<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
FORM 10-Q
INDEX
Pages
-----
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Charles E. Smith Residential Realty, Inc. Financial
Statements as of June 30, 1997 and December 31, 1996,
Filed as a Part of This Report
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION 21
SIGNATURES 23
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Rental property, at predecessor cost, net $ 263,786 $ 267,658
Rental property, acquired and developed, net 329,856 202,435
Rental property, under development 12,742 -
Cash and cash equivalents 7,290 3,898
Tenants' security deposits 3,112 3,521
Escrow funds 8,998 6,087
Investment in and advances to Property Service Businesses
and other 14,356 10,756
Deferred charges, net 16,274 17,646
Other assets 12,501 10,210
----------------- -----------------
$ 668,915 $ 522,211
================= =================
LIABILITIES AND EQUITY
Liabilities
Mortgage loans $ 487,342 $ 416,808
Notes payable 56,000 129,736
Accounts payable and accrued expenses 12,934 9,525
Tenants' security deposits 3,112 3,521
----------------- -----------------
Total liabilities 559,388 559,590
----------------- -----------------
Minority Interest 55,393 -
Commitments and contingencies
Shareholders' equity
Preferred stock - $.01 par value; 2,640,325 shares authorized;
Series A Cumulative Convertible Redeemable Preferred
Stock, liquidation preference of $27.08, 738,553 shares
issued and outstanding 19,772 -
Common stock - $.01 par value; 95,000,000 shares
authorized; 13,312,706 and 9,969,607 shares issued
and outstanding at June 30, 1997 and
December 31, 1996, respectively 133 100
Additional paid-in capital - including contributed
deficit of $244,208 41,655 (23,852)
Retained deficit (7,426) (13,627)
----------------- -----------------
Total shareholders' equity 54,134 (37,379)
----------------- -----------------
$ 668,915 $ 522,211
================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
RENTAL PROPERTIES
Revenues $ 49,483 $ 40,069 $ 94,259 $ 78,952
Expenses
Operating costs 17,332 14,507 33,766 29,979
Real estate taxes 3,081 2,665 5,998 5,107
Depreciation and amortization 5,295 4,336 10,146 8,728
--------- --------- --------- ---------
Total expenses 25,708 21,508 49,910 43,814
PROPERTY SERVICE BUSINESSES
Equity in income of Property Service Businesses 896 1,444 1,705 2,992
Corporate general and administrative expenses (1,648) (1,343) (3,039) (2,630)
Interest expense (11,256) (10,631) (22,683) (21,042)
Interest income 301 265 532 534
--------- --------- --------- ---------
Net income of the Operating Partnership 12,068 8,296 20,864 14,992
Minority Interest (6,098) (4,542) (10,711) (8,229)
Distributions in excess of earnings
allocated to Minority Interest - (1,364) - (3,632)
--------- --------- --------- ---------
Net income $ 5,970 $ 2,390 $ 10,153 $ 3,131
========= ========= ========= =========
Net income per common share $ 0.45 $ 0.24 $ 0.82 $ 0.32
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Series A Additional Retained
Stock Preferred Common Paid-in Earnings
Outstanding (Dollars in Thousands, Except Per Share Data) Stock Stock Capital (Deficit) Total
- ------------ --------------------------------------------- --------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
9,708,123 Balance, December 31, 1995 $ - $ 97 $ (26,585) $ (5,135) $(31,623)
Operating Partnership equity
exchanged for acquisitions - - 2,403 - 2,403
Conversion of Operating Partnership units
261,484 to common stock - 3 (3) - -
Adjustment for Unit Grants - - 333 - 333
Net income - - - 10,977 10,977
Dividends ($1.975 per share) - - - (19,469) (19,469)
- ------------ --------- ------ ---------- --------- --------
9,969,607 Balance, December 31, 1996 - 100 (23,852) (13,627) (37,379)
Operating Partnership equity
exchanged for acquisitions - - 47,129 - 47,129
Proceeds from issuance of Common Stock,
net of offering costs of $5,244 - 31 82,829 - 82,860
3,105,000 Proceeds from issuance of Series A Preferred
Stock, net of offering costs of $228 19,772 - - - 19,772
Conversion of Operating Partnership units
233,099 to common stock - 2 (2) - -
Adjustment for Unit Grants - - 276 - 276
Adjustment for Minority Interest - - (64,879) 7,813 (57,066)
5,000 Other - - 154 - 154
Net income - - - 10,153 10,153
Dividends ($1.01 per share) - - - (11,765) (11,765)
- ------------ --------- ------ ---------- --------- --------
13,312,706 Balance, June 30, 1997 (unaudited) $ 19,772 $ 133 $ 41,655 $ (7,426) $ 54,134
============ ========= ====== ========== ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
For the Six Months
Ended June 30,
-----------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,153 $ 3,131
Minority Interest 10,711 8,229
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 11,640 10,289
Distributions in excess of earnings allocated to Minority Interest - 3,632
Increase in escrow funds (2,911) (1,650)
(Increase) decrease in other assets (2,493) 676
Increase (decrease) in accounts payable and accrued expenses 3,409 (21)
--------- --------
Net cash provided by operating activities 30,509 24,286
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions and development of rental property (14,552) (17,144)
Additions to rental property (4,453) (2,248)
Decrease in related party payables:
Property Service Businesses - (886)
Predecessor - (300)
Increase in investment in and advances
to Property Service Businesses and other (3,566) (3,091)
Other 202 (1,000)
--------- --------
Net cash used by investing activities (22,369) (24,669)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in deferred charges 15 (1,126)
Mortgage repayments (9,630) (352)
Notes payable:
Proceeds from draws 11,350 31,032
Repayments (85,086) (13,100)
Net proceeds from Common Stock offering 82,860 -
Net proceeds from Preferred Stock offering 19,772 -
Dividends and distributions (24,149) (21,465)
Other 120 -
--------- --------
Net cash used by financing activities (4,748) (5,011)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,392 (5,394)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,898 9,478
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,290 $ 4,084
========= ========
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 21,636 $ 19,764
Purchase of properties in exchange for Operating
Partnership units 47,129 513
Assumed debt on acquisitions 80,164 -
Capitalized interest 173 -
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim financial statements include all of the accounts
of Charles E. Smith Residential Realty, Inc. (the "Company") and Charles E.
Smith Residential Realty L.P. (the "Operating Partnership") and its subsidiary
financing partnerships. The Company consolidates the Operating Partnership due
to the Company's control as sole general partner. All significant intercompany
balances and transactions have been eliminated. The financial information
furnished is unaudited, and in management's opinion, includes all adjustments
(consisting only of normal, recurring adjustments), that are necessary for a
fair presentation of financial position as of June 30, 1997 and the results of
operations for the interim periods ended June 30, 1997 and 1996. Such interim
results are not necessarily indicative of the operating results for a full year.
The accompanying financial statements should be read in conjunction with the
audited financial statements and related footnotes appearing in the Company's
Annual Report on Form 10-K.
The Company, through the Operating Partnership and its subsidiaries, is
engaged in the ownership, operation, management, leasing, acquisition, expansion
and development of real estate properties, primarily residential multifamily
properties. As of June 30, 1997, the Operating Partnership owned 44 multifamily
properties containing 17,028 apartment units, and two retail shopping centers
aggregating 436,000 square feet. Additionally, the Operating Partnership owns
substantially all of the economic interest in entities which provide multifamily
and retail property management, leasing and development services, property
renovation, construction and construction management services, building
engineering and technical services, and financial advisory services
(collectively the "Property Service Businesses"). The Operating Partnership uses
the equity method of accounting for its investment in the Property Service
Businesses.
2. ACQUISITIONS AND DEVELOPMENT
The Company, through the Operating Partnership, acquired 1,452 apartment
units in February 1997 through the purchase of two high-rise properties in
Crystal City, Virginia. A 540-unit building was acquired for a total cost of
approximately $43.0 million consisting of 307,000 limited partnership units of
the Operating Partnership valued at $8.7 million, assumed debt of $34.0 million
(at fair market value) and acquisition related costs of approximately $0.3
million. This property is subject to a 5.1% net profits interest in favor of a
third party. A 912-unit building was purchased for a total cost of approximately
$69.8 million consisting of 842,500 limited partnership units of the Operating
Partnership valued at $23.9 million, assumed debt of $45.0 million (at fair
market value) and cash of $0.9 million.
7
<PAGE>
In March 1997, the Company acquired a 376-unit property in northwest
Washington, D.C. for a total cost of approximately $16.3 million consisting of
510,700 limited partnership units of the Operating Partnership valued at $14.5
million, assumed debt of $1.2 million, and acquisition related costs of
approximately $0.6 million.
During the second quarter of 1997, the Company purchased for $9.1 million
approximately 17 acres of land and began development of a 630-unit mid-rise and
garden multifamily property in Springfield, Virginia. The total expected cost of
the project is approximately $60 million with delivery of apartment units
beginning in spring 1998 and final delivery by spring 1999.
As a result of property acquisitions, the stock offerings (see Notes 3
and 4) and the conversion of partnership units into common shares, the Company's
weighted average ownership percentage of the Operating Partnership increased
from 45.3% and 45.1% for the three and six months ended June 30, 1996 to 49.6%
and 48.7% for the three and six months ended June 30, 1997.
3. COMMON STOCK OFFERING
During the first quarter of 1997, the Company completed a follow-on
equity offering and issued 3.1 million shares of common stock at $28.375 per
share totaling $82.9 million, net of underwriting discounts and other expenses
totaling $5.2 million. Net proceeds were used to repay $72.1 million of notes
payable and $9 million of mortgage debt and to fund the property acquisitions.
4. PREFERRED STOCK OFFERING
On May 15, 1997, the Company entered into an agreement with an investor
to sell 2.6 million shares of Series A Cumulative Convertible Redeemable
Preferred Stock (Preferred Shares), $0.01 par value (liquidation preference of
$27.08 per share), at $27.08 per share for a total of $71.5 million. On June 30,
1997, the Company sold 0.7 million Preferred Shares for proceeds of $19.8
million, net of $0.2 million in offering costs. The remainder of the Preferred
Shares will be issued and sold in amounts determined by the Company on or before
May 14, 1998.
Dividends on the Preferred Shares are cumulative from the date of
original issue and are payable quarterly at the greater of $2.02 per share or
the rate declared on the common shares. The Preferred Shares are not redeemable
prior to May 15, 2003. On or after May 15, 2003, the Company, at its option, may
redeem the Preferred Shares for cash at a redemption price of $27.08 per share,
plus accrued and unpaid dividends. Under certain circumstances, the Company may
elect to make such redemption with common stock at the then market price of the
common stock. On or after January 31, 1999, the investor may convert the
Preferred Shares into shares of common stock on a one-for-one basis subject to
certain limitations. Prior to January 31, 1999, the Preferred Shares will not be
convertible unless the Company undergoes a change in control, as defined by the
agreement, or fails to qualify as a REIT for tax purposes.
8
<PAGE>
5. PER SHARE DATA
Earnings per share of the Company for the three and six months ended June
30, 1997 is computed based on 13.3 million and 12.4 million shares,
respectively, which represents the weighted average number of common shares and
common stock equivalents outstanding during the periods. Each of the comparable
prior year periods is based on 9.9 million weighted average common shares.
Operating Partnership units not held by the Company (weighted average of 13.5
million and 13.1 million, respectively, for the three and six months ended June
30, 1997 and 12.0 million for each of the comparable prior year periods) may be
redeemed at the Unitholders' sole discretion. At the option of the Company, such
redemption may be made for cash at the then fair value of the Company's common
stock, or for shares of common stock of the Company on a one-for-one basis which
does not have a dilutive effect. During the six months ended June 30, 1997, 0.2
million units were redeemed for shares of stock.
6. NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share" (SFAS
128) which requires entities to exclude the effect of potentially dilutive
securities in the calculation of primary earnings per share. The standard will
be effective for interim and annual periods ending after December 15, 1997 and
will require restatement of comparative prior-period data. Had the standard been
implemented during the first quarter of 1997, both current and prior period
earnings per share would have been unchanged. Management does not expect this
standard to have any significant impact upon implementation.
During 1997, the FASB also issued several additional standards including
SFAS 129, "Disclosure of Information About Capital Structure", SFAS 130,
"Disclosures About Segments of an Enterprise and Related Information" and SFAS
131, "Reporting Comprehensive Income". All of the standards are effective for
interim and annual reporting periods ending after December 15, 1997 and none are
expected to have any significant impact on current reporting or disclosure since
the Company either already complies with the requirements or the standard is not
applicable.
7. RECLASSIFICATIONS
The Company changed the classification of certain senior management
payroll costs from property operating expenses to corporate general and
administrative expense. Management believes this reclassification more
accurately reflects property operations and is consistent with industry
practice. Amounts for the period ended June 30, 1996 have been reclassified to
conform to the current year's presentation. Had this reclassification not been
made, property operating expenses would have been higher and corporate general
and administrative expenses would have been lower by $0.6 million and $1.1
million for each of the three and six month periods ended June 30, 1997 and
1996.
Certain other reclassifications have also been made to the prior year
amounts to conform to the current year's presentation.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
accompanying financial statements and notes thereto. The results of operations
for the three and six months ended June 30, 1997 and 1996 presented in the
Consolidated Statements of Operations and discussed below represent the
operations of Charles E. Smith Residential Realty, Inc. (the "Company"), Charles
E. Smith Residential Realty L.P. (the "Operating Partnership") and its
subsidiary financing partnerships. The Company consolidates the Operating
Partnership due to its control as sole general partner.
FORWARD-LOOKING STATEMENTS
When used throughout this report, the words "believes", "anticipates", and
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements indicate that assumptions have been used that are
subject to a number of risks and uncertainties which could cause actual
financial results or management plans and objectives to differ materially from
those projected or expressed herein, including: the effect of national and
regional economic conditions, particularly with regard to the levels of
multifamily property occupancy and rental growth in the Washington, D.C.
metropolitan area; the registrant's ability to identify and secure additional
properties and sites that meet its criteria for acquisition or development; the
acceptance of the registrant's financing plans by the capital markets, and the
effect of prevailing market interest rates and the pricing of the Company's
stock; and other risks described from time to time in the registrant's filings
with the Securities and Exchange Commission. Given these uncertainties, readers
are cautioned not to place undue reliance on such statements. The registrant
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
RENTAL PROPERTIES
Revenues, expenses and income from the multifamily and retail properties
for the three and six months ended June 30, 1997 and 1996 were as follows (in
thousands):
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- --------------------------
1997 1996/(1)/ 1997 1996/(1)/
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Multifamily Properties - Core/(2)/
Revenues $ 38,328 $ 36,929 $ 75,538 $ 73,273
Expenses (15,907) (15,934) (32,172) (32,862)
--------- --------- -------- ---------
Income before depreciation $ 22,421 $ 20,995 $ 43,366 $ 40,411
========= ========= ======== =========
Multifamily Properties -
Acquisitions and Development
Revenues $ 8,460 $ 656 $ 13,584 $ 753
Expenses (3,597) (305) (5,835) (343)
-------- --------- -------- ---------
Income before depreciation $ 4,863 $ 351 $ 7,749 $ 410
======== ========= ======== =========
Retail Properties
Revenues $ 2,695 $ 2,484 $ 5,137 $ 4,926
Expenses (909) (933) (1,757) (1,881)
-------- --------- -------- ---------
Income before depreciation $ 1,786 $ 1,551 $ 3,380 $ 3,045
======== ========= ======== =========
Total Rental Properties
Revenues $ 49,483 $ 40,069 $ 94,259 $ 78,952
Expenses (20,413) (17,172) (39,764) (35,086)
Depreciation and amortization (5,295) (4,336) (10,146) (8,728)
-------- --------- -------- ---------
Income from Rental Properties $ 23,775 $ 18,561 $ 44,349 $ 35,138
======== ========= ======== =========
</TABLE>
/(1)/ Reclassified for comparison purposes. See Note 7 to the Financial
Statements.
/(2)/ Represents properties owned as of December 31, 1995.
11
<PAGE>
PROPERTY SERVICE BUSINESSES
Revenues, expenses and income from the various Property Service Businesses
for the three and six months ended June 30, 1997 and 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Multifamily and Retail Property
Management Services
Revenues $ 2,713 $ 2,688 $ 5,274 $ 5,795
Expenses (2,528) (2,303) (4,932) (4,495)
-------- -------- -------- --------
Income before depreciation
and amortization $ 185 $ 385 $ 342 $ 1,300
======== ======== ======== ========
Interior Construction and
Renovation Services
Net fee revenues $ 1,275 $ 1,264 $ 2,626 $ 2,295
Expenses (1,393) (1,184) (2,616) (2,351)
-------- -------- -------- --------
Income before depreciation
and amortization $ (118) $ 80 $ 10 $ (56)
======== ======== ======== ========
Engineering and Technical Services
(including reimbursed costs)
Revenues $ 11,630 $ 10,500 $ 23,931 $ 20,179
Expenses (10,674) (9,648) (21,947) (18,674)
-------- -------- -------- --------
Income before depreciation
and amortization $ 956 $ 852 $ 1,984 $ 1,505
======== ======== ======== ========
Financing Services
Revenues $ 292 $ 720 $ 292 $ 1,389
Expenses (128) (299) (371) (586)
-------- -------- -------- --------
Income before depreciation
and amortization $ 164 $ 421 $ (79) $ 803
======== ======== ======== ========
Total Property Services
Revenues $ 15,910 $ 15,172 $ 32,123 $ 29,658
Expenses (14,723) (13,434) (29,866) (26,106)
Depreciation and amortization (291) (294) (552) (560)
-------- -------- -------- --------
Income from Property
Service Businesses $ 896 $ 1,444 $ 1,705 $ 2,992
======== ======== ======== ========
</TABLE>
12
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 TO THREE MONTHS ENDED JUNE 30,
1996.
SUMMARY. Net income of the Operating Partnership increased $3.8 million, or
45.5%, from $8.3 million for the three months ended June 30, 1996 to $12.1
million for the three months ended June 30, 1997. Funds from Operations ("FFO")
of the Operating Partnership increased $4.7 million, or 37.5%, from $12.6
million to $17.3 million during the same period. Net income of the Company
increased from $2.4 million, or $.24 per share, for the three months ended June
30, 1996 to $6.0 million, or $0.45 per share, for the three months ended June
30, 1997. FFO of the Company increased 50.6%, from $5.7 million to $8.6 million
during the same period. The increases in both net income and FFO are primarily
attributable to the acquisition of six properties totaling 2,830 apartment units
during 1996 and the first quarter of 1997. In addition, income from the core
portfolio increased nearly 7% over the prior year period due to increased rents,
revenue initiatives and expense savings which was partially offset by higher
acquisition-related interest expense as well as decreased income from the
Property Service Businesses.
RENTAL PROPERTIES. Revenue from all rental properties increased $9.4
million, or 23.5%, from $40.1 million for the three months ended June 30, 1996
to $49.5 million for the three months ended June 30, 1997. The six acquisition
and development properties (defined as properties acquired or developed
subsequent to December 31, 1995) contributed approximately 83%, or $7.8 million,
of the total rental revenue increase. Three of the acquisition properties
(comprising 1,002 apartment units) were acquired during 1996 and three
(comprising 1,828 units) were acquired in the first quarter of 1997. The core
portfolio revenue increased $1.4 million, or 3.8%, over the prior year period.
The retail portfolio revenue increased $0.2 million, or 8.5%, over the prior
year period.
Average monthly revenue per core apartment unit increased from $867
during the second quarter of 1996 to $900 per unit during the second quarter of
1997 primarily due to rent increases. In addition, revenue-enhancing
initiatives such as the premium for month-to-month leases and the non-refundable
move-in fee generated approximately $0.3 million in revenue over the comparable
prior year period. Average economic occupancy for the core portfolio was 97.1%
for the three months ended June 30, 1997 compared to 97.2% for the comparable
prior year quarter.
Expenses (including depreciation) from all rental operations increased
$4.2 million, or 19.5%, from $21.5 million during the second quarter of 1996 to
$25.7 million during the current quarter. Approximately $4.1 million of the
increase, including depreciation expense of $0.8 million, resulted from the six
properties in the acquisition/development portfolio. Expenses for the core
portfolio were essentially flat compared to prior year, despite an increase of
$0.3 million in utilities, due to the impact of expense initiatives and lower
repairs and maintenance expenses. Repairs and maintenance expenses, particularly
concrete repairs, were lower than prior year due, in part, to a much milder
winter in 1997 compared to 1996. Also, there was a shift in the timing of
certain maintenance projects
13
<PAGE>
from the second quarter to the third and fourth quarters of 1997.
PROPERTY SERVICE BUSINESSES. The Company uses the equity method of
accounting for investments in the Property Service Businesses.
Despite an increase during the quarter of $0.7 million in total
revenue, income from the Property Service Businesses decreased from $1.4 million
in the second quarter of 1996 to $0.9 million in the second quarter of 1997.
This was primarily due to 1) loss of management fees from the two properties
acquired in February, 2) lower Financing Services revenue caused by fewer debt
refinancings during the quarter, and 3) increased expenses for Interior
Construction and Renovation Services and Retail and Multi-family Property
Management Services.
During the three months ended June 30, 1997, Interior Construction and
Renovation Services' net fee revenue was essentially unchanged from the prior
year period while expenses increased $0.2 resulting in a net loss for the second
quarter of 1997. The increase in expenses was consistent with planned
increases, primarily for employee wages and benefits, to support revenue growth.
However, although gross construction volume increased 11.5% over the prior year
quarter, unrecoverable cost overruns on a large third-party renovation project
and profit margin reductions on two other projects reduced net fee revenues.
Revenues for Multifamily and Retail Property Management increased
slightly (1%) during the second quarter of 1997 as compared to the comparable
prior year quarter reflecting a decrease in multifamily management revenue
offset by an increase in retail services revenue. Multifamily management fee
revenue declined due to the February 1997 acquisition of two properties which
were previously managed by the Company and the Company's decision to terminate a
third-party management contract in January 1997. Retail services revenue
increased over the prior year due to leasing fees on the Potomac Yards project.
Expenses increased by 9.8% due primarily to increased retail lease commission
costs associated with the increase in revenue as well as the addition of
multifamily marketing personnel over the prior year period.
Engineering and Technical Services revenue increased $1.1 million, or
10.8%, during the quarter with resulting increases of 10.6% in expenses and
12.2% in income before depreciation. These increases were the result of new
contracts for HVAC operations and maintenance as well as significant additional
work under existing contracts. Typically, contract extras earn higher margins
than base contract work.
OTHER. Corporate general and administrative expenses increased 22.7%
compared to the prior year due primarily to acquisition personnel added during
the quarter primarily dedicated to the expansion of the Company's acquisition
and development program outside of the Washington, D.C. metropolitan area to
other U.S. cities with strong urban multifamily markets. Interest expense
increased $0.6 million, or 5.9%, due to additional borrowings used to fund
acquisitions and development.
As a result of the follow-on equity offering completed during the
first quarter of 1997 (see
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES), the original Minority Interest deficit created
at the initial public offering was eliminated. Therefore, distributions to the
Minority Interest which exceed allocated earnings are no longer charged to the
Company as General Partner of the Operating Partnership but are charged directly
against the Minority Interest. Distributions in excess of earnings allocated to
Minority Interest of $1.4 million for the three months ended June 30, 1996 have
no effect on FFO.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996.
SUMMARY. Net income of the Operating Partnership increased $5.9
million, or 39.2%, from $15.0 million for the six months ended June 30, 1996 to
$20.9 million for the six months ended June 30, 1997. Funds from Operations
("FFO") of the Operating Partnership increased $7.3 million, or 30.7%, from
$23.7 million to $31.0 million during the same period. Net income of the
Company increased from $3.1 million, or $.32 per share, for the six months ended
June 30, 1996 to $10.2 million, or $0.82 per share, for the six months ended
June 30, 1997. FFO of the Company increased 41.2%, from $10.7 million to $15.1
million during the same period. The increases in both net income and FFO are
primarily attributable to the acquisition of three apartment properties during
1996 and three in the first quarter of 1997. In addition, income from the core
portfolio increased 7.3% over the prior year period due to rent increases as
well as expense savings. Higher interest expense and decreased income from the
Property Service Businesses partially offset these increases.
RENTAL PROPERTIES. Revenue from all rental properties increased $15.3
million, or 19.4%, from $79.0 million for the six months ended June 30, 1996 to
$94.3 million for the six months ended June 30, 1997. The six acquisition and
development properties (defined as properties acquired or developed subsequent
to December 31, 1995) contributed approximately 84%, or $12.8 million, of the
total rental revenue increase. Three of the acquisitions (comprising 1,002
apartment units) were completed during 1996 while the remaining three
(comprising 1,828 units) were completed in the first quarter of 1997. The core
portfolio contributed $2.3 million of the increase in revenue, a 3.1% increase
over the prior year period.
Average monthly revenue per core apartment unit increased from $860
during the first six months of 1996 to $887 during the six months ended June
30, 1997. Revenue-enhancing initiatives on core properties such as the premium
for month-to-month leases and the non-refundable move-in fee generated
approximately $0.7 million in revenue over the comparable prior year period.
However, these increases were partially offset by slightly lower occupancy
during the first quarter, particularly for furnished apartments at Gateway
Place. Average economic occupancy for the core portfolio was down to 96.5% for
the six months ended June 30, 1997 compared to 96.8% for the comparable prior
year quarter.
Expenses (including depreciation) from all rental operations increased
$6.1 million, or 13.9%, from $43.8 million to $49.9 million during the six
months ended June 30, 1996 and 1997, respectively. The six properties in the
acquisition/development portfolio contributed additional
15
<PAGE>
property operating expenses of $5.5 million and depreciation expense of $1.3
million. These increases were offset by expense reductions in both the core and
retail portfolios of $0.7 million (2.1%) and $0.1 million (6.6%),
respectively. Core expenses decreased primarily due to a much milder winter in
1997 compared to 1996 which reduced utility costs as well as repair and
maintenance expenses. Retail expenses at Skyline Mall decreased in 1997 due to a
large maintenance project in 1996 which could not be passed through to the
tenants.
PROPERTY SERVICE BUSINESSES. Income from the Property Service Businesses
decreased from $3.0 million during the six months ended June 30, 1996 to $1.7
million for the six months ended June 30, 1997 due primarily to a $1.1 million
decrease in Financing Services revenue in 1997 as well as a 1996 non-recurring
fee of $0.6 million related to the termination of a management agreement with a
hotel owned by a related party. The decreases in 1997 were partially offset by
higher income for both Engineering and Technical Services and Interior
Construction and Renovation Services.
During the six months ended June 30, 1997, Interior Construction and
Renovation Services' net fee revenue increased $0.3 million, or 14.4%, while
expenses increased 11.3% compared to the prior year period. The revenue increase
was due primarily to additional projects for affiliated partnerships as well as
several large general contracting projects for third party clients. Expenses
increased primarily due to planned increases in personnel and related costs.
