $115,067.00 representing Operating Cost
--------------
shall be disbursed to Borrower upon Borrower's written request and approval by
Lender. If the actual costs are more or less than the maximum amount hereunder,
then such additional or excess amount may be reallocated from or to Paragraph
C.2(k) Soft Cost Contingency Reserve, upon Lender's approval.
(f) LEGAL FEES. The sum of $78,630.00 representing Legal Fees shall be
----------
disbursed upon receipt of invoices, statements and other supporting evidence, as
Lender may require, and upon Lender's approval. If the actual costs are more or
less than the maximum amount hereunder, then such additional or excess amount
may be reallocated from or to Paragraph C.2(l) Soft Cost Contingency Reserve,
upon Lender's approval.
(g) ARCHITECT AND ENGINEERING. The sum of $776,929.00 representing
-------------------------
Architect and Engineering Fees shall be disbursed to Borrower upon Borrower's
written request accompanied by such invoices, statements and other supporting
evidence, as Lender may require, and upon Lender's approval. If the actual
costs are more or less than the maximum amount hereunder, then such additional
or excess amount may be reallocated from or to Paragraph C.2(k) Soft Cost
Contingency Reserve, upon Lender's approval.
(h) GOVERNMENT FEES. The sum of $637,000.00, representing fees
---------------
payable to applicable governmental authorities in connection with the
construction of the Improvements, shall be disbursed upon receipt of invoice
statements and other supporting evidence, as Lender may require, and upon
Lender's approval. If the actual costs are more or less than the maximum amount
41
<PAGE>
hereunder, then such additional excess amount may be reallocated from or to
Paragraph C.2(l) Soft Cost Contingency Reserve.
(i) COMMISSION EXPENSES. The sum of $1,955,675.00, representing
-------------------
commissions, shall be disbursed upon receipt of invoice statements and other
supporting evidence, as Lender may require, and upon Lender's approval. If the
actual costs are more or less than the maximum amount hereunder, then such
additional excess amount may be reallocated from or to Paragraph C.2(l) Soft
Cost Contingency Reserve.
(j) INTEREST RESERVE. Lender is hereby authorized to disburse from
----------------
time to time, by charging the loan account, on the interest payment dates
specified in the Note, amounts equal to any unpaid interest then due Lender
after Borrower's application of the Net Income, as defined below, for the
payment of interest due Lender, as specified in the Note. In no event shall the
disbursed amounts hereunder exceed the aggregate amount of $1,548,514.00.
"Net Income" shall be defined as all cash income derived by Borrower in any
manner from the Property and/or Improvements minus all cash costs and expenses
-----
associated with the Property and/or Improvements.
Lender shall provide the Borrower with a monthly statement showing the amount of
interest so charged. Upon full disbursement of the Interest Reserve allocation,
Borrower shall make full interest payments directly to Lender in accordance with
the provisions of the Note and shall not be entitled to any further
disbursements to pay such interest.
(k) HARD COST CONTINGENCY RESERVE. The Loan proceeds in the
-----------------------------
approximate sum of $1,468,048.00 together with any amounts not otherwise
disbursed for specific purposes set forth in this Disbursement Schedule, shall
be disbursed for inspection fees, miscellaneous expenses, or any other expenses
related to the construction of the Improvements or the Loan upon request of
Borrower and approval of Lender. Any amount in the Hard Cost Contingency Reserve
reallocated to such other specific category set forth in this Disbursement
Schedule, as Borrower shall request in writing and Lender shall approve, will be
disbursed in accordance with the paragraph governing such specific purpose.
(l) SOFT COST CONTINGENCY RESERVE. The balance of the Loan proceeds in
-----------------------------
the approximate sum of $118,688.00 together with any amounts not otherwise
disbursed for specific purposes set forth in this Disbursement Schedule, shall
be disbursed for miscellaneous expenses, or interest due on the interest payment
date specified in the Note, any other expenses related to the Loan upon request
of Borrower and approval of Lender. Any amount in the Soft Cost Contingency
Reserve reallocated to such other specific category set forth in this
Disbursement Schedule, as Borrower shall request in writing and Lender shall
approve, will be disbursed for items set forth in Paragraphs C.2(d) through
C.2(i).
42
<PAGE>
D. LOAN PROCEEDS WITHHOLDING. Lender may withhold from a disbursement, or on
-------------------------
account of subsequently discovered evidence withhold from a later disbursement
under this Agreement, or require Borrower to repay to Lender the whole or any
part of any earlier payment to Borrower, to such extent as may be necessary to
protect Lender from loss on account of (1) defective work not remedied or this
Agreement or Disbursement Schedule requirements not performed, (2) liens filed
or reasonable evidence indicating probable filing of liens, (3) failure of
Borrower to make payments to subcontractors for material or labor or (4) a
reasonable doubt that the construction can be completed with the balance of Loan
proceeds then undisbursed. When all such grounds are removed, payment shall be
made of any amount so withheld because of them.
E. FINAL ADVANCE FOR BASE BUILDING IMPROVEMENTS. The final advance for the
--------------------------------------------
Base Building Improvements (including retainage) shall not be made until thirty
(30) calendar days after the later of the date of Substantial Completion (as
defined herein), or if required by Lender, the date on which an affidavit of
completion has been recorded. In the case of each such draw request, Lender
shall have received the following as additional conditions precedent to the
requested advance, all relating to the Base Building:
(1) A certificate from Borrower's contractor certifying that the
Improvements (including any off-site improvements) have been completed in
accordance with, and as completed comply with, the Plans;
(2) Certificates from the architect and engineer, and, if required by
Lender, from the Independent Inspecting Architect, certifying that the
Improvements (including any off-site improvements) have been completed in
accordance with, and as completed comply with, the Plans and all laws and
governmental requirements;
(3) Two (2) sets of detailed "as built" Plans approved in writing by
Borrower, Borrower's architect, and each contractor;
(4) Final affidavits (in a form approved by Lender) from Borrower's
architect, engineer, and each contractor certifying that each of them and their
subcontractors, laborers, and materialmen has been paid in full for all labor
and materials for construction of the Improvements; and final lien releases or
waivers (in a form approved by Lender) by (A) Borrower's architect, engineer and
contractor and (B) all subcontractors, materialmen, and other parties who have
supplied labor, materials, or services for the construction of the Improvements,
or who otherwise might be entitled to claim a contractual, statutory or
constitutional lien against the Trust Property, whose contracts exceed
$1,000,000.00;
(5) An endorsement to the Title Insurance to remove any exception for
mechanics' or materialmen's liens or pending disbursements, with no additional
title change or exception objectionable to Lender, and with such other
endorsements required by Lender;
43
<PAGE>
(6) Evidence satisfactory to Lender that all laws and governmental
requirements have been satisfied, including receipt by Borrower of all necessary
governmental licenses, certificates and permits (including certificates of
occupancy) with respect to the completion, use, occupancy and operation of the
Improvements, together with evidence satisfactory to Lender that all such
licenses, certificates, and permits are in full force and effect and have not
been revoked, canceled or modified; and
(7) Three (3) copies of a final as-built survey satisfactory to Lender.
F. FINAL ADVANCE FOR TENANT IMPROVEMENTS. The final advance for the tenant
-------------------------------------
improvements (including retainage) for each tenant space shall not be made until
thirty (30) calendar days after the date of substantial completion of such
tenant improvements. In the case of each such draw request, Lender shall have
received the following as additional conditions precedent to the requested
advance, all relating to such tenant improvements:
(1) A certificate from the contractor certifying that the Improvements
(including any off-site improvements) have been completed in accordance with,
and as completed comply with, the Plans;
(2) Certificates from the architect and engineer for such tenant
improvements, and, if required by Lender, from the Independent Inspecting
Architect, certifying that the Improvements (including any off-site
improvements) have been completed in accordance with, and as completed comply
with, the Plans and all laws and governmental requirements;
(3) Two (2) sets of detailed "as built" Plans approved in writing by
Borrower, the architect for the Improvements, and each contractor;
(4) Final affidavits (in a form approved by Lender) from the architect and
engineer for such tenant improvements, and each Construction Contractor
certifying that each of them and their subcontractors, laborers, and materialmen
has been paid in full for all labor and materials for construction of the
Improvements; and final lien releases or waivers (in a form approved by Lender)
by (A) the architect and engineer for such tenant improvements and contractor
and (B) all subcontractors, materialmen, and other parties who have supplied
labor, materials, or services for the construction of the Improvements, or who
otherwise might be entitled to claim a contractual, statutory or constitutional
lien against the Trust Property in respect of the Improvements, whose contracts
exceed $1,000,000.00;
(5) An endorsement to the Title Insurance to remove any exception for
mechanics' or materialmen's liens or pending disbursements, with no additional
title change or exception objectionable to Lender, and with such other
endorsements required by Lender;
44
<PAGE>
(6) Evidence satisfactory to Lender that all laws and governmental
requirements have been satisfied, including receipt by Borrower of all necessary
governmental licenses, certificates and permits (including certificates of
occupancy, if obtainable based on the tenant improvements being funded) with
respect to the completion, use, occupancy and operation of the Improvements,
together with evidence satisfactory to Lender that all such licenses,
certificates, and permits with respect to the Improvements are in full force and
effect and have not been revoked, canceled or modified; and
(7) An estoppel certificate, in the form approved by Lender, from the
tenant demising such space that such tenant has approved the completed
Improvements.
G. SUPPLEMENTAL ADVANCE. In the event that Borrower shall have completed the
--------------------
Improvements, including without limitation all tenant improvements and all costs
and expenses payable in respect thereto shall have been paid and Lender shall
determine that no other funds are necessary for the Improvements or the leasing
or payment of costs thereof or interest accruing on the Loan, Lender may in its
sole discretion, upon the request of Borrower, and subject to the other
provisions of this Exhibit B and the Agreement as to advances, advance to
---------
Borrower any part of or all of the amount of the Loan remaining undisbursed, but
Lender shall have no obligation to do so.