Revenues for Multifamily and Retail Property Management decreased $0.5
million, or 9.0%, during the first six months of 1997 compared to the prior year
period due primarily to the non-recurring fee of $0.6 million earned in 1996 in
connection with the termination of a management agreement with a hotel owned by
a related party.
Engineering and Technical Services revenue increased $3.8 million, or
18.6%, during the six months ended June 30, 1997 with resulting increases over
the prior year period of 17.5% in expenses and 31.8% in income. New contracts
for HVAC operations and maintenance as well as significant additional work under
existing contracts contributed approximately $2.7 million of the increased
revenues. Typically, contract extras earn higher margins than base contract
work. The balance of the revenue increase was generated by several large repair
and replacement projects for affiliated partnerships.
OTHER. Corporate general and administrative expenses increased 15.6%,
due primarily to write-offs of capitalized costs for terminated acquisition
projects as well as the addition of acquisition personnel during the year.
Interest expense increased $1.6 million, or 7.8%, due to additional borrowings
to fund acquisitions and development.
Distributions in excess of earnings allocated to Minority Interest of
$3.6 million for the six months ended June 30, 1996 have no effect on FFO.
FUNDS FROM OPERATIONS. Funds from Operations (FFO) is defined under
the revised definition adopted by the National Association of Real Estate
Investment Trusts (NAREIT) as net income (loss)
16
<PAGE>
(computed in accordance with generally accepted accounting principles) excluding
gains (or losses) from debt restructuring, and distributions in excess of
earnings allocated to Minority Interest, plus depreciation/amortization of
assets unique to the real estate industry. Depreciation/amortization of assets
not unique to the industry, such as amortization of deferred financing costs and
non-real estate assets, is not added back. FFO does not represent cash flow from
operating activities in accordance with generally accepted accounting principles
(which, unlike Funds from Operations, generally reflects all cash effects of
transactions and other events in the determination of net income) and should not
be considered an alternative to net income as an indication of the Company's
performance or to cash flow as a measure of liquidity or ability to make
distributions. The Company considers FFO a meaningful, additional measure of
operating performance because it primarily excludes the assumption that the
value of real estate assets diminishes predictably over time, and because
industry analysts have accepted it as a performance measure. Comparison of the
Company's presentation of FFO, using the NAREIT definition, to similarly titled
measures for other REITs may not necessarily be meaningful due to possible
differences in the application of the NAREIT definition used by such REITs.
17
<PAGE>
Funds from Operations for the three and six months ended June 30,
1997 and 1996 are computed as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Income of the
Operating Partnership $12,068 $ 8,296 $ 20,864 $ 14,992
Depreciation of Real Property 5,295 4,336 10,146 8,728
------- ------- -------- --------
Funds from Operations of the
Operating Partnership 17,363 12,632 31,010 23,720
Minority Interest (8,751) (6,913) (15,908) (13,022)
------- ------- -------- --------
Attributable to Shareholders $ 8,612 $ 5,719 $ 15,102 $ 10,698
======= ======= ======== ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY. Net cash flow provided by operating activities increased $6.2
million from $24.3 million for the six months ended June 30, 1996 to $30.5
million for the six months ended June 30, 1997. The increase is a result of an
additional $7.3 million of FFO of the Operating Partnership and an increase of
$3.4 million in accounts payable due primarily to property acquisitions and
accrued real estate taxes. These cash inflows were partially offset by an
increase of escrow funds and other assets.
Despite a $124 million increase in acquisition and development
activity in 1997, net cash flow used by the Company in investing activities
decreased by $2.3 million compared to the prior year period. The decrease was
primarily due to the funding of a substantial portion of the 1997 property
acquisitions through Operating Partnership unit exchanges and debt assumption.
Net cash flows used by financing activities was $4.7 million for the
six months ended June 30, 1997, comprised of $103 million of cash inflow from
common and preferred stock sales less $83 million of debt repayments and $24
million of dividends/distributions ($1.01 per share/unit). Net cash flows used
by financing activities of $5.0 million in the comparable prior year period
primarily consisted of $18 million in borrowings less $21 million of
dividends/distributions ($0.98 per share/unit).
During the first quarter of 1997, the Company issued 3.1 million
shares of common stock in an equity offering at $28.375 per share resulting in
proceeds of $82.9 million, net of underwriting discounts and other expenses
totaling $5.2 million (the Common Offering). In conjunction with the Common
Offering, the Company acquired three apartment properties and repaid $72.1
million on the line of credit and $9.0 million of mortgage debt. On June 30,
1997, the Company issued 0.7 million
18
<PAGE>
shares of preferred stock at $27.08 per share resulting in proceeds of $19.8
million, net of underwriting discounts and other expenses totaling $0.2 million
(the Preferred Offering). In conjunction with the Preferred Offering, the
Company repaid $13 million on the line of credit on June 30, 1997. (An
additional $7 million was repaid on the line on July 1, 1997. )
DEBT
During the first quarter, the Company completed the acquisition of
three multifamily properties totaling 1,828 apartment units, for a total cost of
$129.1 million comprised of Operating Partnership Units ($47.1 million), assumed
debt ($80.2 million) and cash ($1.8 million). One of the properties is subject
to a 5.1% net profits interest in favor of a third party.
During the second quarter of 1997, the Company purchased for $9.1
million approximately 17 acres of land and began development of a 630-unit mid-
rise and garden property in Springfield, Virginia. The total expected cost of
the project is approximately $60 million with first deliveries scheduled for
spring 1998. Final completion is expected by spring 1999.
As of June 30, 1997, the Company had mortgage indebtedness and other
borrowings, which carried a weighted average interest rate of 8%, as follows:
<TABLE>
<CAPTION>
Dollars in % of
Thousands Total
---------- ------
<S> <C> <C>
Long-term mortgage debt
(maturities greater than 1 year)
Fixed rate $479,191 88.2%
Short-term mortgage debt
(maturities less than 1 year)
Variable rate 8,151 1.5%
$100M Acquisition Line of Credit 26,000 4.8%
$83M Acquisition Line of Credit 30,000 5.5%
-------- -----
$543,342 100.0%
======== =====
</TABLE>
As of June 30, 1997, the Company had $127 million of unused borrowing
capacity available on lines of credit and $51.5 million available under its
preferred stock agreement. Amounts outstanding under lines of credit averaged
$75.2 million for the six months ended June 30, 1997 compared to $64.7 million
for the six months ended June 30, 1996. In April 1997, the Company renegotiated
the terms of its existing $100 million line of credit. The revised line reduces
by 38 to 65 basis points the current spread over the London Interbank Offering
Rate (LIBOR), based on the outstanding balance and the value of the collateral.
In addition, the maturity has been extended until June 30, 2000 and several
covenants in the agreement were modified to provide the Company greater
flexibility.
19
<PAGE>
As of June 30, 1997, the Company's Debt to Total Market Capitalization
Ratio was 40.7% (based on 13.3 million common shares, 0.7 million preferred
shares and 13.5 million partnership units outstanding at a stock price of
$28.75) versus 45.9% as of December 31, 1996 and 48.7% as of June 30, 1996. The
Company's Debt Coverage Ratio for the six months ended June 30, 1997 was 2.54 to
1 compared to 2.31 for the comparable prior year period.
CAPITAL EXPENDITURES
For the six months ended June 30, 1997, total capital improvements
were $4.5 million, of which $3.9 million were for the core portfolio ($274 per
unit). Approximately 33% of the capital expenditures on the core portfolio are
considered by management to be revenue generating or economic improvements, as
shown below, which the Company believes directly affect its ability to increase
rents. The remaining capital expenditures on the core portfolio indirectly
influence the Company's ability to increase rents and are considered non-revenue
generating. A summary of core capital expenditures follows:
<TABLE>
<CAPTION>
Total $ Actual # of Average $ Per Average $ Per
Expenditure Type Spent Units Improved Unit Improved Core Unit
- ----------------------------- ------------- -------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Installations/Replacements:
Appliances $ 346 615 $ 563 $ 24
Carpet 31 28 1,107 3
Security gating 321 711 451 23
Other 43 77 558 3
Renovations:
Kitchen 284 65 4,371 20
Bath 242 225 1,076 17
------ ------
Total revenue generating
improvements 1,267 90
Non-revenue generating
improvements 2,268 184
------ ------
Total capital expenditures
- core portfolio $3,895 $ 274
====== ======
</TABLE>
20
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities.
The Company amended the Articles of Incorporation and the Operating
Partnership amended the Agreement of Limited Partnership (see Exhibits 3.1
and 4.1) to designate and establish the rights and privileges of the Series
A Cumulative Convertible Redeemable Preferred Stock ("Preferred Shares")
and Series A Cumulative Convertible Redeemable Preferred Units ("Preferred
Units"), respectively. Rights of Preferred Shareholders include voting,
dividend and liquidation preferences over the common shareholders including
the right to elect two additional Directors should dividends on Preferred
Shares be in arrears for four quarters (consecutive or not).
Dividends on the Preferred Shares are cumulative from the date of original
issue and are payable quarterly at the greater of $2.02 per share or the
rate declared on the common shares. No dividends will be declared or paid
on any class of common or other junior stock to the extent that dividends
on Preferred Shares have not been declared and/or paid. The Preferred
Shares are not redeemable prior to May 15, 2003. On or after May 15, 2003,
the Company, at its option, may redeem the Preferred Shares for cash at a
redemption price of $27.08 per share, plus accrued and unpaid dividends.
Under certain circumstances, the Company may elect to make such redemption
with common stock at the then market price of the common stock. On or after
January 31, 1999, the investor may convert the Preferred Shares into shares
of common stock on a one-for-one basis subject to certain limitations.
Prior to January 31, 1999, the Preferred Shares will not be convertible
unless the Company undergoes a change in control, as defined by the
agreement, or fails to qualify as a REIT for tax purposes.
On May 15, 1997, the Company entered into an agreement with an investor to
sell 2,640,325 million shares of Series A Cumulative Convertible Redeemable
Preferred Stock (Preferred Shares), $0.01 par value (liquidation preference
of $27.08 per share), at $27.08 per share for a total of $71.5 million. On
June 30, 1997, the Company sold 738,553 million Preferred Shares for
proceeds of $19.8 million, net of $0.2 million in offering costs. The
remainder of the Preferred Shares will be issued and sold in amounts
determined by the Company on or before May 14, 1998. The agreement
includes limitations on the Company's ability to issue debt or preferred
stock if certain fixed charge ratios are exceeded.
The Company believes that such offering and sale was exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act") by virtue of Section 4(2) of the Securities Act and the provisions of
Rule 506 of Regulation D.
Item 3. Defaults on Senior Securities.
None
21
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The regular Annual Meeting of the registrant was held on May 14, 1997. At
this Annual Meeting, incumbent Directors Mandell J. Ourisman, Robert H.
Smith and Mallory Walker were reelected to the Board of Directors for terms
ending in 2000; Directors Fred J. Brinkman, Ernest A. Gerardi, Jr., Charles
B. Gill and Robert P. Kogod continued their terms in office. The
shareholders also voted at this Annual Meeting to ratify the Board of
Directors' appointment of Arthur Andersen LLP as the independent auditors
of the Registrant for the fiscal year ending December 31, 1997. The votes
cast at this Annual Meeting were as follows:
Election of Mandell J. Ourisman FOR: 11,735,611 shares
WITHHELD: 2,669 shares
Election of Robert H. Smith FOR: 11,736,011 shares
WITHHELD: 2,269 shares
Election of Mallory Walker FOR: 11,736,011 shares
WITHHELD: 2,269 shares
Ratification of Appointment of FOR: 11,730,574 shares
Arthur Andersen LLP WITHHELD: 4,706 shares
AGAINST: 3,000 shares
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
--------------
3.1 Articles Supplementary to Amended and Restated Articles of
Incorporation of Charles E. Smith Residential Realty, Inc.
4.1 Ninth Amendment to Amended and Restated Agreement of Limited
of Partnership the Operating Partnership
10.1 Second Amended and Restated Credit Agreement by and between the
Operating Partnership and PNC Bank, National Association, et.
al.
(b) Reports on Form 8-K
None
22
<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.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
August 11, 1997 By: /s/ W. D. Minami
----------------------------------------------------
W. D. Minami
Senior Vice President and Chief Financial
Officer of Charles E. Smith Residential Realty, Inc.
(on behalf of the Registrant and as Principal
Financial Officer)
/s/ C. R. Hagen
-----------------------------------------------------
C. R. Hagen
Vice President and Chief Accounting Officer
of Charles E. Smith Residential Realty, Inc.
23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
3.1 Articles Supplementary to Amended and Restated
Articles of Incorporation of Charles E. Smith
Residential Realty, Inc.
4.1 Ninth Amendment to Amended and Restated Agreement
of Limited Partnership of the Operating Partnership
10.1 Second Amended and Restated Credit Agreement by
and between the Operating Partnership and PNC Bank,
National Association, et. al.
</TABLE>
24
<PAGE>
EXHIBIT 3.1
Series A Cumulative Convertible
Redeemable Preferred Stock
ARTICLES SUPPLEMENTARY
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
----------------------------------------
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series A Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
-----------------------------------------
Dated as of June 19, 1997
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
-----------------------------------------
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series A Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
-----------------------------------------
Charles E. Smith Residential Realty, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Annotated Code of
Maryland that:
FIRST: Pursuant to authority granted by the Amended and Restated Articles
of Incorporation of the Corporation, the Board of Directors on May 14, 1997
adopted a resolution designating and classifying 2,640,325 unissued and
unclassified shares of capital stock as Series A Cumulative Convertible
Redeemable Preferred Stock.
SECOND: The following is a description of the Series A Cumulative
Convertible Redeemable Preferred Stock, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 2. Number of Shares and Designation. This class of preferred stock
--------------------------------
shall be designated as Series A Cumulative Convertible Redeemable Preferred
Stock and the number of shares which shall constitute such series shall not be
more than 2,640,325 shares, par value $0.01 per share, which number may be
decreased (but not below the number thereof then outstanding) from time to time
by the Board of Directors.
Section 3. Definitions. For purposes of the Series A Preferred Shares, the
-----------
following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
------------------
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series A Preferred
Shares.
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or a
------------
day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
---------
required under Section 5(d) as the Call Date.
"Change of Control" shall have the meaning set forth in Section 6(a).
-----------------
"Change of Ownership" shall have the meaning set forth in Section
-------------------
6(a).
"Common Shares" shall mean the shares of Common Stock, par value $0.01
-------------
per share, of the Corporation.
"Constituent Person" shall have the meaning set forth in Section 6(e).
------------------
"Conversion Price" shall mean the conversion price per Common Share
----------------
for which the Series A Preferred Shares are convertible, as such Conversion
Price may be adjusted pursuant to Section 6. The initial conversion price
shall be $27.08 (equivalent to a conversion rate of one Common Share for
each Series A Preferred Share).
"Current Market Price" of publicly traded shares of Common Stock or
--------------------
any other class of shares of capital stock or other security of the
Corporation or any other issuer for any day shall mean the last reported
sales price, regular way on such day, or, if no sale takes place on such
day, the average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on the New York Stock Exchange
("NYSE") or, if such security is not listed or admitted for trading on the
------
NYSE, on the principal national securities exchange on which such security
is listed or admitted for trading or, if not listed or admitted for trading
on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ")
------
or, if such security is not quoted on such National Market System, the
average of the closing bid and asked prices on such day in the over-the-
counter market as reported by NASDAQ or, if bid and asked prices for such
security on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by any NYSE
member firm regularly making a market in such security selected for such
purpose by the Board of Directors.
"Dividend Payment Date" shall mean (i) for any Dividend Period with
---------------------
respect to which the Corporation pays a dividend on the Common Shares, the
date on which such dividend is paid, or (ii) for any Dividend Period with
respect to which the Corporation does not pay a dividend on the Common
Shares, a date to be set by the
<PAGE>
Board of Directors, which date shall not be later than the forty-fifth
calendar day after the end of the applicable Dividend Period.
"Dividend Periods" shall mean quarterly dividend periods commencing on
----------------
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period, which shall commence on the
Issue Date and end on and include June 30, 1997, and other than the
Dividend Period during which any Series A Preferred Shares shall be
redeemed pursuant to Section 5, which shall end on and include the Call
Date with respect to the Series A Preferred Shares being redeemed).
"Expiration Time" shall have the meaning set forth in Section
---------------
6(d)(iv).
"Fair Market Value" shall mean the average of the daily Current Market
-----------------
Prices of a Common Share on the five (5) consecutive Trading Days selected
by the Corporation commencing not more than 20 Trading Days before, and
ending not later than, the earlier of the day in question and the day
before the "ex date" with respect to the issuance or distribution requiring
such computation. The term "ex date," when used with respect to any
issuance or distribution, means the first day on which the Common Shares
trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used to
determine that day's Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other class
-------------------
or series of shares of capital stock of the Corporation now or hereafter
issued and outstanding over which the Series A Preferred Shares have
preference or priority in both (i) the payment of dividends and (ii) the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation.
"Funds from Operations" shall mean net income (loss) (computed in
---------------------
accordance with generally accepted accounting principles) excluding gains
(or losses) from debt restructuring, and distributions in excess of
earnings allocated to other Operating Partnership interests or minority
interests (as reflected in the financial statements of the Corporation)
plus depreciation/amortization of assets unique to the real estate
industry, all computed in a manner consistent with the revised definition
of Funds From Operations adopted by the National Association of Real Estate
Investment Trusts (NAREIT), in its White Paper dated March 1995, as such
definitions may be modified from time to time, as determined by the
Corporation in good faith.
"Issue Date" shall mean the date on which the first Series A Preferred
----------
Shares are issued.
<PAGE>
"Junior Shares" shall mean the Common Shares and any other class or
-------------
series of capital stock of the Corporation now or hereafter issued and
outstanding over which the Series A Preferred Shares have preference or
priority in the payment of dividends or in the distribution of assets on
any liquidation, dissolution or winding up of the Corporation.
"Non-Electing Share" shall have the meaning set forth in Section 6(e).
------------------
"Operating Partnership" shall mean the Charles E. Smith Residential
---------------------
Realty, L.P., a Delaware limited partnership.
"Parity Shares" shall have the meaning set forth in Section 8(b).
-------------
"Person" shall mean any individual, firm, partnership, corporation,
------
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
----------------
6(d)(iv).
"REIT Termination Event" shall mean the earliest to occur of:
----------------------
(i) the filing of a federal income tax return by the Corporation for
any taxable year on which the Corporation does not elect to be
taxed as a real estate investment trust;
(ii) the approval by the stockholders of the Corporation of a
proposal for the Corporation to cease to qualify as a real
estate investment trust;
(iii) a determination by the Board of Directors of the Corporation,
based on the advice of counsel, that the Corporation has ceased
to qualify as a real estate investment trust; or
(iv) a "determination" within the meaning of Section 1313(a) of the
Internal Revenue Code of 1986, as amended, that the Corporation
has ceased to qualify as a real estate investment trust.
"Securities" and "Security" shall have the meanings set forth in
---------- --------
Section 6(d)(iii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
<PAGE>
"Series A Preferred Shares" shall mean the shares of Series A
-------------------------
Cumulative Convertible Redeemable Preferred Stock.
"Set apart for payment" shall be deemed to include, without any action
---------------------
other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board
of Directors, the allocation of funds to be so paid on any series or class
of shares of capital stock of the Corporation; provided, however, that if
-------- -------
any funds for any class or series of Junior Shares or any class or series
of shares of capital stock ranking on a parity with the Series A Preferred
Shares as to the payment of dividends are placed in a separate account of
the Corporation or delivered to a disbursing, paying or other similar
agent, then "set apart for payment" with respect to the Series A Preferred
Shares shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Smith and Kogod Holders" shall have the meaning set forth in Article
-----------------------
VIII of the Corporation's Amended and Restated Articles of Incorporation.
"Trading Day" shall mean any day on which the securities in question
-----------
are traded on the NYSE, or if such securities are not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the National Market
System of NASDAQ, or if such securities are not quoted on such National
Market System, in the securities market in which the securities are traded.
"Transaction" shall have the meaning set forth in Section 6(e).
-----------
"Transfer Agent" shall mean First Union National Bank, or such other
--------------
agent or agents of the Corporation as may be designated by the Board of
Directors or their designee as the transfer agent, registrar and dividend
disbursing agent for the Series A Preferred Shares.
"Units" shall mean Partnership Units as that term is defined in the
-----
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
"Voting Preferred Shares" shall have the meaning set forth in Section
-----------------------
9.
"Weighted Average Trading Price" shall mean, for any Trading Day, the
------------------------------
number obtained by dividing (i) the sum of the products, for each sale of
Common Shares on such Trading Day, of (a) the sale price per Common Share
and (b) the
<PAGE>
number of Common Shares sold by (ii) the total number of Common Shares sold
on such Trading Day.
Section . Dividends.
---------
(a) The holders of Series A Preferred Shares shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential
dividends payable in cash in an amount per share equal to the greater of
(i) 7.459% of the Liquidation Preference per annum (equivalent to $2.02 per
share) or (ii) the ordinary cash dividends (determined on each Dividend
Payment Date) on the Common Shares, or portion thereof, into which a Series
A Preferred Share is convertible. The dividends referred to in clause (ii)
of the preceding sentence shall equal the number of Common Shares, or
portion thereof, into which a Series A Preferred Share is convertible,
multiplied by the most current quarterly dividend on a Common Share on or
before the applicable Dividend Payment Date. If the Corporation pays an
ordinary cash dividend on the Common Shares with respect to a Dividend
Period after the date on which the Dividend Payment Date is declared
pursuant to clause (ii) of the definition of Dividend Payment Date and the
dividend calculated pursuant to clause (ii) of this paragraph (a) with
respect to such Dividend Period is greater than the dividend previously
declared on the Series A Preferred Shares with respect to such Dividend
Period, the Corporation shall pay an additional dividend to the holders of
the Series A Preferred Shares on the date on which the dividend on the
Common Shares is paid, in an amount equal to the difference between (y) the
dividend calculated pursuant to clause (ii) of this paragraph (a) and (z)
the amount of dividends previously declared on the Series A Preferred
Shares with respect to such Dividend Period. The dividends shall begin to
accrue and shall be fully cumulative from the first day of the applicable
Dividend Period, whether or not in any Dividend Period or Periods there
shall be funds of the Corporation legally available for the payment of such
dividends, and shall be payable quarterly, when, as and if declared by the
Board of Directors, in arrears on Dividend Payment Dates. Each such
dividend shall be payable in arrears to the holders of record of Series A
Preferred Shares as they appear in the records of the Corporation at the
close of business on such record dates, not less than 10 nor more than 50
days preceding such Dividend Payment Dates thereof, as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time and for such interim
periods, without reference to any regular Dividend Payment Date, to holders
of record on such date, not less than 10 nor more than 50 days preceding
the payment date thereof, as may be fixed by the Board of Directors. Any
dividend payment made on Series A Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due with respect to Series
A Preferred Shares which remains payable.
<PAGE>
(b) The amount of dividends referred to in clause (i) of Section 3(a)
payable for each full Dividend Period on the Series A Preferred Shares
shall be computed by dividing the annual dividend rate by four. The
initial Dividend Period will include a partial dividend for the period from
the Issue Date until June 30, 1997. The amount of dividends payable for
such period, or any other period shorter than a full Dividend Period, on
the Series A Preferred Shares shall be computed on the basis of a 360-day
year of twelve 30-day months. Holders of Series A Preferred Shares shall
not be entitled to any dividends, whether payable in cash, property or
shares, in excess of cumulative dividends, as herein provided, on the
Series A Preferred Shares. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments
on the Series A Preferred Shares which may be in arrears.
(c) So long as any Series A Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of
Parity Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series A
Preferred Shares for all Dividend Periods terminating on or prior to the
dividend payment date on such class or series of Parity Shares. When
dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends declared upon Series A Preferred
Shares and all dividends declared upon any other class or series of Parity
Shares shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series A Preferred Shares and
accumulated and unpaid on such Parity Shares.
(d) So long as any Series A Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of,
or options, warrants or rights to subscribe for or purchase shares of,
Fully Junior Shares) shall be declared or paid or set apart for payment or
other distribution shall be declared or made or set apart for payment upon
Junior Shares, nor shall any Junior Shares be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition
of Common Shares made for purposes of an employee incentive or benefit
plan of the Corporation or any subsidiary) for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption
of any Junior Shares) by the Corporation, directly or indirectly (except by
conversion into or exchange for Fully Junior Shares), unless in each case
(i) the full cumulative dividends on all outstanding Series A Preferred
Shares and any other Parity Shares of the Corporation shall have been or
contemporaneously are declared and paid or declared and set apart for
payment for all past Dividend Periods with respect to the Series A
Preferred Shares and all past dividend periods with respect to such Parity
Shares and (ii) sufficient funds shall have been or contemporaneously are
declared and paid or declared and set apart for the payment of the dividend
for the current Dividend Period with respect to the
<PAGE>
Series A Preferred Shares and the current dividend period with respect to
such Parity Shares.
(e) No distributions on Series A Preferred Shares shall be declared
by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of
the Corporation, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or
provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration
or payment shall be restricted or prohibited by law.
Section 5. Liquidation Preference.
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(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Shares, the holders
of the Series A Preferred Shares shall be entitled to receive Twenty Seven
Dollars and Eight Cents ($27.08) (the "Liquidation Preference") per Series
A Preferred Share plus an amount equal to all dividends (whether or not
earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment; provided, that the dividend payable with respect to the
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Dividend Period containing the date of final distribution shall be equal to
the greater of (i) the dividend provided in Section 3(a)(i) or (ii) the
dividend determined pursuant to Section 3(a)(ii) for the preceding Dividend
Period. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the Series A Preferred Shares shall be
insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares of any class or series of Parity
Shares, then such assets, or the proceeds thereof, shall be distributed
among the holders of Series A Preferred Shares and any such other Parity
Shares ratably in accordance with the respective amounts that would be
payable on such Series A Preferred Shares and any such other Parity Shares
if all amounts payable thereon were paid in full. For the purposes of this
Section 4, (i) a consolidation or merger of the Corporation with one or
more corporations, real estate investment trusts or other entities, (ii) a
sale, lease or conveyance of all or substantially all of the Corporation's
property or business or (iii) a statutory share exchange shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of capital stock ranking on a parity with or
prior to the Series A Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation,
<PAGE>
dissolution or winding up of the Corporation, after payment shall have been
made in full to the holders of the Series A Preferred Shares, as provided
in this Section 4, any other series or class or classes of Junior Shares
shall, subject to the respective terms and provisions (if any) applying
thereto, be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Series A Preferred Shares shall not be
entitled to share therein.
Section 6. Redemption at the Option of the Corporation.