45
<PAGE>
EXHIBIT C
DISBURSEMENT REQUEST
Loan #______
Request #______
Date: __________________________________________________________________________
Borrower: ______________________________________________________________________
Contractor: ____________________________________________________________________
Total Loan Amount: ____________________________________________________________
Request made under (e.g., Building/Construction Loan Agreement Dated: __________
________________________________________________________________________________
Description of Work/Stage Draw: ________________________________________
Period from _________________________ to ___________________________________
Disburse funds by / wire to: or / check to: __________________________________
_______________________________________________________________________________
A request is hereby made for payment of the sum indicated below which we believe
to be payable in accordance with the Loan Agreement referred to above between
Borrower and Lender. Following is a summary of the payment requested, more
detail being provided in the attached PROGRESS CERTIFICATE & REQUEST FOR
PAYMENT.
Original Construction Cost (col. 1) $____________________
Total Adjusted Change Orders (col. 2 & 3) $____________________
Revised Construction Cost (col.4) $____________________
PAYMENT REQUESTED
Construction Items:
Total Completed to Date (col. 5) $___________________
Less Retention, If Any (col.6) $___________________
Total Available For Payment $___________________
Less Previous Payments (col.7) $___________________
Amount Now Due (col.8) $___________________
Non Construction Items: $___________________
TOTAL OF THIS REQUEST: (Const.&Non-Const.-col.8) $___________________
46
<PAGE>
Total Disbursed to Date, Including This Request: $____________________
Total Undisbursed: $____________________
===============================================================================
WELLS FARGO BANK USE ONLY
Date Rec'd Disb. Dept: _________ WFRA#_________ $___________________
Title Bringdown: ___________ WFMET# _________ $___________________
Inspection: __________ WFMCO ________ $___________________
Insurance Report Form: ____________ BMcG__________ $___________________
Other:_________ WFB_____________ $___________________
Borrower Notified:_____________ OTHER_________ $___________________
Copies Sent:___________ TOTAL:_________ $___________________
===============================================================================
47
<PAGE>
EXPRESS MAIL TO:
The Appropriate Regional Office and Inspector
or
WELLS FARGO BANK
DISBURSEMENT DEPARTMENT
EL SEGUNDO NOTE OPERATIONS
1960 EAST GRAND AVENUE
EL SEGUNDO, CALIFORNIA 90245
Borrower and Contractor represent and warrant that (1) all representations and
warranties of Borrower contained in the Loan Documents are true and correct as
of the date hereof; (2) construction of the Improvements to the date of this
request have been performed substantially in accordance with the Plans and
specifications submitted to Lender; (3) there have been no material change
orders (any change order which is not a Permitted Change is material) which have
not been approved by Lender; (4) there is no default under the Loan Agreement or
the Construction Contract; (5) all governmental licenses and permits required
for the Improvements have been obtained and are effective; (6) for value
received, the undersigned hereby waives all rights to and claims for a lien on
the land described in the Loan Agreement and warrants that all payments required
by reason of the work referred to above and due to subcontractors, laborers and
materialmen and any others having mechanic's lien rights have been made or will
be made upon receipt of the requested funds, and each of them have waived, or
will waive, their lien rights for the period covered by this application for
payment as of ___________, 19__, except amounts retained pursuant to the terms
of the Construction Contract and only as to any amount as is specifically noted
in the Progress Certificate and Request for Payment (col. 8) attached.
Borrower represents and warrants that (1) the amount requested for non-
construction items represents the actual dollar for dollar amounts expended or
to be expended as soon as possible after receipt of this disbursement for the
items indicated, and (2) all amounts previously disbursed for non-construction
items have been paid by Borrower for the items indicated in previous
disbursement requests.
BORROWER ___________________________
Authorized Signatory
CONTRACTOR _________________________
Authorized Signatory
48
<PAGE>
APPLICATION FOR APPROVAL OF ADVANCE BY LOAN OFFICER
================================================================================
WELLS FARGO BANK USE ONLY
To: Disbursement Department
The Borrower's Application for advance of construction loan proceeds has been
reviewed by me and I hereby approve the Request / / without change / / with
change indicated below.
________________________________________________________________________________
COMMENTS: ____________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Date __________________________ Signed __________________________
(Loan Officer)
================================================================================
To: Accounting Department
You are hereby authorized to disburse $__________ as directed on the reverse
hereof.
Date ______________________ Signed _____________________________________
(Disbursement Officer or Inspector)
================================================================================
Date Disbursed: ______________________________________________________________
Time: ______________________________________________________________
Method: ______________________________________________________________
Signed: ______________________________________________________________
(Accounting Dept.)
49
<PAGE>
EXHIBIT D
DOCUMENTS TO BE SUBMITTED PRIOR TO ADVANCE
IN EXCESS OF $3,000,000.00
(a) the General Contract;
(b) the Plans which have been approved by Lender;
(c) a certificate from the Architect, and the Independent Inspecting
Architect, stating that the Plans have been approved by him or them and that the
Construction Contracts are acceptable to him or them and satisfactorily provide
for the construction of the Improvements;
(d) a copy of the agreement between Borrower and the Architect with
respect to the Improvements, and any and all existing or future extensions,
renewals, modifications, amendments thereto (the "Architect's Contract") and a
certificate from the Architect with respect to legal, zoning, architectural
barriers and other requirements concerning the property and the Improvements
(the "Architect's Certificate");
(e) the consent of the Architect to the assignment to Lender of all
of Borrower's right, title and interest in and to the Architect's Contract and
in and to the Plans and to Lender's use thereof, and the agreement of the
Architect to perform certain services for Lender at Lender's request;
(f) a copy of any engineering agreements or development
agreement/asset management agreement;
(g) consents to the assignment of any engineering agreements and, the
General Contractor's agreement;
(h) a project cost analysis by the Independent Inspecting Architect;
(i) a copy of all building and excavation permits;
(j) a copy of the certificate of builder's risk insurance, which
coverage is subject to Lender's approval;
(k) an approved site plan and/or a subdivision plat, as applicable,
of the Land;
(l) copy of utility letters to the extent available;
(m) Borrower, Architect and, if Lender requests, the Independent
Inspecting Architect have executed and delivered to Lender the Disbursement
50
<PAGE>
Request Form attached hereto as Exhibit C or in such other form acceptable to
Lender certifying in acceptable detail the expenditures made or expenses
incurred by Borrower for which Borrower seeks Lender disbursement of Loan
proceeds, with such supporting data as Lender may require, and that the amount
requested represents sums actually spent or indebtedness actually incurred; and
(n) assignments of the Architect's Contract, Plan, Permits and
approval, General Contractor's agreement, and engineering agreements, which
assignments shall be in a form reasonably acceptable to Lender.
51
<PAGE>
SAUL CENTERS, INC.
Deferred Compensation and Stock Plan For Directors
(As Amended March 18, 1999)
---------------------------
ARTICLE I
INTRODUCTION
This Deferred Compensation and Stock Plan for Directors (the "Plan") is
established by Saul Centers, Inc. (the "Company") for the benefit of its
Directors and their Beneficiaries (as such terms are defined below), and it
shall be maintained according to the terms hereof. The Company shall have the
sole authority to amend, interpret, manage, and administer the Plan.
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS. When used herein, the following words and phrases shall
have the meanings assigned to them, unless the context clearly indicates
otherwise:
(a) "Beneficiary" means the person or persons, natural or otherwise,
designated by a Director under section 8.1 to receive any death benefit payable
under section 6.3.
(b) "Board of Directors" means the board of directors of Saul Center, Inc.
(c) "Cash Deferred Fee Account" means an account established by the
Company in the name of a Director to which is credited (1) any Director's Fees
that are deferred by the Director under section 3.1(a) and directed into the
Cash Deferred Fee Account under section 3.1(b), (2) any Prior Deferral Amounts
other than such amounts which the Director elects to have transferred to his or
her Stock Deferred Fee Account pursuant to section 3.4(b), and (3) any
<PAGE>
interest that is credited by the Company under Article IV, and from which is
debited payment made under Article VI and Article IX.
(d) "Company" means Saul Centers, Inc.
(e) "Deferred Fee Accounts" means a Director's Cash Deferred Fee Account
and Stock Deferred Fee Account.
(f) "Deferred Fee Agreement" means the written agreement, substantially in
the form of Exhibit A hereto, between the Company and a Director, that together
with the Plan, governs the Director's rights to payment of deferred Director's
Fees (adjusted for investment performance) under the Plan.
(g) "Directors" means a member of the Board of Directors.
(h) "Director's Fees" means the annual retainer paid to a Director, any
fees paid to a Director for attending meetings of the Board of Directors or any
committee of the Board of Directors, and any fees paid to a Director for serving
as chairman of a committee of the Board of Directors.
(i) "Fair Market Value" means, with respect to a share of the Company's
common stock, (i) if the common stock; is listed on a national securities
exchange or traded on the National Market System, the closing price of the
common stock on the determination date or if there are no sales on such date,
then on the next preceding date on which there were sales of common stock, all
as published in the Eastern Edition of the Wall Street Journal, (ii) if the
common stock is not listed on a national securities exchange or traded on the
National Market System, the mean between the bid and asked prices last reported
by the National Association of
2
<PAGE>
Securities Dealers, Inc. for the over-the-counter market on the determination
date or, if no bid and asked prices are reported on such date, then on the next
preceding date on which there were such quotations, or (iii) if the common stock
is not listed on a national securities exchange or traded on the National Market
System and quotations for the common stock are not reported by the National
Association of Securities Dealers, Inc., the fair market value determined by
Board of Directors.
(j) "Financial Hardships" means the financial inability of a Director, as
determined by the President of the Company, to provide the necessary funds to
meet any unforeseen and extraordinary expenses incurred on account of accident,
sickness or disability affecting the Director or any member of his or her
family.
(k) "Interests" means the amount of interest credited to a Director's Cash
Deterred Fee Account at an annual rate determined quarterly in accordance with
section 4.2.
(l) "Plan" means the Saul Centers, Inc. Deferred Compensation and Stock
Plan for Directors set forth in this document, as amended by the Company from
time to time.
(m) "Shares" means the phantom shares of the Company's common stock.