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(a) The Series A Preferred Shares shall not be redeemable by the
Corporation prior to May 15, 2003. On and after May 15, 2003, the
Corporation, at its option, may redeem the Series A Preferred Shares, in
whole at any time or from time to time in part as set forth herein, subject
to the provisions described below:
(i) Series A Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation, at any time on or after May
15, 2003 by issuing and delivering to each holder for each Series A
Preferred Share to be redeemed such number of authorized but
previously unissued Common Shares as equals the Liquidation Preference
(excluding any accumulated, accrued and unpaid dividends which are to
be paid in cash as provided below) per Series A Preferred Share
divided by the Conversion Price as in effect as of the opening of
business on the Call Date; provided, however, that the Corporation may
redeem Series A Preferred Shares pursuant to this paragraph (a)(i)
only if (A) the Weighted Average Trading Price, for twenty (20)
Trading Days, within the last thirty (30) Trading Days immediately
before the date of the notice given pursuant to Section 5(d), equals
or exceeds 108% of the Conversion Price in effect on the date of the
notice given pursuant to Section 5(d) and (B) at least 1,000,000
Common Shares were traded during such 30 Trading Days.
(ii) Series A Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation at any time on or after May 15,
2003 out of funds legally available therefor at a redemption price
payable in cash equal to the Liquidation Preference per Series A
Preferred Share (plus all accumulated, accrued and unpaid dividends as
provided below).
(b) Upon any redemption of Series A Preferred Shares pursuant to this
Section 5, the Corporation shall pay all accrued and unpaid dividends, if
any, thereon to the Call Date, without interest. If the Call Date falls
after a dividend payment record date and prior to the corresponding
Dividend Payment Date, then each holder of Series A Preferred Shares at the
close of business on such dividend payment record date shall be entitled to
the dividend payable on such shares on the corresponding Dividend Payment
Date notwithstanding any redemption of such shares before such
<PAGE>
Dividend Payment Date. Except as provided above, the Corporation shall make
no payment or allowance for unpaid dividends, whether or not in arrears, on
Series A Preferred Shares called for redemption.
(c) If full cumulative dividends on the Series A Preferred Shares and
any other class or series of Parity Shares of the Corporation have not been
declared and paid or declared and set apart for payment, the Series A
Preferred Shares may not be redeemed under this Section 5 in part and the
Corporation may not purchase or acquire Series A Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series A Preferred Shares.
(d) Notice of the redemption of any Series A Preferred Shares under
this Section 5 shall be mailed by first-class mail to each holder of record
of Series A Preferred Shares to be redeemed at the address of each such
holder as shown on the Corporation's records, not less than 30 nor more
than 90 days prior to the Call Date. Neither the failure to mail any
notice required by this paragraph (d), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given on the date
mailed whether or not the holder receives the notice. Each such mailed
notice shall state, as appropriate: (1) the Call Date; (2) the number of
Series A Preferred Shares to be redeemed and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to be
redeemed from such holder; (3) the redemption price if the Series A
Preferred Shares are redeemed for cash and the number of Common Shares to
be issued if the Series A Preferred Shares are redeemed for Common Shares;
(4) the place or places at which certificates for such shares are to be
surrendered; (5) the then-current Conversion Price; and (6) that dividends
on the shares to be redeemed shall cease to accrue on such Call Date except
as otherwise provided herein. Notice having been mailed as aforesaid, from
and after the Call Date (unless the Corporation shall fail to make
available an amount of cash necessary to effect such redemption), (i)
except as otherwise provided herein, dividends on the Series A Preferred
Shares so called for redemption shall cease to accrue, (ii) such shares
shall no longer be deemed to be outstanding, and (iii) all rights of the
holders thereof as holders of Series A Preferred Shares of the Corporation
shall cease (except the rights to convert and to receive the Common Shares
and/or cash payable upon such redemption, without interest thereon, upon
surrender and endorsement of their certificates if so required and to
receive any dividends payable thereon). The Corporation's obligation to
provide Common Shares and/or cash in accordance with the preceding sentence
shall be deemed fulfilled if, on or before the Call Date, the Corporation
shall deposit with a bank or trust company (which may be an affiliate of
the Corporation) that has an office in the Borough of Manhattan, City of
New York, and that has, or is an affiliate of a bank or trust
<PAGE>
company that has, capital and surplus of at least $50,000,000, necessary
for such redemption, in trust, with irrevocable instructions that such
Common Shares and/or cash be applied to the redemption of the Series A
Preferred Shares so called for redemption. In the case of any redemption
pursuant to paragraph (a)(i) of this Section 5, at the close of business on
the Call Date, each holder of Series A Preferred Shares to be redeemed
(unless the Corporation defaults in the delivery of the Common Shares or
cash payable on such Call Date) shall be deemed to be the record holder of
the Common Shares into which such Series A Preferred Shares are to be
converted at redemption, regardless of whether such holder has surrendered
the certificates representing the Series A Preferred Shares to be so
redeemed. No interest shall accrue for the benefit of the holders of Series
A Preferred Shares to be redeemed on any cash so set aside by the
Corporation. Subject to applicable escheat laws, any such cash unclaimed at
the end of two years from the Call Date shall revert to the general funds
of the Corporation, after which reversion the holders of such shares so
called for redemption shall look only to the general funds of the
Corporation for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Corporation shall so require and
if the notice shall so state), such shares shall be exchanged for any cash
(without interest thereon) for which such shares have been redeemed. If
fewer than all the outstanding Series A Preferred Shares are to be
redeemed, shares to be redeemed shall be selected by the Corporation from
outstanding Series A Preferred Shares not previously called for redemption
pro rata (as nearly as may be), by lot or by any other method determined by
the Corporation in its sole discretion to be equitable. If fewer than all
the Series A Preferred Shares represented by any certificate are redeemed,
then new certificates representing the unredeemed shares shall be issued
without cost to the holder thereof.
(e) In the case of any redemption pursuant to paragraph (a)(i) of
this Section 5,
(i) no fractional Common Shares or scrip representing fractions
of Common Shares shall be issued upon redemption of the Series A
Preferred Common Shares. Instead of any fractional interest in Common
Shares that would otherwise be deliverable upon redemption of Series A
Preferred Shares, the Corporation shall pay to the holder of such
share an amount in cash (rounded to the nearest cent) based upon the
Current Market Price of the Common Shares on the Trading Day
immediately preceding the Call Date. If more than one share shall be
surrendered for redemption at one time by the same holder, the number
of full Common Shares issuable upon redemption thereof shall be
computed on the basis of the aggregate number of Series A Preferred
Shares so surrendered.
<PAGE>
(ii) the Corporation covenants that any Common Shares issued upon
redemption of Series A Preferred Shares shall be validly issued,
fully paid and non-assessable. The Corporation shall endeavor to list
the Common Shares required to be delivered upon any such redemption of
Series A Preferred Shares, prior to such redemption, upon each
national securities exchange, if any, upon which the outstanding
Common Shares are listed at the time of such delivery.
Section 7. Conversion. Holders of Series A Preferred Shares shall have the
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right to convert all or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 6 and the provisions of Article VIII of the Corporation's Articles
of Incorporation, a holder of Series A Preferred Shares shall have the
right, at his or her option, upon the earliest to occur of (i) January 31,
1999, (ii) the first day on which a Change of Control occurs, (iii) the
first day on which a Change of Ownership occurs or (iv) the occurrence of a
REIT Termination Event, to convert such shares into the number of fully
paid and non-assessable Common Shares obtained by dividing the aggregate
liquidation preference of such shares (exclusive of accrued but unpaid
dividends) by the Conversion Price (as in effect at the time and on the
date provided for in the last paragraph of paragraph (b) of this Section 6)
by surrendering such shares to be converted, such surrender to be made in
the manner provided in paragraph (b) of this Section 6; provided, however,
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that the right to convert shares called for redemption pursuant to Section
5 shall terminate at the close of business on the fifth Business Day prior
to the Call Date fixed for such redemption, unless the Corporation shall
default in making payment of the cash payable upon such redemption under
Section 5.
A "Change of Control" shall mean each occurrence of any of the
following: (i) the acquisition, directly or indirectly, by any individual
or entity or group (as such term is used in Section 13(d)(3) of the
Exchange Act) of beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act, except that such individual or entity shall be deemed to have
beneficial ownership of all shares that any such individual or entity has
the right to acquire, whether such right is exercisable immediately or only
after passage of time) of more than 25% of the Corporation's outstanding
capital stock with voting power, under ordinary circumstances, to elect
directors of the Corporation; (ii) other than with respect to the election,
resignation or replacement of any director designated, appointed or elected
by the holders of the Series A Preferred Shares (each a "Preferred
Director"), during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Corporation (together with any new directors whose election by such Board
of Directors or whose nomination for election by the stockholders of the
Corporation was approved by a vote
<PAGE>
of 66 2/3% of the directors of the Corporation (excluding Preferred
Directors) then still in office who were either directors at the beginning
of such period, or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board of
Directors then in office; or (iii) (A) the Corporation consolidates with or
merges into another entity or conveys, transfers or leases outside the
ordinary course of the Corporation's business all or substantially all of
its assets (including, but not limited to, real property investments) to
any individual or entity, or (B) any corporation consolidates with or
merges into the Corporation, which in the case of a merger or consolidation
under either (A) or (B) is pursuant to a transaction in which the
outstanding voting capital stock of the Corporation is reclassified or
changed into or exchanged for cash, securities (unless the holders of the
exchanged securities of the Corporation immediately after such transaction
beneficially own at least a majority of the securities into which such
exchange was made) or other property; provided, however, that the events
described in clause (iii) shall not be deemed to be a Change of Control if
the sole purpose of such event is that the Corporation is seeking to change
its domicile or to change its form of organization from a corporation to a
statutory business trust.
A "Change of Ownership" shall occur if the sum of (i) the Fair Market
Value of the Common Shares and (ii) the Fair Market Value of the Units
(assuming such Units were converted into Common Shares as provided in the
First Amended and Restated Agreement of Limited Partnership of the
Operating Partnership) beneficially owned (as such term is used in Rule
13d-3 under the Exchange Act, except that such individual shall be deemed
to have beneficial ownership of all shares that any such individual entity
has the right to acquire, whether such right is exercisable immediately or
only after passage of time) by the Smith and Kogod Holders shall be less
than $75,000,000; provided, however, that a Change of Ownership shall not
be deemed to have occurred solely by reason of a decrease in the Current
Market Price of the Common Shares.
(b) In order to exercise the conversion right, the holder of each
Series A Preferred Share to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or in
blank, at the office of the Transfer Agent, accompanied by written notice
to the Corporation that the holder thereof elects to convert such Series A
Preferred Shares. Unless the shares issuable on conversion are to be
issued in the same name as the name in which such Series A Preferred Share
is registered, each share surrendered for conversion shall be accompanied
by instruments of transfer, in form satisfactory to the Corporation, duly
executed by the holder or such holder's duly authorized attorney and an
amount sufficient to pay any transfer or similar tax (or evidence
reasonably satisfactory to the Corporation demonstrating that such taxes
have been paid).
<PAGE>
Holders of Series A Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. However, Series A
Preferred Shares surrendered for conversion during the period between the
close of business on any dividend payment record date and the opening of
business on the corresponding Dividend Payment Date (except shares
converted after the issuance of notice of redemption with respect to a Call
Date during such period, such Series A Preferred Shares being entitled to
such dividend on the Dividend Payment Date) must be accompanied by payment
of an amount equal to the dividend payable on such shares on such Dividend
Payment Date. A holder of Series A Preferred Shares on a dividend payment
record date who (or whose transferee) tenders any such shares for
conversion into Common Shares on the corresponding Dividend Payment Date
will receive the dividend payable by the Corporation on such Series A
Preferred Shares on such date, and the converting holder need not include
payment of the amount of such dividend upon surrender of Series A Preferred
Shares for conversion. Except as provided above, the Corporation shall make
no payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the Common Shares issued upon such
conversion.
As promptly as practicable after the surrender of certificates for
Series A Preferred Shares as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on his or her written
order, a certificate or certificates for the number of full Common Shares
issuable upon the conversion of such shares in accordance with provisions
of this Section 6, and any fractional interest in respect of a Common Share
arising upon such conversion shall be settled as provided in paragraph (c)
of this Section 6.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Series A Preferred Shares shall have been surrendered and such notice shall
have been received by the Corporation as aforesaid (and if applicable,
payment of an amount equal to the dividend payable on such shares shall
have been received by the Corporation as described above), and the person
or persons in whose name or names any certificate or certificates for
Common Shares shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby at such time on such date and such conversion shall be at the
Conversion Price in effect at such time on such date unless the share
transfer books of the Corporation shall be closed on that date, in which
event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on
which such share transfer books are open, but such conversion shall be at
<PAGE>
the Conversion Price in effect on the date on which such shares shall have
been surrendered and such notice received by the Corporation.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series A Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Series A Preferred Share, the
Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of the Common Shares on the Trading Day
immediately preceding the date of conversion. If more than one share shall
be surrendered for conversion at one time by the same holder, the number of
full Common Shares issuable upon conversion thereof shall be computed on
the basis of the aggregate number of Series A Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after May 15, 1997 (A) pay a
dividend or make a distribution on its capital shares in Common
Shares, (B) subdivide its outstanding Common Shares into a greater
number of shares, (C) combine its outstanding Common Shares into a
smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Shares, the Conversion Price in effect
at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or
distribution or at the opening of business on the Business Day next
following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be
adjusted so that the holder of any Series A Preferred Share thereafter
surrendered for conversion shall be entitled to receive the number of
Common Shares that such holder would have owned or have been entitled
to receive after the happening of any of the events described above as
if such Series A Preferred Shares had been converted immediately prior
to the record date in the case of a dividend or distribution or the
effective date in the case of a subdivision, combination or
reclassification. An adjustment made pursuant to this subparagraph
(i) shall become effective immediately after the opening of business
on the Business Day next following the record date (except as provided
in paragraph (h) below) in the case of a dividend or distribution and
shall become effective immediately after the opening of business on
the Business Day next following the effective date in the case of a
subdivision, combination or reclassification.
(ii) If the Corporation shall issue after May 15, 1997 rights,
options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 days after the record date mentioned
below) to subscribe for or purchase Common Shares at a price per share
less than 94% (100% if a
<PAGE>
stand-by underwriter is used and charges the Corporation a commission)
of the Fair Market Value per Common Share on the record date for the
determination of stockholders entitled to receive such rights, options
or warrants, then the Conversion Price in effect at the opening of
business on the Business Day next following such record date shall be
adjusted to equal the price determined by multiplying (A) the
Conversion Price in effect immediately prior to the opening of
business on the Business Day next following the date fixed for such
determination by (B) a fraction, the numerator of which shall be the
sum of (x) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (y) the number
of shares that the aggregate proceeds to the Corporation from the
exercise of such rights, options or warrants for Common Shares would
purchase at 94% of such Fair Market Value (or 100% in the case of a
stand-by underwriting), and the denominator of which shall be the sum
of (x) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (y) the number
of additional Common Shares offered for subscription or purchase
pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately after the opening of business on the day
next following such record date (except as provided in paragraph (h)
below). In determining whether any rights, options or warrants entitle
the holders of Common Shares to subscribe for or purchase Common
Shares at less than 94% of such Fair Market Value (or 100% in the case
of a stand-by underwriting), there shall be taken into account any
consideration received by the Corporation upon issuance and upon
exercise of such rights, options or warrants, the value of such
consideration, if other than cash, to be determined by the Board of
Directors.
(iii) If the Corporation shall distribute to all holders of its
Common Shares any securities of the Corporation (other than Common
Shares) or evidence of its indebtedness or assets (excluding
cumulative cash dividends or distributions paid with respect to the
Common Shares after December 31, 1996 which are not in excess of the
following: the sum of (A) the Corporation's cumulative undistributed
Funds from Operations at December 31, 1996, plus (B) the cumulative
amount of Funds from Operations, as determined by the Board of
Directors, after December 31, 1996, minus (C) the cumulative amount of
dividends accrued or paid in respect of the Series A Preferred Shares
or any other class or series of preferred stock of the Corporation
after May 15, 1997) or rights, options or warrants to subscribe for or
purchase any of its securities (excluding those rights, options and
warrants issued to all holders of Common Shares entitling them for a
period expiring within 45 days after the record date referred to in
subparagraph (ii) above to subscribe for or purchase Common Shares,
which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in
this
<PAGE>
subparagraph (iii) collectively called the "Securities" and
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individually a "Security"), then in each such case the Conversion
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Price shall be adjusted so that it shall equal the price determined by
multiplying (x) the Conversion Price in effect immediately prior to
the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by (y) a fraction,
the numerator of which shall be the Fair Market Value per Common Share
on the record date mentioned below less the then fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive), of the portion of the Securities or assets or evidences
of indebtedness so distributed or of such rights, options or warrants
applicable to one Common Share, and the denominator of which shall be
the Fair Market Value per Common Share on the record date mentioned
below. Such adjustment shall become effective immediately at the
opening of business on the Business Day next following (except as
provided in paragraph (h) below) the record date for the determination
of stockholders entitled to receive such distribution. For the
purposes of this subparagraph (iii), the distribution of a Security,
which is distributed not only to the holders of the Common Shares on
the date fixed for the determination of stockholders entitled to such
distribution of such Security, but also is distributed with each
Common Share delivered to a Person converting a Series A Preferred
Share after such determination date, shall not require an adjustment
of the Conversion Price pursuant to this subparagraph (iii); provided
--------
that on the date, if any, on which a person converting a Series A
Preferred Share would no longer be entitled to receive such Security
with a Common Share (other than as a result of the termination of all
such Securities), a distribution of such Securities shall be deemed to
have occurred and the Conversion Price shall be adjusted as provided
in this subparagraph (iii) (and such day shall be deemed to be "the
date fixed for the determination of the stockholders entitled to
receive such distribution" and "the record date" within the meaning of
the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not
include open market repurchases by the Corporation) made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Common Shares shall expire and such tender or exchange
offer shall involve the payment by the Corporation or such subsidiary
of consideration per Common Share having a fair market value (as
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors), at the last time (the "Expiration Time") tenders
---------------
or exchanges may be made pursuant to such tender or exchange offer,
that exceeds the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect
<PAGE>
immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph, by a fraction of which
the numerator shall be the number of Common Shares outstanding
(including any tendered or exchanged shares) at the Expiration Time,
multiplied by the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, and the denominator shall be
the sum of (A) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based upon the
acceptance (up to any maximum specified in the terms of the tender or
exchange offer) of all shares validly tendered or exchanged and not
withdrawn as of the Expiration Time (the shares deemed so accepted, up
to any maximum, being referred to as the "Purchased Shares") and (B)
----------------
the product of the number of Common Shares outstanding (less any
Purchased Shares) at the Expiration Time and the Current Market Price
per Common Share on the Trading Day next succeeding the Expiration
Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or decrease
of at least 1% in such price; provided, however, that any adjustments
-------- -------
that by reason of this subparagraph (v) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment until made; and provided, further, that any adjustment
-------- -------
shall be required and made in accordance with the provisions of this
Section 6 (other than this subparagraph (v)) not later than such time
as may be required in order to preserve the tax-free nature of a
distribution to the holders of Common Shares. Notwithstanding any
other provisions of this Section 6, the Corporation shall not be
required to make any adjustment of the Conversion Price for the
issuance of any Common Shares pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of the
Corporation and the investment of additional optional amounts in
Common Shares under such plan. All calculations under this Section 6
shall be made to the nearest cent (with $.005 being rounded upward) or
to the nearest one-tenth of a share (with .05 of a share being rounded
upward), as the case may be. Anything in this paragraph (d) to the
contrary notwithstanding, the Corporation shall be entitled, to the
extent permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this paragraph (d), as it in
its discretion shall determine to be advisable in order that any share
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its stockholders shall
not be taxable.
<PAGE>
(e) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share
exchange, self tender offer for all or substantially all of its Common
Shares, sale of all or substantially all of the Corporation's assets or
recapitalization of the Common Shares and excluding any transaction as to
which subparagraph (d)(i) of this Section 6 applies) (each of the foregoing
being referred to herein as a "Transaction"), in each case as a result of
-----------
which all or substantially all of the Corporation's Common Shares are
converted into the right to receive shares, securities or other property
(including cash or any combination thereof), each Series A Preferred Share
which is not redeemed or converted into the right to receive shares,
securities or other property prior to such Transaction shall thereafter be
convertible into the kind and amount of shares, securities and other
property (including cash or any combination thereof) receivable upon the
consummation of such Transaction by a holder of that number of Common
Shares into which one Series A Preferred Share was convertible immediately
prior to such Transaction, assuming such holder of Common Shares (i) is not
a Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to which such
sale or transfer was made, as the case may be ("Constituent Person"), or an
------------------
affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of shares, securities and other
property (including cash) receivable upon such Transaction (provided that
if the kind or amount of shares, securities and other property (including
cash) receivable upon such Transaction is not the same for each Common
Share held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such
rights of election shall not have been exercised ("Non-Electing Share"),
------------------
then for the purpose of this paragraph (e) the kind and amount of shares,
securities and other property (including cash) receivable upon such
Transaction by each Non-Electing Share shall be deemed to be the kind and
amount so receivable per share by a plurality of the Non-Electing Shares).
The Corporation shall not be a party to any Transaction unless the terms of
such Transaction are consistent with the provisions of this paragraph (e),
and it shall not consent or agree to the occurrence of any Transaction
until the Corporation has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the holders of
the Series A Preferred Shares that will contain provisions enabling the
holders of the Series A Preferred Shares that remain outstanding after such
Transaction to convert into the consideration received by holders of Common
Shares at the Conversion Price in effect immediately prior to such
Transaction. The provisions of this paragraph (e) shall similarly apply to
successive Transactions.
(f) If:
<PAGE>
(g) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment
which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment of
the Conversion Price setting forth the adjusted Conversion Price and the
effective date of such adjustment and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Series A Preferred
Share at such holder's last address as shown on the records of the
Corporation.
(h) In any case in which paragraph (d) of this Section 6 provides
that an adjustment shall become effective on the day next following the
record date for an event, the Corporation may defer until the occurrence of
such event (A) issuing to the holder of any Series A Preferred Share
converted after such record date and before the occurrence of such event
the additional Common Shares issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares issuable
upon such conversion before giving effect to such adjustment and (B) paying
to such holder any amount of cash in lieu of any fraction pursuant to
paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in case of
the issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action or transaction
would require adjustment of the Conversion Price pursuant to more than one
paragraph of this Section 6, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 6, that in the opinion
of the Board of Directors would materially and adversely affect the
conversion rights of the holders of the Series A Preferred Shares, the
Conversion Price for the Series A Preferred Shares may be adjusted, to the
extent permitted by law, in such manner, if any, and at such time, as the
Board of Directors, in its sole discretion, may determine to be equitable
in the circumstances.
(k) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for the purpose of effecting
conversion of the Series A Preferred Shares, the full number of Common
Shares deliverable upon the conversion of all outstanding Series A
Preferred Shares not theretofore converted. For purposes of this paragraph
(k), the number of Common Shares that shall be deliverable upon the
<PAGE>
conversion of all outstanding Series A Preferred Shares shall be computed
as if at the time of computation all such outstanding shares were held by a
single holder.
The Corporation covenants that any Common Shares issued upon
conversion of the Series A Preferred Shares shall be validly issued, fully
paid and non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par value of the
Common Shares deliverable upon conversion of the Series A Preferred Shares,
the Corporation will take any action that, in the opinion of its counsel,
may be necessary in order that the Corporation may validly and legally
issue fully paid and (subject to any customary qualification based upon the
nature of a real estate investment trust) non-assessable Common Shares at
such adjusted Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series A Preferred Shares, prior to
such delivery, upon each national securities exchange, if any, upon which
the outstanding Common Shares are listed at the time of such delivery.
The Corporation shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance
of any securities that the Corporation shall be obligated to deliver upon
conversion of the Series A Preferred Shares. In addition to any legend
required by Article VIII of the Articles of Incorporation, the certificates
evidencing such securities shall bear such legends restricting transfer
thereof in the absence of registration under applicable securities laws or
an exemption therefrom as the Corporation may in good faith deem
appropriate.
(l) The Corporation will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of
Common Shares or other securities or property on conversion of the Series A
Preferred Shares pursuant hereto; provided, however, that the Corporation
-------- -------
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of Common Shares or other
securities or property in a name other than that of the holder of the
Series A Preferred Shares to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery
has paid to the Corporation the amount of any such tax or established, to
the reasonable satisfaction of the Corporation, that such tax has been
paid.
Section 8. Shares To Be Retired. All Series A Preferred Shares which shall
--------------------
have been issued and reacquired in any manner by the Corporation shall be
restored to the status of authorized but unissued shares of capital stock of the
Corporation, without designation as to class or series.
<PAGE>
Section 9. Ranking. Any class or series of shares of capital stock of the
-------
Corporation shall be deemed to rank:
(a) prior to the Series A Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority to
the holders of Series A Preferred Shares;
(b) on a parity with the Series A Preferred Shares, as to the payment
of dividends and as to distribution of assets upon liquidation, dissolution
or winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof shall be different from
those of the Series A Preferred Shares, if the holders of such class or
series and the Series A Preferred Shares shall be entitled to the receipt
of dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or
priority one over the other ("Parity Shares");
-------------
(c) junior to the Series A Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Junior Shares; and
(d) junior to the Series A Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
Section 10. Voting. If and whenever four quarterly dividends (whether or
------
not consecutive) payable on the Series A Preferred Shares or any series or class
of Parity Shares shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of directors then constituting the
Board of Directors shall be increased by two and the holders of Series A
Preferred Shares, together with the holders of shares of every other series of
Parity Shares (any such other series, the "Voting Preferred Shares"), voting as
-----------------------
a single class regardless of series, shall be entitled to elect the two
additional directors to serve on the Board of Directors at any annual meeting of
stockholders or special meeting held in place thereof, or at a special meeting
of the holders of the Series A Preferred Shares and the Voting Preferred Shares
called as hereinafter provided. Whenever all arrears in dividends on the Series
A Preferred Shares and the Voting Preferred Shares then outstanding shall have
been paid and dividends thereon for the current quarterly dividend period shall
have been paid or declared and set apart for payment, then the right of the
holders of the Series A Preferred Shares and
<PAGE>
the Voting Preferred Shares to elect such additional two directors shall cease
(but subject always to the same provision for the vesting of such voting rights
in the case of any similar future arrearage in quarterly dividends), and the
terms of office of all persons elected as directors by the holders of the Series
A Preferred Shares and the Voting Preferred Shares shall forthwith terminate and
the number of the Board of Directors shall be reduced accordingly. At any time
after such voting power shall have been so vested in the holders of Series A
Preferred Shares and the Voting Preferred Shares, the Secretary of the
Corporation may, and upon the written request of any holder of Series A
Preferred Shares (addressed to the Secretary at the principal office of the
Corporation) shall, call a special meeting of the holders of the Series A
Preferred Shares and of the Voting Preferred Shares for the election of the
directors to be elected by them as herein provided, such call to be made by
notice similar to that provided in the Bylaws of the Corporation for a special
meeting of the stockholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the Secretary
within 20 days after receipt of any such request, then any holder of Series A
Preferred Shares may call such meeting, upon the notice above provided, and for
that purpose shall have access to the records of the Corporation. The directors
elected at any such special meeting shall hold office until the next annual
meeting of the stockholders or special meeting held in lieu thereof if such
office shall not have previously terminated as above provided. If any vacancy
shall occur among the directors elected by the holders of the Series A Preferred
Shares and the Voting Preferred Shares, a successor shall be elected by the
Board of Directors, upon the nomination of the then-remaining director elected
by the holders of the Series A Preferred Shares and the Voting Preferred Shares
or the successor of such remaining director, to serve until the next annual
meeting of the stockholders or special meeting held in place thereof if such
office shall not have previously terminated as provided above.