(n) "Stock Deferred Fee Account" means an account established by the
Company in the name of a Director to which are credited (1) Shares for any
Director's Fees that are deferred by the Director under section 3.1(a) and
directed into the Stock Deferred Fee Account under section 3.1(b), and (2) any
additional Shares that are credited by the Company under Article V and from
which are debited payments made under Article VI and Article IX.
3
<PAGE>
ARTICLE III
DEFERRAL OF DIRECTOR'S FEES
3.1 ELECTION TO DEFER FEES. (a) For the initial calendar year of the Plan,
the election to defer Director's Fees earned on and after January 1, 1994, the
effective date of the Plan, shall be made prior to such date. After such date, a
Director may elect to defer all or part of his or her Director's Fees to be
earned on or after the date of the election. For a new Director, the election to
defer Director's Fees earned during his or her initial calendar year of service
shall be made within thirty days following the Director's election or
appointment. Any election to defer shall continue in effect for subsequent
calendar years unless modified or revoked in accordance with section 3.3.
(b) When a Director elects to defer Director's Fees under section 3.1(a),
the Director shall also elect whether amounts deferred should be credited to his
or her Cash Deferred Fee Account, to his or her Stock Deferred Fee Account, or
both, in percentages authorized in the Director's Deferred Fee Agreement.
3.2 CREDITING TO DEFERRED FEE ACCOUNTS. (a) When a Director elects under
section 3.1(b) to have Director's Fees credited to his or her Cash Deferred Fee
Account, the Company shall credit the Director's Cash Deferred Fee Account with
the amount of such Director's Fees as of the day such Directors Fees would have
been paid to the Director if they had not been deferred under the Plan.
(b) When a Director elects under section 3.1(b) to have Director's Fees
credited to his or her Stock Deferred Fee Account, the Company shall credit the
Director's Stock Deferred Fee Account with a number of Shares as of the day such
Director's Fees would have been paid to the
4
<PAGE>
Director were they not deferred under the Plan. The number of Shares credited to
the Stock Deferred Fee Account shall be the quotient of (1) the amount of
Director's Fees to be credited to the Stock Deferred Fee Account divided by (2)
the Fair Market Value of the Company's common stock on such date.
3.3 MODIFICATION OR REVOCATION OF DEFERRAL. A Director may, on a
prospective basis, change the amount of Director's Fees to be deferred by
executing a new Deferred Fee Agreement or revoke his or her election to defer
Director's Fees by a written revocation to the Secretary of the Company.
3.4 MODIFICATION OF INVESTMENT DIRECTION. A Director may, on a prospective
basis, modify his or her election regarding the Deferred Fee Accounts to which
his or her deferred Director's Fees are credited.
ARTICLE IV
INTEREST
4.1 INTEREST. Interest shall be credited to each Director's Cash Deferred
Fee Account, as of the end of each calendar quarter, at an annual rate
determined pursuant to section 4.2. Interest shall be credited during each
quarter that a Director has any amount credited to his or her Cash Deferred Fee
Account under the Plan.
4.2 RATE OF INTEREST. Interest shall be credited at a rate equal to two
percentage points less than the dividend rate for the dividend paid in the
calendar quarter then just ended on the Company's common stock computed as of
the date that the dividend is paid, based on the closing price of the Company's
common stock on such date.
5
<PAGE>
ARTICLE V
DIVIDENDS
5.1 CREDITING OF DIVIDENDS. Each Director with shares credited to his or
her Stock Deferred Fee Account on the record date of a dividend on the Company's
common stock shall be credited on the payment date of the dividend with an
amount determined by the product of the number of shares credited to the
Director's Stock Deferred Fee Account on the dividend record date and the
dividend per share on the Company's common stock. Such amount shall be credited
on the dividend payment date to the Director's Cash Deferred Fee Account, unless
the Director at such lime has a Deferred Fee Agreement in effect which provides
for the deferral of any portion of the Directors fees otherwise payable during
the period which includes the dividend payment date to be credited to the
Director's Stock Defected Fee Account. In such a case, the dividend reinvestment
provisions of Section 5.2 shall apply.
5.2 DIVIDEND REINVESTMENT SHARES. If the Director has a Deferred Fee
Agreement in effect on the payment date of dividends on the Company's common
stock and such Deferred Fee Agreement provides for any portion of the Director's
fees otherwise payable during the period which includes the dividend payment
date to be credited to the Director's Stock Deferred Fee Account, then on the
dividend payment date the Director's Stock Deferred Fee Account shall be
credited with a number of shares determined by dividing the amount of the
dividends for the Director as determined under Section 5.1 by ninety-seven
percent (97%) of Fair Market Value of the Company's common stock on the dividend
payment date.
6
<PAGE>
ARTICLE VI
PAYMENT OF DEFERRED FEES
6.1 DEFERRED FEES AND INTEREST. A Director shall be entitled to receive a
benefit equal to the amounts credited to his or her Deferred Fee Accounts at the
time or times specified in such Director's Deferred Fee Agreement. Amounts
credited to a Director's Cash Deferred Fee Account shall be paid in cash. Shares
credited to a Director's Stock Deferred Fee Account shall be paid by the
delivery by the Company of certificates representing a like number of the
Company's common shares.