So long as any Series A Preferred Shares are outstanding, in addition to
any other vote or consent of stockholders required by law or by the
Corporation's Articles of Incorporation, the affirmative vote of at least 66_%
of the votes entitled to be cast by the holders of the Series A Preferred Shares
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:
(a) Any amendment, alteration or repeal of any of the provisions of
the Corporation's Articles of Incorporation, the Corporation's By-Laws or
these Articles Supplementary that materially and adversely affects the
voting powers, rights or preferences of the holders of the Series A
Preferred Shares; provided, however, that the amendment of the provisions
-------- -------
of the Corporation's Articles of Incorporation so as to authorize or create
or to increase the authorized amount of, any Fully Junior Shares, Junior
Shares that are not senior in any respect to the Series A Preferred Shares
or any Parity Shares shall not be deemed to materially adversely affect the
voting powers, rights or preferences of the holders of Series A Preferred
Shares; or
<PAGE>
(b) A share exchange that affects the Series A Preferred Shares, a
consolidation with or merger of the Corporation into another entity, or a
consolidation with or merger of another entity into the Corporation, unless
in each such case each Series A Preferred Share (i) shall remain
outstanding without a material and adverse change to its terms and rights
or (ii) shall be converted into or exchanged for convertible preferred
shares of the surviving entity having preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption thereof identical to
that of a Series A Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series A Preferred
Shares); or
(c) The authorization, reclassification or creation of, or the
increase in the authorized amount of, any shares of any class or any
security convertible into shares of any class ranking prior to the Series A
Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation or in the payment of
dividends;
provided, however, that no such vote of the holders of Series A Preferred Shares
- -------- -------
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series A Preferred Shares at the time outstanding.
For purposes of the foregoing provisions of this Section 9, each Series A
Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series A
Preferred Shares as a single class on any matter, then the Series A Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $27.08 of stated liquidation preference. Except as otherwise required
by applicable law or as set forth herein, the Series A Preferred Shares shall
not have any relative, participating, optional or other special voting rights
and powers other than as set forth herein, and the consent of the holders
thereof shall not be required for the taking of any Corporation action.
Section 11. Record Holders. The Corporation and the Transfer Agent may
--------------
deem and treat the record holder of any Series A Preferred Shares as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be duly executed by its President and attested by its Secretary this 19 day
of June, 1997.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: (SIGNATURE APPEARS HERE)
----------------------------------------
Its: President
Attest:
(SIGNATURE APPEARS HERE)
- -------------------------
<PAGE>
EXHIBIT 4.1
NINTH AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
THIS NINTH AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF CHARLES E. SMITH RESIDENTIAL REALTY L.P. (this "Ninth
Amendment"), dated as of June 30, 1997, is entered into by Charles E. Smith
Residential Realty, Inc., a Maryland corporation, as general partner (the
"General Partner") of Charles E. Smith Residential Realty L.P. (the
"Partnership"), for itself and on behalf of the limited partners of the
Partnership.
WHEREAS, Section 4.2.B of the First Amended and Restated Agreement of
Limited Partnership of the Partnership (as heretofore amended, the "Partnership
Agreement") provides that the General Partner shall not issue additional
convertible securities containing the right to subscribe for or purchase shares
of Common Stock of the General Partner ("REIT Shares" and collectively, the "New
Securities"), other than to all holders of REIT Shares, unless the General
Partner causes the Partnership to issue to the General Partner Partnership
Interests having designations, preferences and other rights, all such that the
economic interests are substantially the same as those of the New Securities;
WHEREAS, the General Partner has entered into a Series A Cumulative
Convertible Redeemable Preferred Share Purchase Agreement dated as of May, 15,
1997, pursuant to which the General Partner has agreed to issue shares of a
newly created series of capital stock, designated Series A Cumulative
Convertible Redeemable Preferred Stock (the "Series A Preferred Stock");
WHEREAS, pursuant to the authority granted to the General Partner
pursuant to Section 4.2 of the Partnership Agreement, the General Partner
desires to amend the Partnership Agreement (i) to establish a new class of
Units, to be entitled Series A Cumulative Convertible Redeemable Preferred Units
(the "Series A Preferred Units"), and to set forth the designations, rights,
powers, preferences and duties of such Series A Preferred Units, which are
substantially the same as those of the Series A Preferred Stock, and (ii) to
make certain other changes to the Partnership Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement, as
follows:
1. Article I of the Partnership Agreement is hereby amended to add the
following definitions:
"Common Unit" means a Partnership Unit that is not a Preferred
Unit. The Class A Units and Class B Units are Common Units.
"Common Unit Available Cash" has the meaning set forth in Section
5.1.B.
<PAGE>
"Liquidation Preference Amount" means, with respect to any
Preferred Unit as of any date of determination, the amount (including
accrued and unpaid distributions to the date of determination) payable
with respect to such Preferred Unit (as established by the instrument
designating such Preferred Unit) upon the voluntary or involuntary
dissolution or winding up of the Partnership as a preference over
distributions to Units ranking junior to such Preferred Unit.
"Preferred Unit" means any Partnership Unit issued from time to
time pursuant to Section 4.2 hereof that is specifically designated by
the General Partner at the time of its issuance as a Preferred Unit.
Each class or series of Preferred Units shall have such designations,
preferences, and relative, participating, optional, or other special
rights, powers, and duties, including rights, powers, and duties senior
to the Common Units, all as determined by the General Partner, subject to
compliance with the requirements of Section 4.2 hereof.
In addition, the definitions of "Partnership Unit," "Percentage Interest," and
"REIT Shares Amount" appearing in Article 1 of the Partnership Agreement are
hereby deleted in their entirety and the following definitions are inserted in
their place:
"Partnership Unit" means a fractional undivided share of a class
or series of Partnership Interests. The ownership of Partnership Units
shall be evidenced by such form of certificate as the General Partner may
adopt from time to time on behalf of the Partnership. Without limitation
on the authority of the General Partner as set forth in Section 4.2
hereof (but subject to the limitations thereof), the General Partner may
designate any Partnership Units, when issued, as Common Units or as
Preferred Units, may establish any other class of Partnership Units, and
may designate one or more series of any class of Partnership Units.
"Percentage Interest" means, as to a Partner, with respect to any
class or series of Partnership Units held by such Partner, its interest
in such class or series of Partnership Units as determined by dividing
the number of Partnership Units in such class or series owned by such
Partner by the total number of Partnership Units in such class or series
then outstanding. For purposes of determining the rights and
relationships among the various classes and series of Partnership Units,
Preferred Units shall not be considered to have any share of the
aggregate Percentage Interest in the Partnership unless, and only to the
extent, provided otherwise in the instrument creating such class or
series of Preferred Units.
"REIT Shares Amount" means a number of REIT Shares equal to the
product of the number of Common Units offered for redemption by a
Redeeming Partner, multiplied by the Conversion Factor; provided that in
the event the General Partner issues to all holders of REIT Shares
rights, options, warrants or convertible or exchangeable securities
entitling the
2
<PAGE>
shareholders to subscribe for or purchase REIT Shares, or any other
securities or property (collectively, the "rights"), then the REIT Shares
Amount shall also include such rights that a holder of that number of
REIT Shares would be entitled to receive.
2. Section 4.2 of the Partnership Agreement is hereby amended by adding
after Section 4.2.C the following section:
D. Series A Preferred Units. Under the authority granted to it
------------------------
by Section 4.2.A hereof, the General Partner hereby establishes an
additional class of Partnership Units entitled "Series A Cumulative
Convertible Redeemable Preferred Units" (the "Series A Preferred Units").
Series A Preferred Units shall have the designations, preferences,
rights, powers and duties as set forth in Exhibit F hereto.
---------
3. Section 5.1 of the Partnership Agreement is hereby amended and
restated in its entirety as follows:
Section 5.1 Requirement and Characterization of Distributions
-------------------------------------------------
A. The General Partner shall distribute at least quarterly an
amount equal to 100% of Available Cash generated by the Partnership during
such quarter or shorter period to the Partners who are Partners on the
Partnership Record Date with respect to such quarter or shorter period in
the following order of priority:
(i) First, to the holders of Preferred Units in such amount as is
required for the Partnership to pay all distributions with
respect to such Preferred Units due or payable in accordance with
the instruments designating such Preferred Units through the last
day of such quarter or shorter period; such distributions shall
be made to such Partners in such order of priority and with such
preferences as have been established with respect to such
Preferred Units as of the last day of such calendar quarter or
shorter period; and then
(ii) To the Partners in proportion to their respective Percentage
Interests in the Common Units on such Partnership Record Date,
subject to the provisions of Section 5.1.B and 5.1.C;
provided that in no event may a Partner receive a distribution of Available
Cash with respect to a Partnership Unit if such Partner is entitled to
receive a distribution out of such Available Cash with respect to a REIT
Share for which such Partnership Unit has been redeemed or exchanged. The
General Partner shall take such reasonable efforts, as determined by it in
its sole and absolute discretion and consistent with its qualification as a
REIT, to distribute Available Cash to the Limited Partners so as to
preclude any such distribution or portion thereof from being treated as
part of a sale of property to the Partnership by a
3
<PAGE>
Limited Partner under Section 707 of the Code or the Regulations
thereunder; provided that the General Partner and the Partnership shall not
have liability to a Limited Partner under any circumstances as a result of
any distribution to a Limited Partner being so treated.
B. If for any quarter or shorter period with respect to which a
distribution is to be made (a "Distribution Period") Class B Units are
outstanding on the Partnership Record Date for such Distribution Period,
the General Partner shall allocate the Available Cash with respect to such
Distribution Period available after distributions to all Preferred Units
("Common Unit Available Cash") between the Partners who are holders of
Class A Units ("Class A") and the Partners who are holders of Class B Units
("Class B") as follows:
1) Class A shall receive that portion of the Common Unit
Available Cash (the "Class A Share") determined by multiplying the
amount of Available Cash by the following fraction:
A x Y
-----------------
(A x Y)+(B x X)
2) Class B shall receive that portion of the Common Unit
Available Cash (the "Class B Share") determined by multiplying the
amount of Available Cash by the following fraction:
B x X
-------------------
(A x Y)+(B x X)
3) For purposes of the foregoing formulas, (i) "A" equals the
number of Class A Units outstanding on the Partnership Record Date for
such Distribution Period; (ii) "B" equals the number of Class B Units
outstanding on the Partnership Record Date for such Distribution
Period; (iii) "Y" equals the number of days in the Distribution
Period; and (iv) "X" equals the number of days in the Distribution
Period for which the Class B Units were issued and outstanding.
The Class A Share shall be distributed among Partners holding Class A
Units on the Partnership Record Date for the Distribution Period in
accordance with the number of Class A Units held by each Partner on such
Partnership Record Date; provided that in no event may a Partner receive a
distribution of Available Cash with respect to a Class A Unit if a Partner
is entitled to receive a distribution out of such Available Cash with
respect to a REIT Share for which such Class A Unit has been redeemed or
exchanged. The Class B Share shall be distributed among the Partners
holding Class B Units on the Partnership Record Date for the Distribution
Period in accordance with the number of Class B Units held by each Partner
on such Partnership Record Date. In no event shall any Class B Units be
entitled to receive any distribution of Available Cash for any Distribution
Period ending prior to the date on which such Class B Units are issued.
4
<PAGE>
C. In the event that Class B Units which have been issued on
different dates are outstanding on the Partnership Record Date for any
Distribution Period, then the Class B Units issued on each particular date
shall be treated as a separate series of Common Units for purposes of
making the allocation of Common Unit Available Cash for such Distribution
Period among the holders of Common Units (and the formula for making such
allocation, and the definitions of variables used therein, shall be
modified accordingly). Thus, for example, if two series of Class B Units
are outstanding on the Partnership Record Date for any Distribution Period,
the allocation formula for each series, "Series B\\1\\" and "Series
B\\2\\," would be as follows:
1) Series B\\1\\ shall receive that portion of the Common Unit
Available Cash determined by multiplying the amount of Common Unit
Available Cash by the following fraction:
B\\1\\ x X\\1\\
-------------------------------------------
(A x Y)+(B\\1\\ x X\\1\\)+(B\\2\\ x X\\2\\)
2) Series B\\2\\ shall receive that portion of the Common Unit
Available Cash determined by multiplying the amount of Common Unit
Available Cash by the following fraction:
B\\2\\ x X\\2\\
-------------------------------------------
(A x Y)+(B\\1\\ x X\\1\\)+(B\\2\\ x X\\2\\)
3) For purposes of the foregoing formulas the definitions set
forth in Section 5.1.B.3 remain the same except that (i) "B\\1\\"
equals the number of Common Units in Series B\\1\\ outstanding on the
Partnership Record Date for such Distribution Period; (ii) "B\\2\\"
equals the number of Common Units in Series B\\2\\ outstanding on the
Partnership Record Date for such Distribution Period; (iii) "X\\1\\"
equals the number of days in the Distribution Period for which the
Partnership Units in Series B\\1\\ were issued and outstanding; and
(iv) "X\\2\\" equals the number of days in the Distribution Period for
which the Common Units in Series B\\2\\ were issued and outstanding.
D. Notwithstanding anything to the contrary contained herein, in
no event shall a Partner receive a distribution of Available Cash with
respect to any Common Unit with respect to any quarter or shorter period
until such time as the Partnership has distributed to the holders of
Preferred Units an amount sufficient to pay all distributions payable with
respect to such Preferred Units through the last day of such quarter or
shorter period, in accordance with the instruments designating such
Preferred Units.
4. Section 6.1 of the Partnership Agreement is hereby amended and
restated in its entirety as follows:
5
<PAGE>
6.1 Allocations For Capital Account Purposes
----------------------------------------
For purposes of maintaining the Capital Accounts and in determining
the rights of the Partners among themselves, the Partnership's items of
income, gain, loss and deduction (computed in accordance with Exhibit B
hereof) shall be allocated among the Partners in each taxable year (or
portion thereof) as provided herein below.
A. Net Income. After giving effect to the special allocations set
----------
forth in Section 1 of Exhibit C (including Subparagraph F thereof
regarding the allocation of income to holders of Preferred Units), Net
Income shall be allocated in the following manner and order of priority:
(1) To the General Partner until the cumulative allocations of Net
Income under this Section 6.1.A(1) equal the cumulative Net Losses
allocated to the General Partner under Section 6.1.B(3) hereof.
(2) To those Partners who have received allocations of Net Loss
under Section 6.1.B(2) hereof until the cumulative allocations of Net
Income under this Section 6.1.A(2) equal such cumulative allocations of
Net Loss (such allocation of Net Income to be in proportion to the
cumulative allocations of Net Loss under such section to each such
Partner).
(3) To the Partners until the cumulative allocations of Net Income
under this Section 6.1.A(3) equal the cumulative allocations of Net Loss
to such Partners under Section 6.1.B.(1) hereof (such allocation of Net
Income to be in proportion to the cumulative allocations of Net Loss
under such section to each such Partner).
(4) Any remaining Net Income shall be allocated to the Partners who
hold Common Units in proportion to their respective Percentage Interests
as holders of Common Units.
B. Net Losses. After giving effect to the special allocations set
----------
forth in Section 1 of Exhibit C, Net Losses shall be allocated to the
Partners as follows:
(1) To the Partners who hold Common Units in accordance with their
respective Percentage Interests as holders of Common Units, except as
otherwise provided in this Section 6.1.B.
(2) To the extent that an allocation of Net Loss under Section
6.1.B(1) would cause a Partner to have an Adjusted Capital Account
Deficit at the end of such taxable year (or increase any existing
Adjusted Capital Account Deficit of such Partner), such Net Loss shall
instead be allocated to those Partners, if any, for whom such allocation
of Net Loss would not cause or increase an Adjusted Capital Account
Deficit. Solely for purposes of this Section 6.1.B(2), the Adjusted
Capital Account Deficit, in the case of the
6
<PAGE>
General Partner, shall be determined without regard to the amount
credited to the General Partner's Capital Account for the aggregate
Liquidation Preference Amount attributable to the General Partner's
Preferred Units. The Net Loss allocated under this Section 6.1.B(2) shall
be allocated among the Partners who may receive such allocation in
proportion to and to the extent of the respective amounts of Net Loss
that could be allocated to such Partners without causing such Partners to
have an Adjusted Capital Account Deficit.
(3) Any remaining Net Loss shall be allocated to the General
Partner.
5. Section 8.6 of the Partnership Agreement is hereby amended by adding
new paragraphs 8.6.E and 8.6.F immediately following Section 8.6.D, as follows:
E. Notwithstanding anything contained in Sections 8.6.A, 8.6.B,
8.6.C, or 8.6.D, no Partner shall be entitled to exercise the Redemption
Right pursuant to Section 8.6.A with respect to any Preferred Unit unless
(i) such Preferred Unit has been issued to and is held by a Partner other
than the General Partner, and (ii) the General Partner has expressly
granted to such Partner the right to redeem such Preferred Units pursuant
to Section 8.6.A.
F. Preferred Units shall be redeemed, if at all, only in
accordance with such redemption rights or options, as are set forth with
respect to such Preferred Units (or class or series thereof) in the
instruments designating such Preferred Units (or class or series
thereof).
6. Exhibit C to the Partnership Agreement is hereby amended to add new
Section 1.F. as follows and existing Section 1.F. shall be redesignated as
Section 1.G:
F. Priority Allocation With Respect to Preferred Units. Any
---------------------------------------------------
remaining items of Partnership gross income or gain for the Partnership
Year, if any, shall be specially allocated to the General Partner or any
other Partner that holds Preferred Units in an amount equal to the
excess, if any, of the cumulative distributions received by such Partner
for the current Partnership Year and all prior Partnership Years (other
than distributions that are treated as being in satisfaction of the
Liquidation Preference Amount for any Preferred Units held by such
Partner or amounts paid in redemption of any Preferred Units, except to
the extent that the Liquidation Preference Amount or amount paid in
redemption includes accrued and unpaid distributions) over the cumulative
allocations of Partnership gross income and gain to such Partner under
this Section 1.F for all prior Partnership Years.
7. Exhibits to Partnership Agreement.
---------------------------------
A. The General Partner shall maintain the information set forth in
Exhibit A to the Partnership Agreement, as such information shall change from
time to time, in such
7
<PAGE>
form as the General Partner deems appropriate for the conduct of the
Partnership's affairs, and Exhibit A shall be deemed amended from time to time
to reflect the information so maintained by the General Partner, whether or not
a formal amendment to the Partnership Agreement has been executed amending such
Exhibit A. In addition to the designation of Series A Preferred Units pursuant
to this Ninth Amendment, such information shall reflect (and Exhibit A shall be
deemed amended from time to time to reflect) the issuance of any additional
Partnership Units to the General Partner or any other Person, the transfer of
Partnership Units and the redemption of any Partnership Units, all as
contemplated herein.
B. The Partnership Agreement is hereby amended by attaching
thereto as Exhibit F the Exhibit F attached hereto.
8. General Amendments to Partnership Agreement.
-------------------------------------------
(A) Notwithstanding anything in the Partnership Agreement or this
Ninth Amendment, all references to Partnership Units in the definition of "Class
A Unit" and Sections 11.2.C of the Partnership Agreement shall be deemed to
refer solely to Common Units, and not to Preferred Units. The references to
Limited Partnership Units and Limited Partnership Interests in Section 7.3.B of
the Partnership Agreement shall be deemed to refer only to Common Units held by
Limited Partners (or the Common Units that are part of the Limited Partner
Interest of the General Partner).
(B) In addition, references to Partnership Units in the definition
of "Cash Amount" and Sections 7.4.D, 7.5.B, 7.5.C, and 8.6 of the Partnership
Agreement shall be deemed to refer solely to Class A Units.
(C) The reference to Percentage Interests in the last sentence of
Section 4.2.A of the Partnership Agreement shall be deemed to refer to
Percentage Interests in the applicable class or series of Partnership Interests.
(D) Further, the reference to Partnership Interests appearing in
Sections 14.1.A and 14.2.A of the Partnership Agreement shall be deemed to refer
only to Partnership Interests held with respect to Common Units. The references
in Sections 14.1.A, 14.1.D, and 14.2.A of the Partnership Agreement to
Percentage Interests of the Limited Partners and Limited Partner Interests (or
Limited Partnership Interests) held by the General Partner shall be deemed to
refer only to Percentage Interests in Common Units held by Limited Partners or
Common Units that are included in the Limited Partner Interest of the General
Partner, as the case may be. The references in Section 14.1.D of the
Partnership Agreement to Percentage Interests of the Partners shall be deemed to
refer solely to the Percentage Interests in Common Units of each Partner.
(E) The parenthetical phrase in the second sentence of Section 11.5
of the Partnership Agreement shall be revised to read as follows: "(such
Partnership Units being deemed to have been voted on such matter in the same
proportion as all other Partnership Units of the same class or series held by
Limited Partners are voted, to the extent that such Partnership Units are
entitled to vote on such matter)."
8
<PAGE>
(F) The references in Section 11.6 of the Partnership Agreement to
redemption of Partnership Units or Partnership Interests "under Section 8.6" or
"pursuant to Section 8.6" shall also be deemed to refer to redemption under the
instrument designating the rights of any series or class of Preferred Units.
(G) The reference to Partnership Units in Exhibit E to the
Partnership Agreement shall be deemed to refer solely to Common Units.
9. Certain Capitalized Terms. All capitalized terms used in this Ninth
-------------------------
Amendment and not otherwise defined shall have the meanings assigned in the
Partnership Agreement. Except as modified herein, all terms and conditions of
the Partnership Agreement shall remain in full force and effect, which terms and
conditions the General Partner hereby ratifies and affirms.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
9
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Ninth Amendment as
of the date first set forth above.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.,
as General Partner of
Charles E. Smith Residential Realty L.P.
and on behalf of existing Limited Partners
By: /s/ Ernest A. Gerardi, Jr.
------------------------------------------
Name: Ernest A. Gerardi, Jr.
----------------------------------------
Title: President
---------------------------------------
10
<PAGE>
EXHIBIT F
DESIGNATION OF THE PREFERENCES, CONVERSION
AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS
AS TO SERIES A PREFERRED UNITS
The Series A Preferred Units shall have the following designations,
preferences, rights, powers and duties:
(1) Certain Defined Terms. The following capitalized terms used in this
---------------------
Exhibit F shall have the respective meanings set forth below:
"Distribution Date" means (i) for any Distribution Period with respect to
which the Partnership pays a distribution on the Class A Units, the date on
which such distribution is paid, or (ii) for any Distribution Period with
respect to which the Partnership does not pay a distribution on the Class A
Units, the date set by the General Partner for payment of dividends on the
Series A Preferred Stock.
"Distribution Period" means quarterly periods commencing on January 1,
April 1, July 1 and October 1 of each year and ending on and including the
day preceding the first day of the next succeeding Distribution Period (other
than the initial Distribution Period, which shall commence and end on June
30, 1997, and other than the Distribution Period during which any Series A
Preferred Units shall be redeemed pursuant to Section 4, which shall end on
and include the date of such redemption.
"Fully Junior Units" shall mean the Common Units and any other class or
series of Partnership Units now or hereafter issued and outstanding over
which the Series A Preferred Units have a preference or priority in both (i)
the payment of dividends and (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Partnership.
"Junior Units" shall mean the Common Units and any other class or series
of Partnership Units now or hereafter issued and outstanding over which the
Series0 A Preferred Units have a preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution or
winding up of the Partnership.
"Parity Units" has the meaning ascribed thereto in Section 5(B).
(2) Distributions.
-------------
(A) The General Partner, in its capacity as the holder of the then
outstanding Series A Preferred Units, shall be entitled to receive out of
funds legally available therefor, when, as and if declared by the General
Partner, distributions payable in cash at the rate per Series A Preferred
Unit equal to the greater of (a) $2.02 per annum, prorated as described in
Section 2(B), or (b)
F-1
<PAGE>
the ordinary cash distributions (determined on each Distribution Date) paid
on the number of Class A Units, or portion thereof, into which a Series A
Preferred Unit is convertible. The distributions referred to in clause (b) of
the preceding sentence shall equal the number of Class A Units, or portion
thereof, into which a Series A Preferred Unit is convertible, multiplied by
the most recent quarterly distribution on a Class A Unit on or before the
applicable Distribution Date. If the Partnership pays an ordinary cash
distribution on the Class A Units with respect to a Distribution Period after
the date on which the Distribution Date is declared pursuant to clause (ii)
of the definition of Distribution Date and the distribution calculated with
respect to clause (b) of the first sentence of this Section 2(A) is greater
than the distribution previously declared on the Series A Preferred Units
with respect to such Distribution Period, the Partnership shall pay an
additional distribution in respect of the Series A Preferred Units on the
date on which the distribution on the Class A Units is paid, in an amount
equal to the difference between (y) the distribution calculated pursuant to
clause (b) of the first sentence of this Section 2(A) and (z) the amount of
distributions previously declared on the Series A Preferred Units with
respect to such Distribution Period. Distributions shall begin to accrue and
shall be fully cumulative from June 30, 1997, whether or not in any
Distribution Period or Periods there shall be funds of the Partnership
legally available for the payment of such distributions, and shall be payable
quarterly, when, as and if declared by the General Partner, in arrears on
each Distribution Date. Accrued and unpaid distributions for any past
Distribution Periods may be declared and paid at any time and for such
interim periods, without reference to any regular Distribution Date, to the
General Partner, on such date as may be fixed by the General Partner for
payment of the corresponding dividend on the Series A Preferred Stock. Any
distribution made on the Series A Preferred Units shall first be credited
against the earliest accrued but unpaid distribution due with respect to
Series A Preferred Units which remains payable.
(B) The amount of distributions referred to in clause (a) of the first
sentence of Section 2(A) shall be equal to $0.505. The distribution for the
initial Distribution Period will include a distribution for a single day
(i.e., June 30, 1997). The amount of distribution for such initial
Distribution Period and any other Distribution Period on the Series A
Preferred Units that represents less than a full quarter of a year shall be
computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days in such Distribution Period. No interest, or sum of
money in lieu of interest, shall be payable in respect of any distribution
payment or payments on the Series A Preferred Units that may be in arrears.
(C) So long as any Series A Preferred Units are outstanding, no
distributions, except as described in the immediately following sentence,
shall be declared or paid or set apart for payment on any class or series
Parity Units for any period unless full cumulative distributions have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Series A Preferred
Units for all Distribution Periods terminating on or prior to the
distribution payment
F-2
<PAGE>
date for such class or series of Parity Units. When distributions are not
paid full or a sum sufficient for such payment is not set apart, as
aforesaid, all distributions declared upon Series A Preferred Units and all
distributions declared upon any other class or series of Parity Units shall
be declared ratably in proportion to the respective amounts of distributions
accumulated and unpaid on the Series A Preferred Units and accumulated and
unpaid on such Parity Units.
(D) So long as any Series A Preferred Units are outstanding, no
distributions (other than distributions paid solely in Fully Junior Units or
options, warrants or rights to subscribe for or purchase Fully Junior Units)
shall be declared or paid or set apart for payment or other distribution
shall be declared or made or set apart for payment upon Junior Units, nor
shall any Junior Units be redeemed, purchased or otherwise acquired (other
than a redemption, purchase or other acquisition of Class A Units made for
purposes of an employee incentive or benefit plan of the General Partner or
any subsidiary) for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such Junior Units) by
the Partnership, directly or indirectly (except by conversion into or
exchange for Fully Junior Units), unless in each case (i) the full cumulative
distributions on all outstanding Series A Preferred Units and any other
Parity Units of the Partnership shall have been paid or declared and set
apart for payment for all past Distribution Periods with respect to the
Series A Preferred Units and all past distribution periods with respect to
such Parity Units and (ii) sufficient funds shall have been paid or set apart
for the payment of the distribution for the current Distribution Period with
respect to the Series A Preferred Units and the current distribution period
with respect to such Parity Units.
(E) No distributions on the Series A Preferred Units shall be declared
by the General Partner or paid or set apart for payment by the Partnership at
such time as the terms and provisions of any agreement of the General Partner
or the Partnership, including any agreement relating to indebtedness of
either of them, prohibits such declaration, payment, or setting apart for
payment or provides that such declaration, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
declaration or payment shall be restricted or prohibited by law.
(3) Liquidation Preference.
----------------------
(A) In the event of any liquidation, dissolution or winding up of
the Partnership, whether voluntary or involuntary, before any payment or
distribution of the assets of the Partnership shall be made to or set apart
for the holders of Junior Units, the General Partner, in its capacity as
holder of the Series A Preferred Units, shall be entitled to receive Twenty
Seven Dollars and Eight Cents ($27.08) (the "Series A Liquidation
Preference") per Series A Preferred Unit plus an amount equal to all
distributions (whether or not earned or declared) accrued and unpaid thereon
to the date of final distribution to the General Partner, in its
F-3
<PAGE>
capacity as such holder; but the General Partner, in its capacity as the
holder of Series A Preferred Units shall not be entitled to any further
payment; provided that the distribution payable with respect to the
Distribution Period containing the date of final distribution shall be equal
to the greater of (i) the distribution provided in clause (a) of the first
sentence of Section 2(A) or (ii) the distribution determined pursuant to
clause (b) of the first sentence of Section 2(A) for the preceding
Distribution Period. If, upon any such liquidation, dissolution or winding up
of the Partnership, the assets of the Partnership, or proceeds thereof,
distributable to the General Partner, in its capacity as the holder of Series
A Preferred Units, shall be insufficient to pay in full the preferential
amount aforesaid and liquidating payments on any other class or series of
Parity Units, then such assets, or the proceeds thereof, shall be distributed
among the General Partner, in its capacity as the holder of such Series A
Preferred Units, and the holders of such other Parity Units ratably in
accordance with the respective amounts that would be payable on such Series A
Preferred Units and such other Parity Units if all amounts payable thereon
were paid in full. For the purposes of this Section 3, (x) a consolidation or
merger of the Partnership with one or more partnerships, limited liability
companies, corporations, real estate investment trusts or other entities and
(y) a sale, lease or conveyance of all or substantially all of the
Partnership's property or business shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the Partnership.
(B) Subject to the rights of the holders of Partnership Units of
any series or class ranking on a parity with or prior to the Series A
Preferred Units upon any liquidation, dissolution or winding up of the
Partnership, after payment shall have been made in full to the General
Partner, in its capacity as the holder of the Series A Preferred Units, as
provided in this Section 3, any other series or class or classes of Junior
Units shall, subject to any respective terms and provisions applying thereto,
be entitled to receive any and all assets remaining to be paid or
distributed, and the General Partner, in its capacity as the holder of the
Series A Preferred Units, shall not be entitled to share therein.
4. Redemption Right.
----------------
(A) Except as provided in Section 4(B), the Series A Preferred
Units shall not be redeemable prior to May 15, 2003. On and after May 15,
2003, the General Partner may cause the Partnership to redeem the Series A
Preferred Units, in whole or in part, (x) for Class A Units, subject to the
conditions set forth in paragraph (i) below, or (y) for cash in an amount per
Series A Preferred Unit equal to the Series A Liquidation Preference plus
accrued and unpaid distributions (the "Redemption Price"), in each case
subject to the conditions set forth below.
(i) The Series A Preferred Units shall be redeemed only if the General
Partner shall concurrently therewith redeem an equivalent number of
shares of Series A Preferred Stock for REIT Shares or cash, as the
case may be. Such redemption of Series A Preferred Units shall occur
substantially concurrently with the
F-4
<PAGE>
redemption by the General Partner of such Series A Preferred Shares
(such date of redemption the "Redemption Date").
(ii) In the event that the General Partner redeems shares of Series A
Preferred Stock in exchange for REIT Shares, an equivalent number of
Series A Preferred Units shall be converted into a number of Class A
Units equal to (x) the number of REIT Shares issued by the General
Partner in redemption of such shares of Series A Preferred Stock
divided by (y) the Conversion Factor.
(iii) In the event that the General Partner redeems shares of Series A
Preferred Stock for cash (including payments of cash in lieu of
fractional REIT Shares), the Partnership shall redeem a like number
of Series A Preferred Units in exchange for the amount of cash that
the General Partner is required to pay pursuant to the terms of the
Series A Preferred Stock in connection with such redemption.
(iv) Upon any redemption of Series A Preferred Units, the Partnership
shall pay any accrued and unpaid distributions with respect to the
Series A Preferred Units being redeemed for any Distribution Period
ending on or prior to the Redemption Date. If the Redemption Date
falls after a Partnership Record Date and prior to the corresponding
Distribution Date, then the General Partner, in its capacity as the
holder of the Series A Preferred Units being redeemed, shall be
entitled to distributions payable on the corresponding Distribution
Date notwithstanding the redemption of such Series A Preferred Units
before such Distribution Date. Except as provided above, the
Partnership shall make no payment or allowance for unpaid
distributions, whether or not in arrears, on Series A Preferred
Units called for redemption.
(v) Any Class A Unit issued upon redemption of the Series A Preferred
Units shall be validly issued, fully paid and non-assessable.
(B) In the event that the General Partner is required to redeem any
shares of Series A Preferred Stock pursuant to the terms thereof, the
Partnership shall redeem an equivalent number of Series A Preferred Units for
consideration equal to the consideration payable by the General Partner upon
redemption of such shares of Series A Preferred Stock.
5. Conversion to Class A Units.
---------------------------
(A) In the event that a holder of Series A Preferred Stock
exercises its right to convert such Series A Preferred Stock into REIT
Shares, then, concurrently therewith, an equivalent number of Series A
Preferred Units
F-5
<PAGE>
shall be automatically converted into a number of Class A Units equal to (x)
the number of REIT Shares issued upon conversion of such Series A Preferred
Shares divided by (y) the Conversion Factor. Any such conversion will be
effective at the same time as the conversion of Series A Preferred Stock into
REIT Shares is effective.
(B) The General Partner, in its capacity as the holder of Series A
Preferred Units that are converted pursuant to this Section 4 effective
during the period after a Partnership Record Date and prior to the opening of
business on the corresponding Distribution Date, shall not be entitled to
receive the distribution payable on such Series A Preferred Units on such
Distribution Date notwithstanding such conversion thereof following the
corresponding Partnership Record Date and prior to such Distribution Date.
6. Ranking. Any class or series of Partnership Units shall be deemed
-------
to rank:
(A) prior to the Series A Preferred Units, as to the payment of
distributions and as to distribution of assets upon liquidation, dissolution
or winding up of the Partnership, if the holders of such class or series of
Partnership Units shall be entitled to the receipt of distributions or of
amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of Series A Preferred
Units;
(B) on a parity with the Series A Preferred Units as to the payment
of distributions and as to the distribution of assets upon liquidation,
dissolution or winding up of the Partnership, whether or not the distribution
rates, distribution payment dates or redemption or liquidation prices per
Partnership Unit be different from those of the Series A Preferred Units, if
the holders of such class or series of Partnership Units and the Series A
Preferred Units shall be entitled to the receipt of distributions and of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid distributions
per Partnership Unit or liquidation preferences, without preference or
priority one over the other ("Parity Units");
(C) junior to the Series A Preferred Units, as to the payment of
distributions or as to the distribution of assets upon liquidation,
dissolution or winding up of the Partnership, if such class or series of
Partnership Units shall be Junior Units; and
(D) junior to the Series A Preferred Units, as to the payment of
distributions and as to the distribution of assets upon liquidation,
dissolution or winding up of the Partnership, if such class or series of
Partnership Units shall be Fully Junior Units;
7. Voting. Except as required by law, the General Partner, in its
------
capacity as the holder of the Series A Preferred Units, shall not be entitled
to
F-6
<PAGE>
vote at any meeting of the Partners or for any other purpose or otherwise to
participate in any action taken by the Partnership or the Partners, or to
receive notice of any meeting of the Partners.
8. Restriction on Ownership. The Series A Preferred Units shall be
------------------------
owned and held solely by the General Partner.
9. General. The rights of the General Partner, in its capacity as the
-------
holder of the Series A Preferred Units, are in addition to and not in
limitation on any other rights or authority of the General partner, in any
other capacity, under the Agreement. In addition, nothing contained in this
Exhibit F shall be deemed to limit or otherwise restrict any rights or
---------
authority of the General Partner under the Agreement, other than in its
capacity as the holder of the Series A Preferred Units.
* * * *
F-7
<PAGE>
EXHIBIT 10.1
================================================================================
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
AMONG
CHARLES E. SMITH RESIDENTIAL REALTY L.P.,
A DELAWARE LIMITED PARTNERSHIP,
AS BORROWER
AND
PNC BANK, NATIONAL ASSOCIATION
AS ADMINISTRATIVE AGENT
AND
NATIONSBANK, N.A., AS SYNDICATION AGENT
AND
FIRST BANK NATIONAL ASSOCIATION,
AS DOCUMENTATION AGENT
AND
SUCH OTHER LENDERS AS SHALL BECOME PARTY HERETO
Dated as of June 30, 1994
Amended and Restated
Effective as of May 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS ................................................. 1
-----------
1.1 Certain Defined Terms ............................... 1
1.2 Computation of Time Periods ......................... 2
1.3 Terms ............................................... 4
2. LOANS ....................................................... 24
-----
2.1 Loan Advances and Repayment ......................... 24
2.2 Letters of Credit ................................... 26
2.3 Authorization to Obtain Loans ....................... 28
2.4 Lenders' Accounting ................................. 28
2.5 Interest on the Loans ............................... 29
2.6 Fees ................................................ 33
2.7 Payments ............................................ 34
2.8 Increased Capital ................................... 35
2.9 Notice of Increased Costs ........................... 35
3. BORROWING BASE PROPERTIES ................................... 36
-------------------------
3.1 Acceptance of Borrowing Base Properties ............. 36
3.2 Release of Borrowing Base Properties ................ 38
3.3 Borrowing Base Determinations ....................... 38
3.4 Covenants Relating to Borrowing Base Properties ..... 39
3.5 Unsecured Election .................................. 41
4. CONDITIONS TO LOANS ......................................... 42
-------------------
4.1 Conditions to Initial Disbursement of Loans ......... 42
4.2 Conditions Precedent to All Loans ................... 46
5. REPRESENTATIONS AND WARRANTIES .............................. 46
------------------------------
5.1 Representations and Warranties as to Borrower, Etc .. 46
5.2 Representations and Warranties as to Each Pledgor
Subpartnership, Etc ................................. 52
5.3 Representations and Warranties as to the REIT ....... 55
6. REPORTING COVENANTS ......................................... 58
-------------------
6.1 Financial Statements and Other Financial and
Operating Information ............................... 58
6.2 Environmental Notices ............................... 58
7. AFFIRMATIVE COVENANTS ....................................... 59
---------------------
7.1 With Respect to Borrower ............................ 59
7.2 With Respect to Pledgor Subpartnerships ............. 61
7.3 With Respect to the REIT ............................ 62
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<S> <C> <C>
8. NEGATIVE COVENANTS ................................................... 63
------------------
8.1 With Respect to All Parties ..................................... 63
8.2 Amendment of Constituent Documents .............................. 64
8.3 Disposal of Pledgor Subpartnership Interests .................... 64
8.4 Margin Regulations .............................................. 64
8.5 Minimum Ownership Interests ..................................... 65
8.6 [Intentionally Deleted) ......................................... 65
8.7 Organization of Borrower, Etc ................................... 65
8.8 With Respect to Each Pledgor Subpartnership ..................... 65
8.9 With Respect to the REIT ........................................ 65
9. FINANCIAL COVENANTS .................................................. 66
-------------------
9.1 [Intentionally Deleted] ......................................... 66
9.2 Implied Market Equity ........................................... 66
9.3 Borrower Debt to Market Value Ratio ............................. 66
9.4 EBITDA to Interest Expense Ratio ................................ 66
9.5 EBITDA to Debt Service and Capital Expenditures Ratio ........... 66
9.6 Distributions ................................................... 66
9.7 Permitted Investments ........................................... 67
9.8 Excess Floating Rate Debt ....................................... 68
9.9 Excess Debt ..................................................... 68
9.10 Properties under Development .................................... 68
9.11 Maximum Leverage on Unencumbered Assets ......................... 69
9.12 Minimum Cash Flow Coverage on Unencumbered Assets ............... 69
9.13 Secured Debt .................................................... 69
9.14 Calculation ..................................................... 69
10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ............................... 69
--------------------------------------
10.1 Events of Default .............................................. 69
10.2 Rights and Remedies ............................................ 72
10.3 Rescission ..................................................... 74
11. AGENCY PROVISIONS .................................................... 74
-----------------
11.1 Appointment .................................................... 74
11.2 Nature of Duties ............................................... 74
11.3 Loan Disbursements ............................................. 75
11.4 Distribution and Apportionment of Payments ..................... 76
11.5 Rights, Exculpation, Etc ....................................... 77
11.6 Reliance ....................................................... 78
11.7 Indemnification ................................................ 78
11.8 Administrative Agent Individually .............................. 79
11.9 Successor Administrative Agent; Resignation of Administrative
Agent; Removal of Administrative Agent ......................... 79
11.10 Consent and Approvals .......................................... 80
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<S> <C>
11.11 Agency Provisions Relating to Collateral ..................... 82
11.12 Lender Actions Against Collateral ............................ 84
11.13 Assignments and Participation ................................ 84
11.14 Ratable Sharing .............................................. 87
11.15 Delivery of Documents ........................................ 88
11.16 Inspection of Books and Records .............................. 88
11.17 Notice of Events of Default .................................. 88
12. MISCELLANEOUS ....................................................... 89
-------------
12.1 Expenses ..................................................... 89
12.2 Indemnity .................................................... 90
12.3 Change in Accounting Principles .............................. 90
12.4 Amendments and Waivers ....................................... 91
12.5 Independence of Covenants .................................... 92
12.6 Notices and Delivery ......................................... 92
12.7 Survival of Warranties, Indemnities and Agreements ........... 93
12.8 Failure or Indulgence Not Waiver; Remedies Cumulative ........ 93
12.9 Marshalling; Recourse to Security; Payments Set Aside ........ 93
12.10 Severability ................................................. 93
12.11 Headings ..................................................... 94
12.12 Governing Law ................................................ 94
12.13 Limitation of Liability ...................................... 94
12.14 Limited Recourse Against Partners ............................ 94
12.15 Successors and Assigns ....................................... 96
12.16 Consent to Jurisdiction and Service of Process; Waiver of
Jury Trial ................................................... 96
12.17 Counterparts; Effectiveness; Inconsistencies ................. 97
12.18 Performance of Obligations ................................... 97
12.19 Construction ................................................. 97
12.20 Entire Agreement ............................................. 98
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
EXHIBITS:
- ---------
EXHIBIT A - ASSIGNMENT AND ASSUMPTION FORM
EXHIBIT B - BORROWING BASE CERTIFICATE
EXHIBIT C - CLOSING CHECKLIST
EXHIBIT D - COMPLIANCE CERTIFICATE
EXHIBIT E - FORM OF LOAN NOTE
EXHIBIT F - NOTICE OF BORROWING
EXHIBIT G - FIXED RATE NOTICE
EXHIBIT H - SCHEDULE OF INSURANCE REQUIREMENTS
EXHIBIT I - FORM OF OPERATING STATEMENTS
EXHIBIT J - FORM OF OPERATING BUDGET
EXHIBIT K - FORM OF LETTER OF CREDIT
EXHIBIT L - FEDERAL NATIONAL MORTGAGE ASSOCIATION
COMMITMENT AND THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY COMMITMENTS
EXHIBIT M - LIST OF MANAGEMENT CONTRACTS AFFECTING
BORROWING BASE PROPERTIES
EXHIBIT N - LENDER CLOSING INDEX
EXHIBIT 0 - FORM OF REQUEST FOR LETTER OF CREDIT
EXHIBIT P - FINANCIAL REPORTING REQUIREMENTS
-iv-
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
SCHEDULES:
- ----------
1 - LIST OF BORROWING BASE PROPERTIES
2 - LIST OF MAJOR BBP LEASES ON CLOSING DATE
5.1(C) - GENERAL PARTNERS AND LIMITED PARTNERS OF
BORROWER AND EACH PLEDGOR SUBPARTNERSHIP
5.1(U) - ENVIRONMENTAL MATTERS
5.1(V) - CONTRACTUAL OBLIGATIONS NOT TERMINABLE IN 30 DAYS
5.3(Q) - EXECUTIVE OFFICER OWNERSHIP
-v-
<PAGE>
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT is dated as of June
30, 1994 and amended and restated effective as of May 1, 1997 (the "Effective
Date") (as further amended, restated, supplemented or modified from time to
time, the "Agreement") and is among CHARLES E. SMITH RESIDENTIAL REALTY L.P., a
Delaware limited partnership ("Borrower"), each of the Lenders, as hereinafter
defined, and PNC BANK, NATIONAL ASSOCIATION ("PNC"), in its capacity as
Administrative Agent acting in the manner described in Article 11 and as a
----------
Lender.
WHEREAS, the Borrower, Wells Fargo Realty Advisors Funding Incorporated
("WFRAF"), as Administrative Agent and as a Lender, PNC, as Co-Agent and a
Lender, and First Bank National Association ("First Bank") and Nations Bank,
N.A. ("NationsBank"), as Lenders, are parties to that certain Credit Agreement
dated as of June 30, 1994, as amended by First Amendment to Credit Agreement
dated as of October 25, 1994 and as amended and restated effective as of January
22, 1996 (the "First Restatement") (as amended and restated, the "Original
Agreement");
WHEREAS, pursuant to those certain three (3) Assignment and Assumption
Agreements (the "Assignments") dated January 22, 1996, from WFRAF to each of
PNC, First Bank and NationsBank, WFRAF assigned all of its right, title and
interest under the Facility to PNC, First Bank and NationsBank so that, after
giving effect to such Assignments, each of PNC, First Bank and NationsBank has a
Pro Rata Share of 33 1/3%;
WHEREAS, pursuant to the First Restatement, the parties agreed that,
among other things, PNC should replace WFRAF as Administrative Agent; and
WHEREAS, the parties hereto desire to further amend and restate the
Original Agreement as more fully set forth herein.
1. DEFINITIONS
-----------
1.1 Certain Defined Terms.
---------------------
The following terms used in this Agreement shall have the following
meanings (such meanings to be applicable, except to the extent otherwise
indicated in a definition of a particular term, both to the singular and the
plural forms of the terms defined):
"Accommodation Obligations" as applied to any Person, means any
-------------------------
Indebtedness or other contractual obligation or liability, contingent or
otherwise, of another Person in respect of which that Person is liable,
including, without limitation, any such Indebtedness, obligation or liability
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly
-1-
<PAGE>
liable, including in respect of any Partnership in which that Person is a
general partner, Contractual Obligations (contingent or otherwise) arising
through any agreement to purchase, repurchase or otherwise acquire such
Indebtedness, obligation or liability or any security therefor, or to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition, or to make
payment other than for value received.
"Accountants" means Arthur Andersen & Co., any other "big six"
-----------
accounting firm or another firm of certified public accountants of national
standing selected by Borrower and acceptable to the Administrative Agent.
"Acquisition Price" means the aggregate purchase price for an asset,
-----------------
including bona fide purchase money financing provided by the seller and all (or
--------
Borrower's Share of, as applicable) existing Indebtedness pertaining to such
asset.
"Administrative Agent" means PNC in its capacity as Administrative
--------------------
Agent for the Lenders pursuant to this Agreement and in its capacity as agent
for the Lenders under the Loan Documents and shall be deemed to refer to PNC in
its individual capacity as a Lender where the context so requires .
"Affiliates," as applied to any Person, means any other Person directly
----------
or indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as applied to any Person, means (a) the possession, directly or
indirectly, of the power to vote ten percent (10%) or more of the Securities
having voting power for the election of directors of such Person or otherwise to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting Securities or by contract or otherwise,
or (b) the ownership of a general partnership interest or a limited partnership
interest representing ten percent (10%) or more of the outstanding limited
partnership interests of such Person.
"Appraisal" means a written appraisal prepared by an independent MAI
---------
appraiser acceptable to the Administrative Agent in its reasonable discretion
and subject to the customary independent appraisal requirements and prepared in
compliance with all applicable regulatory requirements, including FIRREA.
"Appraised Value" means, as to any Borrowing Base Property, the fair
---------------
market value of such Borrowing Base Property as reflected in the then most
recent Appraisal of such Borrowing Base Property as the same may have been
adjusted by the Administrative Agent based upon its internal review of such
Appraisal, which review shall be conducted within thirty (30) days after receipt
by the Administrative Agent of such Appraisal.
"Assignment and Assumption" means an Assignment and Assumption in the
-------------------------
form substantially as set forth on Exhibit A hereto (with blanks appropriately
---------
filled in) delivered to
-2-
<PAGE>
the Administrative Agent in connection with each assignment of a Lender's
interest under this Agreement pursuant to Section 11.13.
-------------
"Average Treasury Note Yield" means the average yield for the four (4)
---------------------------
most recent Fiscal Quarters of ten (10) year United States Treasury Notes. The
yield of ten (10) year United States Treasury Notes for each Fiscal Quarter
shall be the sum of the average monthly yield of ten (10) year United States
Treasury Notes during that Fiscal Quarter. The average monthly yield shall be
the yield for United States Treasury obligations having a constant maturity of
ten (10) years as published in the Federal Reserve Statistical Release H.15
(519) Selected Interest Rates or successor publication.
"BBP" when used herein refers to a Borrowing Base Property.
---
"BBP Lease" means a tenant lease of a Borrowing Base Property.
---
"Benefit Plan" means any employee pension benefit plan as defined in
------------
Section 3(2) of ERISA (other than a Multi-employer Plan) in respect of which a
- ------------
Person or an ERISA Affiliate is, or within the immediately preceding five (5)
years was, an "employer" as defined in Section 3(5) of ERISA.
------------
"Borrower Debt" means all Indebtedness of Borrower and the REIT
-------------
(without offset or reduction in respect of prepaid interest, restructuring fees
or similar items) minus, in the case of Nonrecourse Indebtedness of an
-----
Investment Subsidiary, the amount of such Indebtedness in excess of Borrower's
Share thereof.
"Borrower Implied Market Equity" means, as of any date of
------------------------------
determination, the sum of (i) the product of the number of issued and
outstanding shares of common stock of the REIT and the market price per share,
and plus, without redundancy, (ii) the product of the number of issued and
outstanding units in the Borrower and the market price per share of the REIT's
common stock.
"Borrower's Share" means, in the case of an Investment Subsidiary,
----------------
Borrower's percentage ownership interest in such Investment Subsidiary .
"Borrowing" means a borrowing under the Facility.
---------
"Borrowing Base" means the sum of the Borrowing Base Values of the
--------------
Borrowing Base Properties.
"Borrowing Base Certificate" means a report in the form of Exhibit B.
-------------------------- ---------
"Borrowing Base Properties" means the properties listed on Schedule 1,
------------------------- ----------
as such Schedule 1 may be amended from time to time to reflect the addition and
----------
deletion of Borrowing Base Properties pursuant to Article 3. "Borrowing Base
--------------
Property Statements" has the meaning given to such term in Section 6.1(a).
- ------------------- --------------
-3-
<PAGE>
"Borrowing Base Value" means, as to any Borrowing Base Property at any
--------------------
time, the lower of:
(a) either (i) seventy percent (70%) of the Appraised Value of such
Borrowing Base Property in the case of a fee title property used for residential
rental purposes, or (ii) sixty-seven and one-half percent (67.5%) of the
Appraised Value of the Worldgate Property, minus, in either case, the then
-----
unpaid principal amount of all assessment or similar obligations imposed upon
such Borrowing Base Property (provided that there shall be no deduction for
--------
assessment or similar obligations if and to the extent the amount thereof has
been appropriately deducted in the determination of Appraised Value); or
(b) An amount equal to the product of NOI Ratio and the Net
Operating Income reflecting the effect of the Capital Reserve of such Borrowing
Base Property for the twelve (12) month period immediately preceding the date of
determination, divided by the constant annual percentage (expressed as a
----------
decimal) which would then be applicable to a loan bearing interest during the
term thereof at a fixed rate equal to one and one-half percent (1.5%) in excess
of the Average Treasury Note Yield amortizing in equal annual payments of
principal and interest over a period of twenty-five (25) years, (or, with
respect to the Worldgate Property, twenty (20) years).
"Budgeted Project Costs" means with respect to Properties under
----------------------
Development, the budgeted cost of completion of such Properties under
Development shown on schedules submitted to and approved by the Administrative
Agent; provided that the budgeted costs shall include projected operating
deficits through completion and the projected date of occupancy of eighty-five
percent (85%) of the dwelling units and provided further that, for Properties
under Development by Majority Partnerships, the Budgeted Project Costs shall be
the Borrower's share of the budgeted costs of completion (based on the greater
of (x) the Borrower's percentage equity interest of the Majority Partnership or
(y) the Borrower's obligation to provide funds to the Majority Partnership) .
"Business Day" means (a) with respect to any Borrowing, payment or rate
------------
determination of Fixed Increments, a day, other than a Saturday or Sunday, on
which the Administrative Agent is open for business in Pittsburgh, Pennsylvania
and on which dealings in Dollars are carried on in the London interbank market,
and (b) for all other purposes any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the Commonwealth of Pennsylvania, or
is a day on which banking institutions located in Pennsylvania are required or
authorized by law or other governmental action to close.