6.2 PAYMENT. (a) At the election of a Director, the amount credited to the
Director's Deterred Fee Accounts shall be paid in a lump sum or in installments
in accordance with the terms of such Director's Deferred Fee Agreement. Amounts
credited to a Director's Cash Deferred Fee Account shall bear interest at the
rate specified in Article IV during the installment payout period. Shares
credited to a Director's Stock Deferred Fee Account shall continue to result in
the crediting of additional amounts to a Director's Cash Deferred Fee Account or
additional Shares to the Director's Stock Deferred Fee Account as determined
under Article V during the installment payout period.
(b) Notwithstanding the foregoing, no payment of shares from a Director's
Stock Deferred Fee Account shall be made unless the Company may validly issue
shares at such time pursuant to all applicable rules and regulations, including
but not limited to corporate law, securities law and stock exchange nobles. If
Shares may not be issued, subject to compliance with applicable securities laws
requirements, the Fair Market Value of the Shares credited to a Director's Stock
Deferred Fee Account shall be distributed in cash.
7
<PAGE>
6.3 DEATH OF A DIRECTOR. If a Director dies with any amount credited to his
or her Deferred Fee Accounts, then his or her Beneficiary shall be entitled to
receive the entire amount in a lump. Such payment shall be made as soon as
practicable after the end of the calendar quarter in which the Director's death
occurred.
ARTICLE VII
HARDSHIP WITHDRAWALS
7.1 WITHDRAWALS FROM DEFERRED FEE ACCOUNTS. (a) No Director, Beneficiary,
nor any other individual or entity shall have any right to make any withdrawals
from such Director's Deferred Fee Accounts or to alter any installment payments
provided under this Agreement.
(b) Notwithstanding section 7.1(a), a Director shall, in the discretion of
the Company, be entitled to withdraw all or a portion of the amount credited to
his or her Deferred Fee Accounts in the event of Financial Hardship.
Withdrawals from the Cash Deferred Fee Account shall be payable in cash and
withdrawals from the Stock Deferred Fee Account shall be payable in Shares,
subject to the provisions of section 6.2(b).
ARTICLE VIII
BENEFICIARIES
8.1 DESIGNATION OF BENEFICIARY. Each Director may designate from time to
any person or person, natural or otherwise, as his or her Beneficiary or
Beneficiaries to whom benefits under section 6.3 are to be paid if he or she
dies while entitled to benefits. Each
8
<PAGE>
Beneficiary designation shall be made either in the Deferred Fee Agreement or on
a form prescribed by the Secretary of the Company and shall be effective only
when filed with the Secretary during the Director's lifetime. Each Beneficiary
designation filed with the Secretary shall revoke all Beneficiary designations
previously made by the Director. The revocation of a Beneficiary designation
shall not require the consent of any designated Beneficiary.
ARTICLE IX
ANNUAL STOCK AWARDS
9.1 ANNUAL STOCK AWARDS. Each person who is a Director as of the record
date for the Company's annual meeting of stockholder's shall as of the date of
the Company's annual meeting receive distribution of an award of one hundred
(100) shares of the Company's common stock. The annual stock award may not be
deferred under Article III. The common stock received by each Director shall be
subject to the holding period requirement of Section 9.2.
9.2 HOLDING PERIOD. The shares of common stock of the Company received by
a Director in accordance with Section 9.1 shall be restricted from transfer by
the Director for a period of twelve (12) months from the date of the award. In
the event a Director dies prior to the end of the Director's twelve (12) month
holding period for the shares of common stock, the restriction on transfer of
such Director's shares shall terminate. The Company may place such legends on
the certificates representing the shares of common stock distributed as annual
awards as it deems appropriate to enforce the holding period requirement.
9
<PAGE>
ARTICLE X
ADMINISTRATION
10.1 RIGHT TO TERMINATE. The Board of Directors may amend or terminate the
Plan at any time in whole or in part. No amendment or termination of the Plan
shall reduce any amounts credited to a Director's Deferred Fee Accounts, any
amount owed to him or her by the Company as of the date of amendment or
termination, or the amount of Interest accrued or number of Shares to be
credited, as of such date, to his or her account.
10.2 NO FUNDING OBLIGATION. The obligation of the Company to pay any
benefits under the Plan shall be unfunded and unsecured, and any payments under
the Plan shall be made from the general assets of the Company. The Company,
however, in its discretion, may set aside assets or purchase annuity or life
insurance contracts to discharge all or part of its obligations under the Plan.
The assets set aside or the annuity, or life insurance contracts shall remain in
the name of the Company, and no trust shall be created by setting aside the
assets or purchasing annuity or life insurance contracts. Director's rights
under the Plan are not assignable or transferable other than by will or the laws
of descent and distribution, and such rights are exercisable during the
Director's lifetime only by him or her, or by his or her guardian or legal
representative.
10.3 APPLICABLE LAW. This Plan shall be construed and enforced in
accordance with the laws of the State of Maryland, except to the extent
superseded by federal law.