"Capital Expenditures" means any expenditure for any item that would be
--------------------
treated or defined as a capital expenditure under GAAP.
"Capital Leases," as applied to any Person, means any lease of any
--------------
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
-4-
<PAGE>
"Capital Reserve" means, with respect to residential apartment
---------------
properties, Two Hundred Fifty Dollars ($250.00) per dwelling unit and with
respect to the Worldgate Property, Seventeen Cents ($0.17) per square foot.
"Cash Available for Distribution" means Funds from Operations less
-------------------------------
actual Capital Expenditures .
"Cash Equivalents" means (a) marketable direct obligations issued or
----------------
unconditionally guaranteed by the United States Government or issued by an
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year after the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within ninety (90) days after the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from any two of S&P, Moody's, Duff and Phelps, or
Fitch Investors (or, if at any time no two of the foregoing shall be rating such
obligations, then from such other nationally recognized rating services as may
be acceptable to the Administrative Agent) and not listed for possible downgrade
in Credit Watch published by S&P; (c) commercial paper, other than commercial
paper issued by Borrower or any of its affiliates, maturing no more than ninety
(90) days after the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 or P-i from either S&P's or Moody's (or, if at
any time neither S&P nor Moody's shall be rating such obligations, then the
highest rating from such other nationally recognized rating services as may be
acceptable to the Administrative Agent); and (d) domestic and Eurodollar
certificates of deposit or time deposits or bankers' acceptances maturing within
ninety (90) days after the date of acquisition thereof, overnight securities
repurchase agreements, or reverse repurchase agreements secured by any of the
foregoing types of securities or debt instruments issued, in each case, by (i)
any commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia or Canada having combined capital
and surplus of not less than Two Hundred Fifty Million Dollars ($250,000,000) or
(ii) any Lender.
"Closing Checklist" means the Closing Checklist attached hereto as
-----------------
Exhibit C, as the same may be amended by the parties.
- ---------
"Closing Date" means the date on which this Agreement shall become
------------
effective in accordance with Section 12.17.
-------------
"Collateral" means all Property and interests in Property now owned or
----------
hereafter acquired by Borrower or any Pledgor Subpartnership in or upon which a
security interest, pledge, lien or mortgage is granted or of which a collateral
assignment is made under this Agreement, the Mortgage Documents or any other
Loan Document.
"Commission" means the Securities and Exchange Commission.
----------
"Commitment" means, with respect to any Lender, such Lender's Pro Rata
----------
Share of the Facility, which amount shall not exceed the principal amount set
out under such Lender's
-5-
<PAGE>
name under the heading "Loan Commitment" on the signature pages attached to this
Agreement or as set forth on an Assignment and Assumption executed by such
Lender, as assignee .
"Compliance Certificate" means a certificate in the form of Exhibit D
---------------------- ---------
hereto delivered to the Administrative Agent by Borrower pursuant to Section
-------
6.1(d) or other provision of this Agreement and covering Borrower's compliance
- ------
with the financial covenants contained in Section 8.5 and Article 9.
----------- ---------
"Construction Project" has the meaning given to such term in
--------------------
Section 3.4(e).
- --------------
"Contaminant" means any pollutant (as that term is defined in 42 U.S.C.
-----------
9601(33)) or toxic pollutant (as that term is defined in 33 U.S.C. 1362(13)),
hazardous substance (as that term is defined in 42 U.S.C. 9601(14)), hazardous
chemical (as that term is defined by 29 CFR Section 1910.1200(c)), toxic
substance, hazardous waste (as that term is defined in 42 U.S.C. 6903(5)),
radioactive material, special waste, petroleum (including crude oil or any
petroleum-derived substance, waste, or breakdown or decomposition product
thereof), any constituent of any such substance or waste, including, but not
limited to, polychlorinated biphenyls and asbestos, or any other substance or
waste deleterious to the environment the release, disposal or remediation of
which is now or at any time becomes subject to regulation under any
Environmental Law.
"Contractual Obligation," as applied to any Person, means any provision
----------------------
of any Securities issued by that Person or any indenture, mortgage, deed of
trust, lease, contract, undertaking, document or instrument to which that Person
is a party or by which it or any of its properties is bound, or to which it or
any of its properties is subject (including, without limitation, any restrictive
covenant affecting such Person or any of its properties) .
"Court Order" means any judgment, writ, injunction, decree, rule or
-----------
regulation of any court or Governmental Authority binding upon or applicable the
Person in question.
"DC LP" means Smith Property Holdings Five (D.C.) L. P., a Delaware
-----
limited partnership .
"Debt Service" means, for any period, Interest Expense for such period
------------
plus scheduled principal amortization for such period on all Borrower Debt.
- ----
"Defaulting Lender" means any Lender which fails or refuses to perform
-----------------
its obligations under this Agreement within the time period specified for
performance of such obligation or, if no time frame is specified, if such
failure or refusal continues for a period of five (5) Business Days after notice
from the Administrative Agent.
"Default Rate" means the per annum rate of interest otherwise
------------
applicable to the Indebtedness and each part thereof, plus three
percent (3 %) per annum.
-6-
<PAGE>
"DOL" means the United States Department of Labor and any successor
---
department or agency.
"Documentation Agent" means First Bank National Association.
-------------------
"Dollars" and "$" means the lawful money of the United States of
---------------
America.
"Eastern Time" means Eastern Standard Time or Eastern Daylight Savings
------------
Time, as in effect on the day to which the time specification is made.
"EBITDA" for any period means the sum of the amounts for such period of
------
(i) Net Income, (ii) depreciation and amortization expense, (iii) Interest
Expense, (iv) Taxes, and (v) cash distributions to Borrower from Investment
Subsidiaries, minus (vi) the Borrower's gains (and plus the Borrower's losses)
from extraordinary items, asset sales, write-ups, or forgiveness of Indebtedness
and (vii) equity in earnings of Investment Subsidiaries, all as determined on a
consolidated basis .
"Environmental Laws" has the meaning set forth in Section 5.1(t).
------------------ --------------
"Environmental Lien" means a Lien in favor of any Governmental
------------------
Authority for (a) any liability under Environmental Laws, or (b) damages arising
from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of a Contaminant into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any successor statute .
"ERISA Affiliate" means any (a) corporation which is, becomes, or is
---------------
deemed to be a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Internal Revenue Code) as a Person, (b)
partnership, trade or business (whether or not incorporated) which is, becomes
or is deemed to be under common control (within the meaning of Section 414(c) of
the Internal Revenue Code) with such Person, (c) is, becomes or is deemed to be
a member of the same "affiliated service group" (as defined in Section 414(m) of
the Internal Revenue Code) as such Person, or (d) any other organization or
arrangement described in Section 414(o) of the Internal Revenue Code which is,
becomes or is deemed to be required to be aggregated pursuant to regulations
issued under Section 414(o) of the Internal Revenue Code with such Person
pursuant to Section 414(o) of the Internal Revenue Code.
"Event of Default" means any of the occurrences set forth in Section
----------------
10.1 after the expiration of any applicable grace period expressly provided
therein.
"Excess Floating Rate Debt" means, at any time, Floating Rate Debt in
-------------------------
excess of Two Hundred Fifty Million Dollars ($250,000,000).
-7-
<PAGE>
"Executive Officers" means Ernest A. Gerardi, Jr., Robert P. Kogod,
------------------
W. D. "Denny" Minami, Matthew B. McCormick, Robert H. Smith and Roger L. Weeks.
"Facility" means the loan facility of One Hundred Million Dollars
--------
($100,000,000.00) described in Section 2.1(a).
--------------
"Facility Fee" has the meaning given to such term in Section 2.6(a).
------------
"FDIC" means the Federal Deposit Insurance Corporation or any
----
successor thereto.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
------------------
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
---------------------
Reserve System or any governmental authority succeeding to its functions.
"Financial Statements" has the meaning given to such term in
--------------------
Section 6.1(b).
- --------------
"FIRREA" means the Financial Institutions Recovery, Reform and
------
Enforcement Act of 1989, as amended from time to time.
"Fiscal Quarter" means each three-month period ending on March 31, June
--------------
30, September 30 and December 31.
"Fiscal Year" means the fiscal year of Borrower which shall be the
-----------
twelve (12) month period ending on the last day of December in each year.
"Fixed Charges and Capital Expenditures" means the actual Capital
--------------------------------------
Expenditures relating to Unencumbered Assets plus debt service on Unsecured Debt
of Borrower equal to the higher of (i) the actual interest expense and actual
principal amortization on the Unsecured Debt, (ii) the principal and interest
payments due on a loan in the amount of the Unsecured Debt in connection with
the level mortgage-style amortization based on a 25-year term at an interest
rate of 1.5% above the Average Treasury Note Yield or (iii) the payments due
based upon a nine percent (9%) mortgage constant, multiplied by the amount of
the Unsecured Debt.
"Fixed Increment" means the portion of the outstanding principal
---------------
balance of the Facility specified by Borrower effective as of the applicable
Fixed Period Commencement Date provided, however, in no event shall any such
--------
Fixed Increment be less than One Million Dollars ($1,000,000.00).
-8-
<PAGE>
"Fixed Increment Rate" means the "Fixed LIBOR Rate" for a Fixed Period
--------------------
selected by Borrower pursuant to the terms of this Agreement, plus, at any time
prior to the achievement of the Senior Debt Ratings, a percentage per annum
determined as set forth below based upon the corresponding Leverage Ratio:
<TABLE>
<CAPTION>
Per Annum
Leverage Ratio Percentage
-------------- ----------
<S> <C>
less than 30% .975%
30% or more but less than 50% 1.125%
50% or more 1.25%
</TABLE>
Any change in the applicable percentage shall become effective
simultaneously with Administrative Agent's calculation of a new Leverage Ratio,
a copy of which calculation shall be delivered to the Borrower and all Lenders.
At any time after the achievement of the Senior Debt Ratings, the Fixed
Increment Rate shall mean the "Fixed LIBOR Rate" for a Fixed Period selected by
the Borrower pursuant to the terms of this Agreement, plus a percentage per
annum determined as set forth below based upon the Senior Debt Ratings:
<TABLE>
<CAPTION>
Rating Per Annum Percentage
------ --------------------
<S> <C>
less than BBB-/Baa3 1.25%
BBB-/Baa3 1.0%
BBB/Baa2 .875%
BBB+/Baa1 .75%
A-IA or higher .625%
</TABLE>
If two Senior Debt Ratings are not equivalent, the applicable percentage will be
based on the lower of the two ratings. If three or more ratings exist and are
not equivalent, the applicable percentage will be based upon the lower of the
two highest ratings, except that, if neither of the two highest ratings is
issued by S&P or Moody's, then the applicable percentage shall be determined
based upon the S&P or Moody's rating. Any change in the applicable percentage
shall become effective two (2) Business Days following the Borrower's
notification to the Administrative Agent of a change in the Senior Debt Ratings,
provided that, in the event that the Borrower shall not provide the
Administrative Agent with notice of a downgrade of one of the Senior Debt
Ratings within the time period provided in Article 6, the Administrative Agent
shall have the right, in its sole discretion, to make the change in the
applicable percentage retroactive to the date when such change would have
occurred had such notice been timely given. Any change in the applicable
percentage shall apply to existing Fixed Increments as well as Fixed Increments
which shall be subsequently established.
"Fixed LIBOR Rate" means the rate per annum determined by the
----------------
Administrative Agent by dividing (the resulting quotient rounded upwards, if
necessary, to the nearest 1/16th of 1% per annum) (i) the rate of interest
determined by the Administrative Agent in
-9-
<PAGE>
accordance with its usual procedures (which conclusion shall be conclusive
absent manifest error) to be the average of the London interbank offered rate
for U.S. dollars set forth on Telerate display page 3750 or such other display
page on the Telerate System as may replace such page to evidence the average of
rates quoted by banks designated by the British Bankers' Association (or
appropriate successor or, if the British Bankers' Association, or its successor
ceases to provide such quotes, a comparable replacement as determined by the
Administrative Agent) at approximately 11:00 a.m. London time two (2) Business
Days prior to the first day of such Fixed Period for an amount comparable to
such advance and having a borrowing date and maturity comparable to such Fixed
Period by (ii) a number equal to 1.00 minus the LIBOR Rate Reserve Percentage.
The Fixed LIBOR Rate may also be expressed by the following formula:
Fixed LIBOR Rate = Telerate display page 3750 as
quoted by the British Bankers'
Association, or appropriate
successor / 1.00- LIB OR Rate Reserve
Percentage
"Fixed Period" means, relative to any Fixed Increments, the period
------------
beginning on (and including) the Fixed Period Commencement Date and ending on
(but excluding) the day which numerically corresponds to such date in the first
(1st), second (2nd), third (3rd), sixth (6th) or, if acceptable to all
Lenders, twelfth (12th) month thereafter, in either case as Borrower may
select in its relevant Notice of Borrowing pursuant to Section 2.1(b); provided,
-------------- --------
however, that:
- -------
(a) if such Fixed Period would otherwise end on a day
which is not a Business Day, such Fixed Period shall end on the next following
Business Day;
(b) no Fixed Period may end later than the Termination Date;
and
(c) during the Syndication Period, all Fixed Periods shall be
limited to thirty (30) days.
"Fixed Period Commencement Date" means the proposed commencement of the
------------------------------
applicable Fixed Period.
"Fixed Rate Notice" means, with respect to a Fixed Increment pursuant
-----------------
to Section 2.1(b) a notice substantially in the form of Exhibit 9.
-------------- ---------
"Fixed Rate Price Adjustment" has the meaning given to such term in
---------------------------
Section 2.5(h)(iii).
------------------
"Floating Rate Debt" means any outstanding Borrower Debt which bears
------------------
interest at a rate which is subject to periodic adjustment (either automatically
by reference to a fluctuating base or market rate of interest or at the option
of the lender) at any time prior to the earlier of (a) the Termination Date and
(b) the maturity date or termination date of such Indebtedness
-10-
<PAGE>
"FNMA" means the Federal National Mortgage Association.
----
"FNMA Pool" means the Properties pledged as collateral for the FNMA
---------
Pool Financing.
"FNMA Pool Financing" means the approximate $70,000,000 loan to be
-------------------
provided by FNMA to the Borrower, which is anticipated to close shortly after
the Effective Date.
"FNMA Pool Value" means the fair market value of FNMA Pool as
---------------
established by the appraisals prepared for FNMA with appropriate evidence of
such fair market values to be provided to the Administrative Agent.
"Funding Date" means, with respect to any Loan made after the Closing
------------
Date, the date of the funding of such Loan.
"Funds from Operations" means Net Income (Loss) of the Borrower and the
---------------------
REIT (computed in accordance with GAAP and as defined per NAREIT) excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint Ventures.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, or in such other statements by such
other entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any federal,
----------------------
state, local, municipal or other political subdivision thereof or any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Indebtedness," as applied to any Person (and without duplication),
------------
means (a) all indebtedness, obligations or other liabilities of such Person for
borrowed money, (b) all indebtedness, obligations or other liabilities of such
Person evidenced by Securities or other similar instruments, (c) all
reimbursement obligations and other liabilities of such Person with respect to
letters of credit or banker's acceptances issued for such Person's account, (d)
all obligations of such Person to pay the deferred purchase price of Property or
services, (e) all obligations in respect of Capital Leases of such Person, (f)
all Accommodation Obligations of such Person, (g) all indebtedness, obligations
or other liabilities of such Person or others secured by a Lien on any asset of
such Person, whether or not such indebtedness, obligations or liabilities are
assumed by, or are a personal liability of, such Person (including, without
limitation, the principal amount of any assessment or similar indebtedness
encumbering any property), (h) all indebtedness, obligations or other
liabilities (other than interest expense liability) in respect of Interest Rate
Contracts and foreign currency exchange agreements, and (i) ERISA obligations
currently due and payable.
-11-
<PAGE>
Indebtedness shall not include accrued ordinary operating expenses payable on a
current basis.
"Interest Expense" means for any period, total interest expense,
----------------
whether paid, accrued or capitalized (including the interest component of
Capital Leases) but excluding capitalized interest covered by an interest
reserve established under a loan facility, in respect of Borrower Debt,
including, without limitation, all commissions, discounts and other fees and
charges owed with respect to letters of credit, net costs under Interest Rate
Contracts, and Facility Fees payable to Lenders.
"Interest Rate Contracts" means, collectively, interest rate swap,
-----------------------
collar, cap or similar agreements providing interest rate protection, in form
and substance acceptable to the Administrative Agent.
"Interim Period" means the period commencing on January 1, 1994 and
--------------
ending on the Closing Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
amended from time to time hereafter, and any successor statute.
"Investment" means, as applied to any Person, any direct or indirect
----------
purchase or other acquisition by that Person of Securities, or of a beneficial
interest in Securities, of any other Person, and any direct or indirect loan,
advance (other than deposits with financial institutions available for
withdrawal on demand, prepaid expenses, advances to employees and similar items
made or incurred in the ordinary course of business), or capital contribution by
such Person to any other Person, including all Indebtedness and accounts owed by
that other Person which are not current assets or did not arise from sales of
goods or services to that Person in the ordinary course of business.
"Investment Grade Rating" means a rating for the REIT's senior long
-----------------------
term unsecured debt of BBB- or better from S&P or a rating of Baa3 or better
from Moody's, or an equivalent rating from another rating agency acceptable to
the Administrative Agent.
"Investment Mortgages" means mortgages securing indebtedness directly
--------------------
or indirectly owned by Borrower, including certificates of interest in real
estate mortgage investment conduits.
"Investment Subsidiary" means any Person in which Borrower has an
---------------------
ownership interest, whose financial results are not consolidated under GAAP in
the Financial Statements.
"IRS" means the Internal Revenue Service and any Person succeeding to
---
the functions thereof.
"Land" means unimproved real estate, including future phases of a
----
partially completed project, owned or leased by Borrower for the purpose of
future development of
-12-
<PAGE>
improvements. For purposes of the foregoing definition, "unimproved" shall mean
Land on which the construction of building improvements has not commenced or has
been discontinued for a continuous period longer than sixty (60) days prior to
completion.
"Lender Taxes" has the meaning given to such term in Section 2.5(g).
------------ --------------
"Lenders" means PNC, First Bank, NationsBank and any other bank,
-------
finance company, insurance or other financial institution which is or becomes a
party to this Agreement by execution of a counterpart signature page hereto or
an Assignment and Assumption, as assignee. With respect to matters requiring the
consent to or approval of all Lenders at any given time, all then existing
Defaulting Lenders will be disregarded and excluded, and, for voting purposes
only, "all Lenders" shall be deemed to mean "all Lenders other than Defaulting
Lenders."
"Letters of Credit" means the letters of credit made in connection with
-----------------
the Facility issued by Administrative Agent in favor of Borrower in an amount
not to exceed in the aggregate Twelve Million Five Hundred Thousand Dollars
($12,500,000) outstanding at any one time, as they may be drawn on, advanced,
replaced, or modified from time to time. The initial Letters of Credit and any
additional Letters of Credit shall be substantially in the form of Exhibit K.
---------
"Leverage Ratio" means a percentage determined by dividing the sum of
--------------
the principal balance of all Loans plus the aggregate undrawn amounts available
under the outstanding Letters of Credit by the aggregate Appraised Values of the
Borrowing Base Properties with the resulting quotient multiplied by one hundred
percent (100%). The Leverage Ratio shall be recalculated upon the occurrence of
any of the following: (i) any Borrowing, (ii) any repayment of the Loans, (iii)
the issuance, termination, or release of any Letter of Credit or (iv) any change
in the Appraised Values of the Borrowing Base Properties.
"Liabilities and Costs" means all claims, judgments, liabilities,
---------------------
obligations, responsibilities, losses, damages (including lost profits),
punitive or treble damages, costs, disbursements and expenses (including,
without limitation, reasonable attorneys', experts' and consulting fees and
costs of investigation and feasibility studies), fines, penalties and monetary
sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future.
"LIBOR Office" means, relative to any Lender, the office of such Lender
------------
designated as such on the counterpart signature pages hereto or such other
office of a Lender as designated from time to time by notice from such Lender to
the Administrative Agent, whether or not outside the United States, which shall
be making or maintaining Fixed Increments of such Lender.
"LIBOR Rate Reserve Percentage" means the maximum effective percentage
-----------------------------
in effect on such day as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve requirements
(including, without limitation,
-13-
<PAGE>
supplemental, marginal and emergency reserve requirement) with respect to
eurocurrency funding (currently referred to as "Eurocurrency Liabilities").
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, deposit arrangement, security interest, encumbrance (including, but
not limited to, easements, rights of way, zoning restrictions and the like),
lien (statutory or other), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever, including without
limitation any conditional sale or other title retention agreement, the interest
of a lessor under a Capital Lease, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement or document having similar effect (other than a financing statement
filed by a "true" lessor pursuant to 9408 of the Uniform Commercial Code) naming
the owner of the asset to which such Lien relates as debtor, under the Uniform
Commercial Code or other comparable law of any jurisdiction.
"Loan Account" has the meaning given to such term in Section 2.4.
------------ -----------
"Loan Availability" means the lesser of (a) the Borrowing Base and (b)
-----------------
the amount of the Facility from time to time, provided that, in the event that
Borrower has given the Unsecured Election to the Administrative Agent and the
Administrative Agent has confirmed that Borrower is entitled to make such
election, the Loan Availability shall be equal to the amount of the Facility.
"Loan Documents" means this Agreement, the Loan Notes, the Mortgage
--------------
Documents, and all other agreements, instruments and documents (together with
amendments and supplements thereto and replacements thereof) now or hereafter
executed by the REIT, Borrower or any Pledgor Subpartnership, which evidence,
guaranty or secure the Obligations.
"Loan Notes" means the promissory notes evidencing the Loans in the
----------
aggregate original principal amount of up to One Hundred Million Dollars
($100,000,000) executed by Borrower in favor of Lenders, as they may be amended,
supplemented, replaced or modified from time to time, including, without
limitation, any new or replacement notes issued to any Lender in connection with
the assignment of an interest in the Loans by any Lender to one or more Lenders
pursuant to Section 11.13 hereof. The initial Loan Notes and any replacements
-------------
thereof shall be substantially in the form of Exhibit E.
---------
"Loans" means the loans made pursuant to the Facility.
-----
"Major Agreements" means, at any time, (a) each Major BBP Lease, (b)
----------------
each cross-easement, restrictions or similar agreement encumbering or affecting
a Borrowing Base Property and any adjoining property, (c) each management
agreement with respect to a Borrowing Base Property, (d) each ground lease
affecting a Borrowing Base Property, and (e) any other agreement, contract,
indenture or other document or instrument material to the operation, management
and/or maintenance of a Borrowing Base Property or to the security afforded
thereby.
-14-
<PAGE>
"Major BBP Lease" means (a) any BBP Lease shown on Schedule 2, and (b)
--------------- ----------
any BBP Lease of ten percent (10%) or more of the net rentable space of any
Borrowing Base Property.
"Majority Partnership" means each Pledgor Subpartnership and any other
--------------------
Partnership in which Borrower has an ownership interest, whose financial results
are consolidated under GAAP in the Financial Statements.
"March 31, 1994 Financials" has the meaning given to such term in
-------------------------
Section 5.1(g).
- --------------
"Market Value" means the sum of (i) the book value of all Unrestricted
------------
Tangible Assets, plus (ii) for all income-producing residential rental
Properties owned by the Borrower or a Majority Partnership for at least six (6)
months, the estimated market value thereof, as determined by dividing the
annualized aggregate EBIDTA for such Properties for the immediately preceding
four (4) Fiscal Quarters, less the Capital Reserve for such Properties, by a
nine percent (9%) capitalization rate, plus (iii) for all income-producing
retail Properties owned by the Borrower or a Majority Partnership for at least
six (6) months, the estimated market value thereof, as determined by dividing
the annualized aggregate EBITDA for such Properties for the immediately
preceding four (4) Fiscal Quarters for such Properties, less the actual Capital
Expenditures for such period, by a ten percent (10%) capitalization rate, plus
(iv) for any Properties owned by the Borrower or a Majority Partnership for a
period of less than six (6) months, the aggregate purchase price for such
Properties, plus (v) for the Property Service Businesses, the estimated market
value thereof, determined by dividing the annualized EBITDA for such Property
Service Businesses for the immediately preceding four (4) Fiscal Quarters by a
fourteen percent (14%) capitalization rate, plus (vi) the estimated market value
of all Properties which are not revenue-producing, based upon the lower of (A)
the cost of such Properties or (B) the estimated market value as established by
an Appraisal or other valuation method selected by the Administrative Agent in
its reasonable discretion.
"Material Adverse Effect" means, with respect to a Person, a material
-----------------------
adverse effect upon the condition (financial or otherwise), operations,
performance or properties of such Person. The phrase "has a Material Adverse
Effect" or "will result in a Material Adverse Effect" or words substantially
similar thereto shall in all cases be intended to mean "has resulted, or will or
could reasonably be anticipated to result, in a Material Adverse Effect," and
the phrase "has no (or does not have a) Material Adverse Effect" or "will not
result in a Material Adverse Effect" or words substantially similar thereto
shall in all cases be intended to mean "does not or will not or could not
reasonably be anticipated to result in a Material Adverse Effect."
"Moody's" shall mean Moody's Investors Service, Inc., and its
-------
successors.
"Mortgage Documents" means each Mortgage, security agreement and other
------------------
document executed by Borrower or a Pledgor Subpartnership and evidencing or
creating Liens against a Borrowing Base Property securing the Loans, and all
related appurtenances, fixtures or other property rights or interests, as
security for the Obligations, as each of the foregoing may be amended,
supplemented or modified from time to time.
-15-
<PAGE>
"Mortgages" means the fee or leasehold mortgages, deeds of trust or
---------
trust deeds with assignments of leases and rents, security agreements and
fixture filings encumbering the Borrowing Base Properties executed by Borrower
or a Pledgor Subpartnership in favor of Administrative Agent.
"Multiemployer Plan" means an employee benefit plan defined in Section
------------------
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by a Person or an ERISA Affiliate.
"NAREIT" means National Association of Real Estate Investment Trusts.
------
"Net Income" means for any period, the net earnings (or loss) after
----------
Taxes less net earnings (or plus loss) attributable to minority interest in
consolidated Partnerships or Subsidiaries, calculated for such period on a
consolidated basis in conformity with GAAP.
"Net Offering Proceeds" means (a) all cash proceeds received by the
---------------------
REIT as a result of the sale of common, preferred or other classes of stock in
the REIT (if and only to the extent reflected in stockholders' equity on the
consolidated balance sheet of the REIT prepared in accordance with GAAP) less
----
customary costs and discounts of issuance paid by the REIT, all of which
proceeds shall have been concurrently contributed by the REIT to Borrower as
additional capital, plus (b) all cash and the fair market value of the net
----
equity of all properties contributed to Borrower by one or more Persons in
exchange for limited partnership interests in Borrower or shares of the REIT.