10.4 ADMINISTRATION AND INTERPRETATION. The President of Saul Centers, Inc.
shall have the authority and responsibility to administer and interpret the
Plan. Benefits due and owing to a Director or Beneficiary under the Plan shall
be paid when due
10
<PAGE>
without any requirement that a claim for benefits be filed. However, any
Director or Beneficiary who has not received the benefits to which he or she
believes himself or herself entitled may file a written claim with the
President, who shall act on the claim within thirty days, and such action on any
such claim shall be conclusive.
11
<PAGE>
EXHIBIT A
DEFERRED FEE AGREEMENT
This Agreement between Saul Centers, Inc. (the "Company") and
____________________ (the "Director") is made the ____ day of ____________,
19__, under the Saul Centers, Inc. Deferred Compensation and Stock Plan for
Directors (the "Plan").
1. DEFERRED FEE PLAN. The Director agrees to the terms and conditions of
the Plan, a copy of which has been delivered to the Director and constitutes a
part of this Agreement. Capitalized words and phrases in this Agreement shall
have the meaning given to them in the Plan, unless the context dearly indicates
otherwise.
2. ELECTION TO DEFER FEES. The Director authorizes and directs the Company
to defer ________________________ [insert percentage or dollar amount] of the
Director's Fees earned on and after _________________ 19__ and in each
subsequent calendar year. The Director may at any time revoke this election on a
prospective basis beginning after the date of such revocation by delivering to
the Secretary of the Company a written revocation of the election.
3. INVESTMENT OF DEFERRED FEES. The Director elects to have his or her
deferred Director's Fees apportioned between Cash and Stock Deferred Fee
Accounts as follows (circle appropriate percentages):
Cash Deferred Fee Account: 0% 25% 50% 75% 100%
Stock Deferred Fee Account: 0% 25% 50% 75% 100%
12
<PAGE>
4. FORM OF PAYMENT. The Director elects to receive the amount of Deferred
Fees credited to his or her Deferred Fee Accounts pursuant to this Agreement in
(check one):
( ) a lump sum; or
( ) substantially equal annual Installments over a period of __ years
(not to exceed ten).
Payment shall commence:
( ) ________, 19__; or
( ) upon termination of service as director.
5. BENEFICIARY. The Director requests that, upon his or her death, any
amounts remaining in his or her Deferred Fee Accounts be paid to the Beneficiary
or Beneficiaries he or she has designated in a Notice of Designation of
Beneficiary filed with the Secretary of the Company.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year written above.
_______________________ ___________________________________
Witness Director
SAUL CENTERS, INC
By_________________________________
Name:______________________________
Title:_____________________________
3
<PAGE>
Saul Centers, Inc
Schedule of Current Portfolio Properties
March 31, 1999
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) Mar-99 Mar-98
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping Centers
Ashburn Village Ashburn, VA 108,204 1994 12.7 100% 98%
Beacon Center (a) Alexandria, VA 355,659 1972 (1993/1998) 32.3 100% 97%
Belvedere Baltimore, MD 54,941 1972 4.8 94% 100%
Boulevard Fairfax, VA 56,578 1994 5.0 92% 100%
Clarendon Arlington, VA 6,940 1973 0.5 100% 100%
Clarendon Station Arlington, VA 4,868 1996 0.1 100% 55%
Flagship Center Rockville, MD 21,500 1972, 1989 0.5 100% 100%
French Market Oklahoma City, OK 213,668 1974 (1984/98) 13.8 76% 63%
Germantown Germantown, MD 26,241 1992 2.7 97% 100%
Giant Baltimore, MD 70,040 1972 (1990) 5.0 100% 100%
The Glen Lake Ridge, VA 112,639 1994 14.7 97% 100%
Great Eastern District Heights, MD 255,448 1972 (1995) 23.9 96% 89%
Hampshire Langley Langley Park, MD 134,425 1972 (1979) 9.9 100% 99%
Leesburg Pike Baileys Crossroads, VA 97,888 1966 (1982/95) 9.4 100% 96%
Lexington Mall Lexington, KY 315,747 1974 30.0 91% 86%
Lumberton Lumberton, NJ 189,898 1975 (1992/96) 23.3 91% 88%
Olney Olney, MD 53,765 1975 (1990) 3.7 94% 91%
Park Road Center Washington, DC 106,650 1973 (1993) 1.7 100% 100%
Ravenwood Baltimore, MD 87,750 1972 8.0 100% 100%
Seven Corners Falls Church, VA 567,994 1973 (1994-7) 31.6 100% 93%
Shops at Fairfax (a) Fairfax, VA 60,703 1975 (1993/1998) 6.7 100% 65%
Southdale Glen Burnie, MD 479,749 1972 (1986) 39.6 99% 100%
<CAPTION>
Property Anchor/Significant Tenants
- --------------------------------------------------------------------------------------------
<S> <C>
Shopping Centers