"Net Operating Income" means, with respect to a Borrowing Base
--------------------
Property, the net operating income of such Property determined in accordance
with sound accounting principles consistently applied, except that, for purposes
of determining Net Operating Income, (a) income shall not include security or
other deposits, late fees, lease termination or other similar charges,
delinquent rent recoveries, unless previously reflected in reserves, or any
other items of a non-recurring nature, and (b) such income shall be subject to
adjustment in the reasonable determination of the Administrative Agent, on a
basis consistent with the determination of the Appraised Value for such
Borrowing Base Property, in respect of management or similar fees, vacancy
factor, operating or capital reserves, anticipated property tax reassessment or
other appropriate items. Notwithstanding the limitations in Clause (a), Net
Operating Income may include collected lease termination charges (amortized
monthly over the remaining term of the lease) and delinquent rent recoveries so
long as (1) any such charge or recovery does not relate to a date earlier than
twelve (12) months prior to the end of the period for which Net Operating Income
is determined and (2) no such recovery shall be made for any month during or
after which the space to which such charge or recovery relates has been
re-leased to another Person and such Person has an obligation to pay rent for
such month(s).
"NOI Ratio" means, with respect to residential apartments, Eighty
---------
Percent (80%) and, with respect to the Worldgate Property, Seventy-Six and
Nine-Tenths Percent (76.9%).
"Non-Disturbance Agreement" has the meaning given to such term in
-------------------------
Section 3.4(c).
- --------------
-16-
<PAGE>
"Non Pro Rata Loan" means a Loan with respect to which fewer than all
-----------------
Lenders have funded their respective Pro Rata Shares of such Loans and the
failure of the nonfunding Lender or Lenders to fund its or their respective Pro
Rata Shares of such Loan constitutes a breach of this Agreement.
"Nonrecourse Indebtedness" means Indebtedness with respect to which
------------------------
recourse for payment is contractually limited to specific assets encumbered by a
Lien securing such Indebtedness.
"Notice of Borrowing" means, with respect to a proposed Borrowing
-------------------
pursuant to Section 2.1(b), a notice substantially in the form of Exhibit F.
-------------- ---------
"Obligations" means, from time to time, all Indebtedness of Borrower or
-----------
the REIT owing to Administrative Agent, any Lender or any Person entitled to
indemnification pursuant to Section 12.2, or any of their respective successors,
------------
transferees or assigns, of every type and description, whether or not evidenced
by any note, guaranty or other instrument, arising under or in connection with
this Agreement or any other Loan Document, whether or not for the payment of
money, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising
and however acquired. The term includes, without limitation, all interest,
charges, expenses, fees, reasonable attorneys' fees and disbursements,
reasonable fees and disbursements of expert witnesses and other consultants, and
any other sum now or hereinafter chargeable to Borrower under or in connection
with this Agreement or any other Loan Document. (Notwithstanding the foregoing
definition of "Obligations, " Borrower's obligations under any environmental
indemnity agreement constituting a Loan Document, or any environmental
representation, warranty, covenant, indemnity or similar provision in this
Agreement or any other Loan Document, shall be secured by the Collateral only to
the extent, if any, specifically provided in the Mortgage Documents.)
--------
"Officer's Certificate" means a certificate signed by a specified
---------------------
officer of a Person certifying as to the matters set forth therein.
"Partnership" means any general or limited partnership or joint
-----------
venture.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
----
succeeding to the functions thereof.
"Permit" means any permit, approval, authorization, license, variance
------
or permission required from a Governmental Authority under an applicable
Requirement of Law.
"Permitted Investments" means Land, Securities, Partnerships and
---------------------
Investment Mortgages, but only to the extent permitted in Section 9.7.
-----------
"Permitted Liens" means:
---------------
-17-
<PAGE>
(a) Liens (other than Environmental Liens and any Lien
imposed under ERISA) for taxes, assessments or charges of any Governmental
Authority or claims not yet due;
(b) Liens (other than any Lien imposed under ERISA) incurred
or deposits made in the ordinary course of business (including without
limitation surety bonds and appeal bonds) in connection with workers'
compensation, unemployment insurance and other types of social security benefits
or to secure the performance of tenders, bids, leases, contracts (other than for
the repayment of Indebtedness), statutory obligations;
(c) any laws, ordinances, easements, rights of way,
restrictions, exemptions, reservations, conditions, limitations, covenants or
other matters described as exceptions on Schedule B of the title insurance
policies described in Section 4.1(d)(ii) which are delivered to and accepted by
------------------
the Administrative Agent in satisfaction of the applicable condition to the
first Loan disbursement;
(d) Liens imposed by laws, such as mechanics' liens and other
similar liens arising in the ordinary course of business which secure payment of
obligations not more than thirty (30) days past due; and
(e) Liens on Borrowing Base Properties located in the District
of Columbia owned by a Pledgor Subpartnership not exceeding in the aggregate
Forty Million Dollars ($40,000,000.00) and individually an amount which when
added to the Borrowing Base Value of such property will equal the Appraised
Value of such property which lien (or the indebtedness it secures) is held (and
only for so long as it is held) by the Borrower, each and every provision of
which is absolutely and unconditionally subordinated to each and every provision
of the Mortgages, the payment of principal of which shall be prohibited until
the full and complete payment of the Loans, the return of any outstanding Letter
of Credit and the expiration or other termination of all obligations of Lenders
under this Agreement, the interest on which shall not be payable after the
occurrence of an Unmatured Event of Default or Event of Default and during the
continuation thereof, and which provide for the automatic release thereof upon
(i) the commencement by advertisement or otherwise or any foreclosure action
under a Mortgage on such property, or (ii) the occurrence of an event described
in Section 10.1(g) or 10.1(h) with respect to the owner (the "Bankruptcy Event")
--------------- -------
of such Borrowing Base Property, all in form and content as approved by the
Administrative Agent, and with respect to which the Borrower shall have agreed
to sell the indebtedness secured by such lien to the Administrative Agent for
Ten Dollars ($10.00) upon the occurrence of a Bankruptcy Event.
"Person" means any natural person, employee, corporation, limited
------
partnership, general partnership, joint stock company, limited liability
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust or other organization, whether or not a legal entity, or
any other non-governmental entity, or any Governmental Authority.
-18-
<PAGE>
"Plan" means an employee benefit plan defined in Section 3(3) of ERISA
----
(other than a Multiemployer Plan) in respect of which Borrower or an ERISA
Affiliate, as applicable, is an "employer" as defined in Section 3(5) of ERISA.
"Pledgor Subpartnership" means DC LP, or any other Partnership which
----------------------
shall have executed and delivered Mortgage Documents encumbering one or more
Borrowing Base Properties and containing a covenant to pay the Obligations.
"Post-Foreclosure Plan" has the meaning given to such term in
---------------------
Section 11.11(e).
- ----------------
"Price Adjustment Date" has the meaning given to such term in
---------------------
Section 2.5(h)(iii).
- -------------------
"Prime Rate" means the variable rate of interest per annum established
----------
from time to time by Administrative Agent at its downtown headquarters in
Pittsburgh, Pennsylvania and designated as its prime rate . Changes in the
Variable Rate resulting from changes in the Prime Rate shall become effective on
the date such change in such Prime Rate is established by Administrative Agent.
"Private Placement" means a private placement of REIT stock to
-----------------
Robert H. Smith and Robert P. Kogod and their families and related persons as
described in the REIT S-11
"Proceedings" means, collectively, all actions, suits and proceedings
-----------
before, and investigations commenced or threatened by or before, any court or
Governmental Authority with respect to a Person.
"Properties under Development" means residential rental Properties for
----------------------------
which the Borrower or a Majority Partnership is actively pursuing construction
of a building or other improvements provided that any such Property will no
longer be considered a Property under Development when eighty-five percent (85%)
of the rental units contained therein are occupied by tenants under leases.
"Property" means any real or personal property, building, facility,
--------
structure, equipment or unit, or other asset owned and operated by Borrower or a
Majority Partnership.
"Property Release" has the meaning given to such term in Section 3.2.
---------------- -----------
"Property Service Businesses" means three (3) companies, consisting of
---------------------------
Smith Realty Company, Consolidated Engineering Services, Inc., and Smith
Management Construction, Inc., so long as the Borrower shall own ninety-nine
percent (99%) or more of the economic interests therein.
"Pro Rata Share" means, with respect to any Lender, a fraction
--------------
(expressed as a percentage), the numerator of which shall be the amount of such
Lender's Commitment and the denominator of which shall be the aggregate amount
of all of the Lenders' Commitments.
-19-
<PAGE>
"Protective Advance" means all sums expended as determined by the
------------------
Administrative Agent to be necessary to: (a) protect the priority, validity and
enforceability of the Liens on, and security interests in, any Collateral and
the instruments evidencing or securing the Obligations, or (b) prevent the value
of any Collateral from being materially diminished (assuming the lack of such a
payment within the necessary time frame could potentially cause such Collateral
to lose value), or (c) protect any of the Collateral from being materially
damaged, impaired, mismanaged or taken, including, without limitation, any
amounts expended in accordance with Section 12.1 or post-foreclosure ownership,
------------
maintenance, operation or marketing of any Borrowing Base Property.
"Regulations D, G, T, U and X" means such Regulations of the Federal
----------------------------
Reserve Board as in effect from time to time.
"Regulatory Costs" means, collectively, future, supplemental, emergency
----------------
or other changes in LIBOR Rate Reserve Percentage assessment rates imposed by
the FDIC or similar requirements or costs imposed by any domestic or foreign
governmental authority and relating in any manner to the fixing of the Fixed
LIBOR Rate on the Loan.
"REIT" means Charles E. Smith Residential Realty, Inc., a Maryland
----
corporation.
"REIT Debt Proceeds" means that all cash proceeds received by the REIT
------------------
as a result of the issuance of any Indebtedness, less customary costs of
issuance paid by the REIT.
"REIT S-11" means the S-11 filed by the REIT with respect to the REIT
---------
IPO and dated June 23, 1994.
"Release" means the release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration now
existing or hereafter occurring into the indoor or outdoor environment or into
or out of any property, including the movement of Contaminants through or in the
air, soil, surface water, groundwater or property.
"Remedial Action" means any action required by applicable Environmental
---------------
Laws to (a) clean up, remove, treat or in any other way address Contaminants in
the indoor or outdoor environment; (b) prevent the Release or threat of Release
or minimize the further Release of Contaminants so they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment; or (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care.
"Reportable Event" means any of the events described in Section 4043(b)
----------------
of ERISA, other than an event for which the thirty (30) day notice requirement
is waived by regulations.
"Request for Letter of Credit" means a request of the Borrower for the
----------------------------
issuance of a Letter of Credit substantially on the form of Exhibit O.
---------
"Requirements of Law" means, as to any Person, the charter and by-laws,
-------------------
partnership agreement or other organizational or governing documents of such
Person, and any law, rule
-20-
<PAGE>
or regulation, Permit, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject, including without limitation, the Securities Act, the Securities
Exchange Act, Regulations G, T, U and X, FIRREA and any certificate of
occupancy, zoning ordinance, building, environmental or land use requirement or
Permit or occupational safety or health law, rule or regulation.
"Requisite Lenders" means, collectively, Lenders whose Pro Rata Shares,
-----------------
in the aggregate, are at least sixty-six and two-thirds percent (66 2/3%) but,
if any Lender's Pro Rata Share is sixty-six and two-thirds percent (66 2/3%) or
greater, Lenders whose Pro Rata Shares, in the aggregate, are at least
seventy-five percent (75%), provided that, in determining such percentage at any
--------
given time, all then existing Defaulting Lenders will be disregarded and
excluded and the Pro Rata Shares of Lenders shall be redetermined, for voting
purposes only, to exclude the Pro Rata Shares of such Defaulting Lenders.
"Secretary's Certificate" has the meaning given to such term in
-----------------------
Section 4.1(e).
- --------------
"Secured Debt" means all Indebtedness of the Borrower that is secured
------------
by a Lien on any asset of the Borrower.
"Securities" means any stock, shares, voting trust certificates, bonds,
----------
debentures, notes or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities," or any certificates of interest, shares, or participation
in temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire any of the foregoing, but shall not
include any evidence of the Obligations, provided that Securities shall not
--------
include Cash Equivalents, Investment Mortgages or interests in Partnerships.
"Securities Act" means the Securities Act of 1933, as amended to the
--------------
date hereof and from time to time hereafter, and any successor statute.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended to the date hereof and from time to time hereafter, and any successor
statute.
"Senior Debt Ratings" means Investment Grade Ratings of the REIT from
-------------------
two or more rating agencies, one of which must be from Moody's or S&P.
"Senior Loans" has the meaning given to such term in Section 11.4(b).
------------ ---------------
"Senior Officers" means the Executive Officers and the additional six
---------------
individuals identified as Senior Officers [on page 40 of the REIT's 1996 Annual
Report.
"Solvent" means, as to any Person at the time of determination, that
-------
such Person (a) owns property the value of which (both at fair valuation and at
present fair saleable value) is greater than the amount required to pay all of
such Person's liabilities (including contingent liabilities and debts); (b) is
able to pay all of its debts as such debts mature; and (c) has
-21-
<PAGE>
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
---
Inc., and its successors.
"Subsidiary" of a Person means any corporation, Partnership, trust or
----------
other non-Partnership entity of which a majority of the stock (or equivalent
ownership or controlling interest) having voting power to elect a majority of
the Board of Directors (if a corporation) or to select the trustee or equivalent
controlling interest, shall, at the time such reference becomes operative, be
directly or indirectly owned or controlled by such Person.
"Syndication Agent" means NationsBank, N.A.
-----------------
"Syndication Period" shall mean the period commencing on the Effective
------------------
Date and ending on the earlier of (i) sixty (60) days following the Effective
Date or (ii) the completion of the sale of assignments to other Banks of
two-thirds (2/3) of the Facility.
"Taxes" means all federal, state, local and foreign income and gross
-----
receipts taxes.
"Termination Date" has the meaning given to such term in
----------------
Section 2.1(d).
- --------------
"Termination Event" means (a) any Reportable Event, (b) the withdrawal
-----------------
of a Person, or an ERISA Affiliate from a Benefit Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA,
(c) the occurrence of an obligation arising under Section 4041 of ERISA of a
Person or an ERISA Affiliate to provide affected parties with a written notice
of an intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA, (d) the institution by the PBGC of proceedings to
terminate any Benefit Plan under Section 4042 of ERISA, (e) any event or
condition which constitutes grounds under Section 4042 of ERISA for the
appointment of a trustee to administer a Benefit Plan, (f) the partial or
complete withdrawal of such Person or any ERISA Affiliate from a Multiemployer
Plan, or (g) the adoption of an amendment by any Person or any ERISA Affiliate
to terminate any Benefit Plan.
"Unencumbered Assets" means any real estate Property that on any date
-------------------
of determination: (a) is not subject to any Liens, negative pledges or springing
Liens; and (b) is not the subject of any environmental, structural or title
matter that materially adversely affects the value of such Property.
"Unencumbered EBITDA" means EBITDA from the Unencumbered Assets.
-------------------
"Unencumbered Market Value" means the sum of (i) the estimated market
-------------------------
value of all residential rental Unencumbered Assets (except for such
Unencumbered Assets described in (iii) below), as determined by taking the
annualized aggregate EBITDA for the previous four (4) Fiscal Quarters less
customary reserve requirements divided by a 9.5% capitalization rate; (ii) the
estimated market value of all retail Unencumbered Assets (except for such
-22-
<PAGE>
Unencumbered Assets described in (iii) below), as determined by taking the
annualized aggregate EBITDA for the previous four (4) Fiscal Quarters less
customary reserve requirements divided by a ten percent 10% capitalization rate,
and (iii) the cost of construction, as approved by the Administrative Agent, of
Unencumbered Assets which have been completed and placed in service within the
previous four (4) Fiscal Quarters.
"Uniform Commercial Code" means the Uniform Commercial Code as in
-----------------------
effect on the date hereof in the Commonwealth of Virginia, provided that if by
--------
reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of any security interest in any Collateral or the
availability of any remedy hereunder is governed by the Uniform Commercial Code
as in effect on or after the date hereof in any other jurisdiction, "Uniform
Commercial Code" means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such perfection
or effect of perfection or non-perfection or availability of such remedy.
"Unmatured Event of Default" means an event which, with the giving of
--------------------------
notice or the lapse of time, or both, would constitute an Event of Default.
"Unrestricted Tangible Assets" means the tangible assets of the
----------------------------
Borrower and other assets of the Borrower approved by the Administrative Agent,
other than real estate assets, security deposits, escrow accounts and other
reserve accounts.
"Unsecured Debt" means all Indebtedness of Borrower that is not secured
--------------
by a Lien on any asset of the Borrower.
"Unsecured Election" means, upon the achievement of the Senior Debt
------------------
Ratings, so long as no Event of Default or Unmatured Event of Default shall then
exist and the Borrower shall demonstrate to the Administrative Agent its
compliance with all covenants contained in Articles 8 and 9 hereof, an election
filed by the Borrower with the Administrative Agent requesting that the Facility
become unsecured.
"Unused Amount" has the meaning given to such term in Section 2.6(a).
------------- --------------
"Variable Rate" means, on any day, the higher of (a) the variable rate
-------------
of interest per annum established from time to time by Administrative Agent, and
designated as its Prime Rate as in effect on such day, and (b) the Federal Funds
Rate in effect on such day plus one-half percent (0.5%) per annum.
----
"Variable Rate Loans" means those Loans bearing interest at the
-------------------
Variable Rate.
"Worldgate Property" is the property identified as such on Schedule I.
------------------ ----------
1.2 Computation of Time Periods.
---------------------------
In this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to " and
-23-
<PAGE>
"until" each mean "to and including" (except with respect to the calculation of
Interest, where the word "to" shall not mean "including"). Periods of days
referred to in this Agreement shall be counted in calendar days unless Business
Days are expressly prescribed.
1.3 Terms.
-----
(a) Any accounting terms used in this Agreement which are not
specifically defined shall have the meanings customarily given them in
accordance with GAAP.
(b) Any time the phrase "to the best of Borrower's knowledge"
or a phrase similar thereto is used herein, it means: "to the actual knowledge
of the then executive or senior officers of Borrower and the REIT, after
reasonable inquiry of those agents, employees or contractors of the REIT or
Borrower who could reasonably be anticipated to have knowledge with respect to
the subject matter or circumstances in question and after review of those
documents or instruments which could reasonably be anticipated to be relevant to
the subject matter or circumstances in question."
(c) In each case where the consent or approval of the
Administrative Agent, all Lenders and/or Requisite Lenders is required, or their
non-obligatory action is requested by Borrower, such consent, approval or action
shall be in the sole and absolute discretion of the Administrative Agent and, as
applicable, each Lender, unless otherwise specifically indicated.
(d) Any time the word "or" is used herein, unless the context
otherwise clearly requires, it has the inclusive meaning represented by the
phrase "and/or." The words "hereof," "herein," "hereby," "hereunder" and similar
terms refer to this Agreement as a whole and not to any particular provision of
this Agreement. Article, section, subsection, clause, exhibit and schedule
references are to this Agreement unless otherwise specified. Any reference in
this Agreement to this Agreement or to any other Loan Document includes any and
all amendments, modifications, supplements, renewals or restatements thereto or
thereof, as applicable.
2. LOANS
-----
2.1 Loan Advances and Repayment.
---------------------------
(a) Loan Availability.
-----------------
(i) Subject to the terms and conditions set forth in this
Agreement, Lenders hereby agree to make Loans to Borrower at the request of
Borrower from time to time during the period from the Closing Date to the
Business Day next preceding the Termination Date, in an aggregate amount which,
when added to the then outstanding or requested Letters of Credit, shall not
exceed Loan Availability. All Loans under this Agreement shall be made by
Lenders simultaneously and proportionately to their respective Pro Rata Shares,
it being understood that no Lender shall be responsible for any failure by any
other Lender to perform its obligation to make a Loan hereunder and that the
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<PAGE>
Commitment of any Lender shall not be increased or decreased as a result of the
failure by any other Lender to perform its obligation to make a Loan. Loans may
be voluntarily prepaid pursuant to Section 2.7(a) and, subject to the provisions
--------------
of this Agreement, any amounts so prepaid may be re-borrowed under this Section
-------
2.1(a)(i). The principal balance of the Loans shall be payable in full on the
- ---------
Termination Date. The Loans will be evidenced by the Loan Notes.
(ii) If at any time the outstanding principal balance of
the Loans exceeds the Borrowing Base as a result of a reduction in any Borrowing
Base Value, Borrower shall submit to the Administrative Agent, not later than
thirty (30) days following written notice from the Administrative Agent to
Borrower (a copy of which shall be sent promptly by the Administrative Agent to
each Lender) of the existence of such excess borrowing condition, a written plan
pursuant to which Borrower shall cause such excess borrowing condition to be
eliminated not later than sixty (60) days following such notice, through one or
both of the following means: Borrower shall (A) pay to the Administrative Agent
such amounts and/or (B) mortgage to the Administrative Agent such additional
Borrowing Base Property(-ies) as all of the Lenders may accept under Section 3.1
-----------
as are necessary so that the outstanding principal balance of the Loans does not
exceed the Borrowing Base. Failure by Borrower to have complied with the
foregoing in a timely manner shall constitute an Event of Default without
further notice or grace period hereunder. No further Borrowings, or release of
any Borrowing Base Property, shall be permitted so long as such excess borrowing
condition shall continue to exist. Nothing in this Section 2. 1(a)(ii) shall
-------------------
excuse Borrower's compliance with all terms, conditions, covenants and other
obligations imposed upon it under the Loan Documents during the period of such
excess borrowing, nor in any manner condition or impair Lenders' rights
thereunder in respect of any such breach thereof by Borrower.
(b) Notice of Borrowing.
-------------------
(i) Whenever Borrower desires to borrow under this Section
-------
2.1(b) but in no event more than five (5) times during any one (1) calendar
- ------
month, Borrower shall give the Administrative Agent, at PNC Bank, National
Association, One PNC Plaza, 249 Fifth Avenue, P1-POPP-19-2, Pittsburgh,
Pennsylvania 15222-2707, Attention: Robin Hyde, with a copy to: PNC Bank,
National Association, 1001 Pennsylvania Avenue, N.W., Suite 305 South,
Washington, DC 20004, Attention: William R. Lynch, III, Assistant Vice
President, or such other address as the Administrative Agent shall designate, an
original or facsimile Notice of Borrowing no later than 11:00 a.m. (Eastern
-------------------
Time), not less than three (3) nor more than five (5) Business Days prior to the
proposed Funding Date of each Fixed Increment Loan and not less than two (2) nor
more than five (5) Business Days prior to the proposed Funding Date of each
Variable Rate Loan. Each Notice of Borrowing shall specify (1) the Funding Date
(which shall be a Business Day) in respect of the Loan, (2) the amount of the
proposed Loan, provided that the aggregate amount of such proposed Loan shall be
--------
equal to or greater than One Million Dollars ($1,000,000), (3) whether the Loan
to be made thereunder will be a Variable Rate Loan or a Fixed Increment and, if
a Fixed Increment, the Fixed Period, (4) to which account of Borrower the funds
are to be directed, and (5) the proposed use of such Loan. Notwithstanding the
foregoing, if the Borrower provides a
-25-
<PAGE>
Notice of Borrowing with respect to a Variable Rate Loan no later than 11:00
a.m. (Eastern Time) one (1) Business Day prior to the proposed Funding Date, the
Administrative Agent shall use reasonable efforts to cause such Variable Rate
Loan to be funded on the proposed Funding Date but neither the Administrative
Agent nor any Lender shall have any obligation to do so and neither the
Administrative Agent nor any Lender shall incur any liability whatsoever for any
failure to fund any Variable Rate Loan upon only one (1) Business Day's notice.
Any Notice of Borrowing pursuant to this Section 2.1(b) shall be irrevocable but
--------------
immediately upon receiving telephonic advice from the Administrative Agent as to
the Fixed LIBOR Rate which will be applicable to such Loan, Borrower may elect
in writing to have such Loan be a Variable Rate Loan.
(ii) Borrower may elect (A) to convert Fixed Increments or
any portion thereof into Variable Rate Loans, (B) to convert Variable Rate Loans
or any portion thereof to Fixed Increments, or (C) to continue any Fixed
Increments or any portion thereof for an additional Fixed Period, provided,
--------
however, that the aggregate amount of the Loans being converted into or
- -------
continued as Fixed Increments shall, in the aggregate, be at least One Million
Dollars ($1,000,000). The applicable Fixed Period for the continuation of any
Fixed Increment shall commence on the day on which the next preceding Fixed
Period expires. The conversion of a Fixed Increment to a Variable Rate Loan
shall only occur on the last Business Day of the Fixed Period relating to such
Fixed Increment; such conversion shall occur automatically in the absence of an
election under Clause 2.1(b)(ii)(C) above. Each election under Clause
2.1(b)(ii)(B) or Clause 2.1(b)(ii)(C) above shall be made by Borrower giving the
Administrative Agent an original or facsimile Notice of Borrowing no later than
11:00 a.m. (Eastern Time), not less than three (3) nor more than five (5)
Business Days prior to the date of a conversion to or continuation of a Fixed
Increment, specifying, in each case (1) the amount of the conversion or
continuation, (2) the Fixed Period therefor, and (3) the date of the conversion
or continuation (which date shall be a Business Day).
(iii) Upon receipt of a Notice of Borrowing in proper form
requesting Fixed Increments under Section 2.1(b)(ii) or 2.1 above, the
------------------ ---
Administrative Agent shall determine the Fixed LIBOR Rate applicable to the
Fixed Period for such Fixed Increments, and shall, two (2) Business Days prior
to the beginning of such Fixed Period, give (by facsimile) a Fixed Rate Notice
-----------------
in respect thereof to Borrower and Lenders; provided, however, that failure to
-------- -------
give such notice to Borrower shall not affect the validity of such rate. Each
determination by the Administrative Agent of the Fixed LIBOR Rate shall be
conclusive and binding upon the parties hereto in the absence of manifest error.
(c) Making of Loans. Subject to Section 11.3, the
--------------- ------------
Administrative Agent shall make the proceeds of Loans available to Borrower on
such Funding Date and shall disburse such funds in Dollars in immediately
available funds to Borrower's commercial demand account specified in the Notice
of Borrowing.
(d) Term. The outstanding balance of the Loans shall be payable
----
in full on the earlier to occur of (i) April 30, 2000, (ii) the acceleration of
the Loans pursuant to Section 10.2(a) or (iii) Borrower's written notice to the
---------------
Administrative Agent (pursuant to
-26-
<PAGE>
Section 2.7(a)) of Borrower's election to prepay all accrued Obligations and
- --------------
terminate all Commitments (the "Termination Date").