Ashburn Village Giant Food, Blockbuster
Beacon Center Lowe's, Giant Food, Office Depot, Outback Steakhouse, Marshalls,
Just For Feet, Hollywood Video, Hancock Fabrics
Belvedere Food King
Boulevard Danker Furniture, Petco, Party City
Clarendon
Clarendon Station
Flagship Center
French Market Bed Bath & Beyond, Lakeshore Learning Center, Fleming Food, Furr's
Cafeteria, BridesMart
Germantown
Giant Giant Food
The Glen Safeway Marketplace, CVS Pharmacy
Great Eastern Giant Food, Pep Boys, Big Lots, Run N' Shoot
Hampshire Langley Safeway, McCrory
Leesburg Pike Zany Brainy, CVS Pharmacy, Hollywood Video
Lexington Mall Dillard's, Dawahares of Lexington, Fashion Shops, Rite Aid
Lumberton SuperFresh, Rite Aid, Blockbuster, Mandee
Olney Rite Aid
Park Road Center
Ravenwood Giant Food
Seven Corners Home Depot, Shoppers Club, Best Buy, Michaels, Barnes & Noble,
Ross Dress For Less, G Street Fabrics
Shops at Fairfax SuperFresh
Southdale Giant Food, Hechinger, Circuit City, Kids R Us, Michaels, Marshalls,
PetSmart, Value City Furniture
</TABLE>
<PAGE>
Saul Centers, Inc
Schedule of Current Portfolio Properties
March 31, 1999
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) Mar-99 Mar-98
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping Centers (continued)
Southside Plaza Richmond, VA 352,964 1972 32.8 91% 89%
South Dekalb Plaza Atlanta, GA 167,591 1976 14.6 76% 88%
Thruway Winston-Salem, NC 345,194 1972 (1997) 30.5 94% 89%
Village Center Centreville, VA 142,881 1990 17.2 91% 87%
West Park Oklahoma City, OK 77,810 1975 11.2 46% 66%
White Oak Silver Spring, MD 480,156 1972 (1993) 28.5 100% 100%
--------- ----- ---- ----
Total Shopping Centers 4,947,891 414.5 94% 92%
--------- ----- ---- ----
Office Properties
Avenel I-III Gaithersburg, MD 285,218 1981/85/89 28.2 99% 92%
Avenel IV Gaithersburg, MD 46,227 1998 3.2 100% --
Avenel V Gaithersburg, MD 27,535 (b) 1999 2.0 45% --
601 Pennsylvania Ave Washington, DC 225,153 1973 (1986) 1.0 97% 100%
Van Ness Square Washington, DC 157,697 1973 (1990) 1.2 96% 89%
--------- ----- ---- ----
Total Office Properties 741,830 35.6 96% 94%
--------- ----- ---- ----
Industrial Property
--------- ----- ---- ----
Crosstown (c) Tulsa, OK 197,135 1975 21.5 2% 7%
--------- ----- ---- ----
Development Property
--------- ----- ---- ----
North Washington (d) Alexandria, VA 1973 2.0 100%
--------- ----- ---- ----
Total Portfolio 5,886,856 SF 471.6 92% 89%
========= ====== ==== ====
<CAPTION>
Property Anchor/Significant Tenants
- --------------------------------------------------------------------------------------------
<S> <C>
Shopping Centers (continued)
Southside Plaza CVS Pharmacy, Community Pride Supermarket, Maxway
South Dekalb Plaza Bolton Furniture, MacFrugals, Pep Boys, The Emory Clinic
Thruway Stein Mart, Harris Teeter, Fresh Market, Eckerd Drugs, Houlihan's,
Borders Books, Zany Brainy, Blockbuster, Bocock-Stroud
Village Center Giant Food
West Park Homeland Stores, Family Dollar
White Oak Giant Food, Sears, Rite Aid, Blockbuster
Office Properties
Avenel I-III Quanta Systems, General Services Administration, GeneLogic
Avenel IV Boston Biomedica, MicroAge
Avenel V
601 Pennsylvania Ave General Services Administration, Capital Grille
Van Ness Square United Mine Workers Pension Trust, Office Depot, Pier 1
</TABLE>
(a) Property is being redeveloped. Leasable area and percentage leased
includes space leased and under development.
(b) An additional 27,000 square feet of space at Avenel was under construction
as of March 31, 1999.
(c) Shopping center conversion - currently in approval and pre-development.
(d) Construction of a 230,000 square foot Class A mixed-use office/retail
project is due to be completed the summer of 2000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements, schedules and other disclosure contained in Form 10-Q for the period
ended March 31, 1999 of Saul Centers, Inc. and is qualified in its entirety by
reference to such financial statements, schedules and other disclosure.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,061
<SECURITIES> 0
<RECEIVABLES> 5,661
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 350,449
<DEPRECIATION> 104,472
<TOTAL-ASSETS> 275,244
<CURRENT-LIABILITIES> 0
<BONDS> 291,781
0
0
<COMMON> 130
<OTHER-SE> (35,884)
<TOTAL-LIABILITY-AND-EQUITY> 275,244
<SALES> 0
<TOTAL-REVENUES> 17,964
<CGS> 0
<TOTAL-COSTS> 4,833
<OTHER-EXPENSES> 1,534
<LOSS-PROVISION> 61
<INTEREST-EXPENSE> 5,633
<INCOME-PRETAX> 5,041
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,120
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