2.2 Letters of Credit.
-----------------
(a) Subject to the terms and conditions set forth in this
Agreement, at any time and from time to time through the day that is thirty (30)
days prior to the Termination Date, the Administrative Agent shall issue such
Letters of Credit as the Borrower may request, for purposes other than credit
support for obligations to repay borrowed money, by a Request for Letter of
Credit; provided that (i) upon issuance of such Letters of Credit, the sum of
--------
all outstanding Loans plus outstanding Letters of Credit shall not exceed the
then applicable aggregate amount of all of the Lender Commitments, (ii)
outstanding Letters of Credit shall not exceed Twelve Million Five Hundred
Thousand Dollars ($12,500,000), (iii) in no event shall Letters of Credit be
issued for the benefit of any of the Lenders or for purposes of securing
repayment of loans extended to the Borrower or a Subsidiary or for dividend
payments to any Person, and (iv) unless all the Lenders otherwise consent in
writing, the term of any Letter of Credit shall not extend beyond the shorter of
twelve (12) months or the Termination Date and no Letter of Credit shall contain
an automatic extension or renewal clause.
(b) Each Request for Letter of Credit shall be submitted to
the Administrative Agent not later than 11:00 a.m., Eastern Time, at least five
(5) Business Days prior to the date upon which the requested Letter of Credit is
to be issued, each duly executed by the Borrower. The Borrower shall further
deliver to the Administrative Agent such additional instruments and documents as
the Administrative Agent may require, in conformity with the then standard
practices of its letter of credit department, in connection with the issuance of
such Letter of Credit.
(c) The Administrative Agent shall, if it approves of the
content of the Request for Letter of Credit (which approval shall not be
unreasonably withheld) give prompt written notice to the Lenders upon the
approval of the Request, and subject to the conditions set forth in this
Agreement, cause the issuance of the Letter of Credit on or before 5:00 p.m.
Eastern Time, on or before the day five (5) Business Days following receipt of
the documents last due pursuant to Section 2.2(b). Upon issuance of a Letter of
--------------
Credit, the Administrative Agent shall promptly notify the Lenders of the amount
and terms thereof. The Administrative Agent shall provide copies of each Letter
of Credit to the Lenders promptly following issuance thereof and shall notify
the Lenders promptly of all payments, reimbursements, expirations, negotiations,
transfers and other activity with respect to outstanding Letters of Credit.
(d) Upon the issuance of a Letter of Credit, each Lender shall
be deemed to have purchased a pro rata issuer participation therein from the
Administrative Agent in an amount equal to that Lender's Pro Rata Share of the
face amount of the Letter of Credit.
(e) [Intentionally deleted.]
-27-
<PAGE>
(f) Promptly after payment by the Administrative Agent of any
amount drawn upon any Letter of Credit, the Administrative Agent shall, without
notice to or the consent of the Borrower, direct the Lenders to make advances to
the Administrative Agent, of their Pro Rata Shares. The proceeds of such
advances shall reimburse the Administrative Agent for the payment made by it
under the Letter of Credit. The Administrative Agent shall give prompt written
notice to the Lenders of any reduction in the amount available to be drawn under
any Letter of Credit and of any extension of the term of any Letter of Credit.
All amounts paid by the Lenders pursuant to this Section 2.2(f) shall be deemed
--------------
to be Loans pursuant to this Agreement.
(g) On the occurrence of a Termination Date prior to the
expiration of all Letters of Credit, the Borrower shall provide to the
Administrative Agent a standby letter of credit issued by a bank satisfactory to
the Administrative Agent, in form and substance satisfactory to the
Administrative Agent, in favor of the Administrative Agent in a face amount
equal to outstanding Letters of Credit on that date, or shall make other
provisions satisfactory to the Administrative Agent for the full
collateralization, by cash or cash equivalent, of such outstanding Letters of
Credit. In the event of failure of the Borrower to comply with the requirements
of this Section 2.2(g), such portion of the face amount of all outstanding
--------------
Letters of Credit as to which the Borrower has failed to comply shall be deemed
to be advances under this Agreement and due and payable in accordance with the
terms hereof.
(h) The issuance of any supplement, modification, amendment,
renewal or extension to or of any Letter of Credit shall be treated in all
respects the same as issuance of a new Letter of Credit.
2.3 Authorization to Obtain Loans.
-----------------------------
Borrower shall provide the Administrative Agent with documentation
satisfactory to the Administrative Agent indicating the names of those employees
of Borrower authorized by Borrower to sign Notices of Borrowing, and the
Administrative Agent and Lenders shall be entitled to rely on such documentation
until notified in writing by Borrower of any change(s) of the persons so
authorized. The Administrative Agent shall be entitled to act on the
instructions of anyone identifying himself or herself as one of the Persons
authorized to execute a Notice of Borrowing, and Borrower shall be bound thereby
in the same manner as if such Person were actually the Person so authorized.
Borrower agrees to indemnify, defend and hold Lenders and the Administrative
Agent harmless from and against any and all Liabilities and Costs which may
arise or be created by the acceptance of instructions in any Notice of
Borrowing, unless caused by the gross negligence of the Person to be
indemnified.
2.4 Lenders' Accounting.
-------------------
The Administrative Agent shall maintain a loan account (the "Loan
Account") on its books in which shall be recorded (a) the names and addresses
and the Commitments of Lenders, and principal amount of Loans owing to each
Lender from time to time, and (b) all advances and repayments of principal and
payments of accrued interest under the Loans, as
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<PAGE>
well as payments of the Facility Fee, as provided in this Agreement. All entries
--------
in the Loan Account shall be made in accordance with the Administrative Agent's
customary accounting practices as in effect from time to time. Monthly, or at
such other interval as is customary with the Administrative Agent's practice,
the Administrative Agent will render a statement of the Loan Account to
Borrower. Each such statement shall be deemed final, binding and conclusive upon
Borrower in all respects as to all matters reflected therein (absent manifest
error), unless Borrower, within thirty (30) days after the date such statement
is mailed or otherwise delivered to Borrower, delivers to the Administrative
Agent written notice of any objections which Borrower may have to any such
statement, or within ten (10) days after discovery by Borrower of an error with
respect to which Borrower had no knowledge and which could not have been
determined after reasonable inquiry during said 30-day period. In that event,
only those items expressly objected to in such notice shall be deemed to be
disputed by Borrower. Notwithstanding the foregoing, the Administrative Agent's
entries in the Loan Account evidencing Loans and other financial accommodations
made from time to time shall be final, binding and conclusive upon Borrower
(absent manifest error) as to the existence and amount of the Obligations
recorded in the Loan Account.
2.5 Interest on the Loans.
---------------------
(a) Variable Rate Loans. Subject to Section 2.5(d), all
------------------- --------------
Variable Rate Loans shall bear interest on the average daily unpaid principal
amount thereof from the date made until paid in full at a fluctuating rate per
annum equal to the Variable Rate. Variable Rate Loans shall be made in minimum
amounts of One Million Dollars ($1,000,000).
(b) Fixed Increments. Subject to Section 2.5(d) and 2.5(h),
---------------- -------------- ------
all Fixed Increments shall bear interest on the unpaid principal amount thereof
during the Fixed Period applicable thereto at a rate per annum equal to the
Fixed Increment Rate. Fixed Increments shall be in trances of at least One
Million Dollars ($1,000,000.00). No more than five (5) Fixed Increment tranches
shall be outstanding at any one time. Notwithstanding anything to the contrary
contained herein and subject to the Default Interest provisions contained in
Section 2.5(d), if an Event of Default occurs and as a result thereof the
- --------------
Commitments are terminated, all Fixed Increments will convert to Variable Rate
Loans upon the expiration of the applicable Fixed Periods therefor or the date
all Loans become due, whichever occurs first.
(c) Interest Payments. Subject to Section 2.5(d), interest
----------------- --------------
accrued on all Loans shall be payable by Borrower in the manner provided in
--------
Section 2.7(b) in arrears on August 1, 1994 and on the first day of each
- --------------
succeeding calendar month thereafter, and on the Termination Date.
(d) Default Interest. Notwithstanding the rates of interest
----------------
specified in Section 2.5(a) and 2.5(b) and the payment dates specified in
-------------- ------
Section 2.5(c) effective immediately upon the occurrence and during the
- --------------
continuance of any Event of Default, the principal balance of all Loans then
outstanding and, to the extent permitted by applicable law, any interest
payments on the Loans not paid when due shall bear interest payable upon demand
at the Default Rate. All other amounts due the Administrative Agent or Lenders
-29-
<PAGE>
(whether directly or for reimbursement) under this Agreement or any of the other
Loan Documents if not paid when due, or if no time period is expressed, if not
paid within fifteen (15) days after demand, shall bear interest from and after
demand at the rate set forth in this Section 2.5(d).
--------------
(e) Late Fee. Borrower acknowledges that late payment to the
--------
Administrative Agent will cause the Administrative Agent and Lenders to incur
costs not contemplated by this Agreement. Such costs include, without
limitation, processing and accounting charges. Therefore, if Borrower fails to
pay timely any sum due and payable hereunder through the Termination Date,
unless waived by the Administrative Agent or Requisite Lenders pursuant to
Section 11.11(a), a late charge of four cents ($ .04) for each dollar of any
- ----------------
principal payment, interest, or other charge due hereon and which is not paid
within fifteen (15) days after such payment is due, shall be charged by the
Administrative Agent (for the benefit of Lenders) and paid by Borrower for the
purpose of defraying the expense incident to handling such delinquent payment;
provided, however, that no late charges shall be assessed in respect of any
- -------- -------
failure to pay all Obligations on the Termination Date. Borrower and the
Administrative Agent agree that this late charge represents a reasonable sum
considering all of the circumstances existing on the date hereof and represents
a fair and reasonable estimate of the costs that the Administrative Agent and
Lenders will incur by reason of late payment. Borrower and the Administrative
Agent further agree that proof of actual damages would be costly and
inconvenient. Acceptance of any late charge shall not constitute a waiver of the
default with respect to the overdue installment, and shall not prevent the
Administrative Agent from exercising any of the other rights available hereunder
or any other Loan Document. Such late charge shall be paid without prejudice to
any other rights of the Administrative Agent.
(f) Computation of Interest. Interest shall be computed on the
-----------------------
basis of the actual number of days elapsed in the period during which interest
or fees accrue and a year of three hundred sixty (360) days. In computing
interest on any Loan, the date of the making of the Loan shall be included and
the date of payment shall be excluded; provided, however, that if a Loan is
-------- -------
repaid on the same day on which it is made, one (1) day's interest shall be paid
on that Loan. Notwithstanding any provision in this Section 2.5, interest in
-----------
respect of any Loan shall not exceed the maximum rate permitted by applicable
law.
(g) Changes: Legal Restrictions. In the event that after the
---------------------------
Closing Date (i) the adoption of or any change in any law, treaty, rule,
regulation, guideline or determination of a court or Governmental Authority or
any change in the interpretation or application thereof by a court or
Governmental Authority, or (ii) compliance by the Administrative Agent or any
Lender with any request or directive made or issued after the Closing Date
(whether or not having the force of law and whether or not the failure to comply
therewith would be unlawful) from any central bank or other Governmental
Authority or quasi-governmental authority:
(i) subjects the Administrative Agent or any Lender
(including within such term the Administrative Agent and Lender any parent or
other affiliate of any Lender or the Administrative Agent) to any tax, duty or
other charge of any kind with
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<PAGE>
respect to the Facility, this Agreement or any of the other Loan Documents,
including the Mortgages, or the Loans or changes the basis of taxation of
payments to the Administrative Agent or any Lender of principal, fees, interest
or any other amount payable hereunder, except for net income, gross receipts,
gross profits or franchise taxes imposed by any jurisdiction and not
specifically based upon loan transactions (all such non-excepted taxes, duties
and other charges being hereinafter referred to as "Lender Taxes");
(ii) imposes, modifies or holds applicable, in the
determination of Administrative Agent or any Lender, any reserve, special
deposit, compulsory loan, FDIC insurance, capital allocation or similar
requirement against assets held by, or deposits or other liabilities in or for
the account of, advances or loans by, or other credit extended by, or any other
acquisition of funds by, Administrative Agent or such Lender or any applicable
lending office (except to the extent that the reserve and FDIC insurance
requirements are reflected in the "Variable Rate" or in determining Fixed LIBOR
Rate); or
(iii) imposes on Administrative Agent or any Lender any
other condition materially more burdensome in nature, extent or consequence than
those in existence as of the Closing Date, and the result of any of the
foregoing is to increase the cost to Administrative Agent or any Lender of
making, renewing, maintaining or participating in the Loans or to reduce any
amount receivable thereunder; then, in any such case, Borrower shall promptly
----
pay to Administrative Agent or such Lender, as applicable, upon demand, such
amount or amounts (based upon a reasonable allocation thereof by Administrative
Agent or such Lender to the financing transactions contemplated by this
Agreement and affected by this Section 2.5(g)) as may be necessary to compensate
--------------
Administrative Agent or such Lender for any such additional cost incurred or
reduced amounts received; provided, however, that if the payment of such
-------- -------
compensation may not be legally made whether by modification of the applicable
interest rate or otherwise, then Lenders shall have no further obligation to
make Loans that cause Administrative Agent or any Lender to incur such increased
cost, and all affected Loans shall become immediately due and payable by
Borrower. Administrative Agent or such Lender shall deliver to Borrower and in
the case of a delivery by Lender, such Lender shall also deliver to
Administrative Agent, a written statement of the claimed additional costs
incurred or reduced amounts received and the basis therefor as soon as
reasonably practicable after such Lender obtains knowledge thereof. If
Administrative Agent or any Lender subsequently recovers any amount of Lender
Taxes previously paid by Borrower pursuant to this Section 2.5(g), whether
--------------
before or after termination of this Agreement, then, upon receipt of good funds
with respect to such recovery, Administrative Agent or such Lender will refund
such amount (net of costs of recovery as determined by Administrative Agent) to
Borrower if no Event of Default or Unmatured Event of Default then exists or, if
an Event of Default or Unmatured Event of Default then exists, such amount will
be credited to the Obligations in the manner determined by Administrative Agent
or such Lender.
(h) Certain Provisions Regarding Fixed Increments.
---------------------------------------------
(i) Fixed LIBOR Rate Lending Unlawful. If any Lender
---------------------------------
shall determine (which determination shall, upon notice thereof to Borrower and
the
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<PAGE>
Administrative Agent, be conclusive and binding on the parties hereto) that the
introduction of or any change in or in the interpretation of any law makes it
unlawful, or any central bank or other Governmental Authority asserts that it is
unlawful, for such Lender to make or maintain any Loan as a Fixed Increment, (A)
the obligations of such Lenders to make or maintain any Loans as Fixed
Increments shall, upon such determination, forthwith be suspended until such
Lender shall notify Administrative Agent that the circumstances causing such
suspension no longer exist, and (B) if required by such law or assertion, the
Fixed Increments of such Lender shall automatically convert into Variable Rate
Loans.
(ii) Deposits Unavailable. If the Administrative Agent
--------------------
shall have determined in good faith that adequate means do not exist for
ascertaining the interest rate applicable hereunder to Fixed Increments, then,
upon notice from the Administrative Agent to Borrower, the obligations of all
Lenders to make or maintain Loans as Fixed Increments shall forthwith be
suspended until the Administrative Agent shall notify Borrower that the
circumstances causing such suspension no longer exist. The Administrative Agent
will give such notice when it determines, in good faith, that such circumstances
no longer exist; provided, however, that the Administrative Agent shall not have
-------- -------
any liability to any Person with respect to any delay in giving such notice.
(iii) Fixed Rate Price Adjustment. Borrower acknowledges
---------------------------
that voluntary or involuntary prepayment or acceleration of a Fixed Increment
selected by Borrower during an Fixed Period shall result in Lenders incurring
additional costs, expenses and/or liabilities and that it is extremely difficult
and impractical to ascertain the extent of such costs, expenses and/or
liabilities. (For all purposes of this Section 2.5(h)(iii), any Loan not being
-------------------
made as a Fixed Increment in accordance with the Notice of Borrowing therefor,
as a result of Borrower's cancellation thereof, including, without limitation, a
change from a Fixed Increment to a Variable Rate Loan pursuant to Section 2.1
-----------
(b) shall be treated as if such Fixed Increment had been prepaid.) Therefore, on
- ---
the date a Fixed Increment is prepaid or the date all sums payable hereunder
become due and payable, by acceleration or otherwise ("Price Adjustment Date"),
Borrower will pay to the Administrative Agent, for the account of each Lender,
(in addition to all other sums then owing), an amount ("Fixed Rate Price
Adjustment") equal to the then present value of (A) the amount of interest that
would have accrued on the Fixed Increment for the remainder of the Interest
Period at the rate applicable to such Fixed Increment, less (B) the amount of
interest that would accrue on the same Fixed Increment for the same period if
Fixed LIBOR Rate were set on the Price Adjustment Date. The present value shall
be calculated by using a discount rate equal to Fixed LIBOR Rate quoted on the
Price Adjustment Date. Upon the written notice to Borrower from the
Administrative Agent, Borrower shall immediately pay to the Administrative
Agent, for the account of Lenders, the Fixed Rate Price Adjustment. Such written
notice (which shall include calculations in reasonable detail) shall, in the
absence of manifest error, be conclusive and binding on the parties hereto.
(iv) Borrower understands, agrees and acknowledges the
following: (A) no Lender has any obligation to purchase, sell and/or match funds
in connection with the use of Fixed LIBOR Rate as a basis for calculating the
rate of interest on a Fixed Increment or a Fixed Rate Price Adjustment; (B)
Fixed LIBOR Rate is used merely as a reference in
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<PAGE>
determining such rate and/or Fixed Rate Price Adjustment; and (C) Borrower has
accepted Fixed LIBOR Rate as a reasonable and fair basis for calculating such
rate and a Fixed Rate Price Adjustment. Borrower further agrees to pay the Fixed
Rate Price Adjustment and Lender Taxes, if any, whether or not a Lender elects
to purchase, sell and/or match funds.
(v) Withholding Tax Exemption. At least five (5) Business
-------------------------
Days prior to the first day on which interest or fees are payable hereunder for
the account of any Lender, each Lender that is not incorporated under the laws
of the United States of America, or a state thereof, agrees that it will deliver
to Administrative Agent and Borrower two (2) duly completed copies of United
States Internal Revenue Service Form 1001 or Form 4224, certifying in either
case that such Lender is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes. Each
Lender which so delivers a Form 1001 or Form 4224 further undertakes to deliver
to the Administrative Agent and Borrower two (2) additional copies of such form
(or any applicable successor form) on or before the date that such form expires
(currently, three (3) successive calendar years for Form 1001 and one (1)
calendar year for Form 4224) or becomes obsolete or after the occurrence of any
event requiring a change in the most recent forms so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Administrative Agent or Borrower, in each case certifying that
such Lender is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes, unless an
event (including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form with respect to it, and
such Lender advises the Administrative Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal income
taxes. If any Lender cannot deliver such form, then Borrower may withhold from
such payments such amounts as are required by the Internal Revenue Code.
2.6 Fees.
----
(a) Facility Fee. From and after the Closing Date and until the
------------
Obligations are paid in full and this Agreement is terminated or, if sooner, the
date the Commitments terminate, and subject to Section 11.4(b), Borrower shall
---------------
pay to the Administrative Agent, for the account of each Lender, a fee accruing
at the rate of one-eighth percent (0.125%) per annum of the amount of the
Facility as determined for each Fiscal Quarter. (The foregoing fee payable under
this Section 2.6(a) is referred to as the " Facility Fee.") The Facility Fee
--------------
shall be payable, in the manner provided in Section 2.7(b), in arrears on the
-------- --------------
first Business Day in each Fiscal Quarter, beginning with the first Fiscal
Quarter after the Closing Date, and on the date of payment in full of all
Obligations to Lenders or all Obligations to a Lender pursuant to Section
-------
2.1(d), with the Facility Fee to be prorated to the date of such payment in each
- ------
case.
(b) [Intentionally Deleted].
---------------------
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<PAGE>
(c) Letter of Credit Usage Fee. From and after the Closing
--------------------------
Date and until all amounts advanced to Borrower under the Letters of Credit are
paid in full or, if sooner, the date the Commitments terminate, and subject to
Section 11.4(b), Borrower shall pay to Administrative Agent, for the account of
- ---------------
each Lender a letter of credit fee equal to one and one-quarter percent (1.25%)
of the average daily amounts committed under issued and outstanding Letters of
Credit, as determined each Fiscal Quarter. (The foregoing fees payable under
this Section 2.6(c) are herein collectively referred to as the "Letter of Credit
--------------
Usage Fee.") The Letter of Credit Usage Fee shall be payable, in the manner
provided in Section 2.6(f), in arrears on the first Business Day in each Fiscal
- -------- --------------
Quarter, beginning with the first Fiscal Quarter after the Closing Date, and on
the date of payment in full of all Obligations to Lenders or all Obligations to
a Lender pursuant to Section 2.1(d) or Section 2.9 respectively, with the Letter
-------------- -----------
of Credit Usage Fee to be prorated to the date of such payment in each case. Any
amount by which payment of the Letter of Credit Usage Fee paid with respect to a
Letter of Credit shall be less than the minimum of such fee upon the termination
of such Letter of Credit shall be paid on the date of such termination.
(d) Letter of Credit Issuance Fee. At the time each Letter of
-----------------------------
Credit is issued, Borrower shall pay Administrative Agent an issuance fee, to be
retained by the Administrative Agent with no obligation to share with any other
Lender, with respect to each Letter of Credit issued in an amount equal to Five
Hundred Dollars ($500.00). In addition, Borrower shall pay Administrative Agent
a frontage fee determined by multiplying (x) one-eighth percent (0.125%) of the
amount being made available under each Letter of Credit times (y) the total Pro
Rata Shares of such Letter of Credit held by Lenders other than Administrative
Agent, which shall be held by Administrative Agent with no obligation to share
with any other Lender.
(e) Other Fees. Borrower shall pay the Administrative Agent
----------
such fees as are provided for in a separate fee agreement between the
--------
Administrative Agent and Borrower, dated January 3, 1996, and in the Summary of
Terms and Conditions between Borrower and the Administrative Agent dated March
21, 1997.
(f) [Intentionally Deleted]
(g) Payment of Fees. The fees described in Section 2.1(e)(ii),
--------------- ------------------
4.1(o) and this Section 2.6 represent compensation for services rendered and to
- ------ -----------
be rendered separate and apart from the lending of money or the provision of
credit and do not constitute compensation for the use, detention or forbearance
of money, and the obligation of Borrower to pay the fees described herein shall
be in addition to, and not in lieu of, the obligation of Borrower to pay
interest, other fees and expenses otherwise described in this Agreement. All
fees shall be payable when due in immediately available funds and shall be non-
refundable when paid. If Borrower fails to make any payment of fees or expenses
specified or referred to in this Agreement due to Administrative Agent or
Lenders, including without limitation those referred to in this Section 2.6, in
-----------
Section 12.1, or otherwise under this Agreement or any separate fee agreement
- ------------
between Borrower and Administrative Agent or any Lender relating to this
Agreement, when due, the amount due shall bear interest until paid at the
Variable Rate and, after ten (10) days at the rate specified in Section 2.5(d)
--------------
(but
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<PAGE>
not to exceed the maximum rate permitted by applicable law), and shall
constitute part of the Obligations, secured by all of the Collateral. The
Facility Fee and the Letter of Credit Usage Fee shall be calculated on the basis
of the actual number of days elapsed in a three hundred sixty (360) day year.
2.7 Payments.
--------
(a) Voluntary Prepayments. Borrower may, upon not less than
---------------------
three (3) Business Days' prior written notice to Administrative Agent not later
than 11:00 a.m. (Eastern Time) on the date given, at any time and from time to
time, prepay any Loans in whole or in part. Any notice of prepayment given to
the Administrative Agent under this Section 2.7(a) shall specify the date of
--------------
prepayment and the aggregate principal amount of the prepayment. In the event of
a prepayment of Fixed Increments, Borrower shall concurrently pay any Fixed Rate
Price Adjustment payable in respect thereof. The Administrative Agent shall
provide to each Lender a confirming copy of such notice on the same Business Day
such notice is received.
(b) Manner and Time of Payment. All payments of principal,
--------------------------
interest and fees hereunder payable to Administrative Agent or the Lenders shall
be made. without condition or reservation of right and free of set-off or
counterclaim, in Dollars and by wire transfer (pursuant to the Administrative
Agent's written wire transfer instructions) of immediately available funds, to
the Administrative Agent, for the account of each Lender, not later than 11:00
a.m. (Eastern Time) on the date due; and funds received by the Administrative
Agent after that time and date shall be deemed to have been paid on the next
succeeding Business Day.
(c) Payments on Non-Business Days. Whenever any payment to be
-----------------------------
made by Borrower hereunder shall be stated to be due on a day which is not a
Business Day, payments shall be made on the next succeeding Business Day and
such extension of time may be included in the computation of the payment of
interest hereunder and of any of the fees specified in Section 2.6, as the case
-----------
may be.
2.8 Increased Capital.
-----------------
If either (a) the introduction of or any change in or in the
interpretation of any law or regulation or (b) compliance by Administrative
Agent or any Lender with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law and whether or
not the failure to comply therewith would be unlawful) made or issued after the
Closing Date affects or would affect the amount of capital required or expected
to be maintained by Administrative Agent or such Lender or any corporation
controlling the Administrative Agent or such Lender, and Administrative Agent or
such Lender determines that the amount of such capital is increased by or based
upon the existence of Administrative Agent's obligations hereunder or such
Lender's Commitment, then, upon demand by Administrative Agent or such Lender,
Borrower shall immediately pay to the Administrative Agent or such Lender, from
time to time as specified by Administrative Agent or such Lender, additional
amounts sufficient to compensate Administrative Agent or
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<PAGE>
such Lender in the light of such circumstances, to the extent that
Administrative Agent or such Lender determines such increase in capital to be
allocable to the existence of Administrative Agent's obligations hereunder or
such Lender's Commitment. A certificate as to such amounts submitted to Borrower
by Administrative Agent or such Lender shall, in the absence of manifest error,
be conclusive and binding for all purposes.
2.9 Notice of Increased Costs.
-------------------------
Each Lender agrees that, as promptly as reasonably practicable after it
becomes aware of the occurrence of an event or the existence of a condition
which would cause it to be affected by any of the events or conditions described
in Section 2.5(g) or 2.5(h) or Section 2.8, it will notify Borrower, and provide
-------------- ------ -----------
a copy of such notice to the Administrative Agent, of such event and the
possible effects thereof, provided that the failure to provide such notice shall
--------
not affect Lender's rights to reimbursement provided for herein.
3. BORROWING BASE PROPERTIES
-------------------------
3.1 Acceptance of Borrowing Base Properties.
---------------------------------------
Subject to compliance with the terms and conditions of Section 4.1,
-----------
Lenders have accepted the properties listed on Schedule 1 as of the Effective
----------
Date as Borrowing Base Properties. All Borrowing Base Properties (x) must be
located in the Washington, D.C./Baltimore Standard Metropolitan Statistical Area
or the Richmond Metropolitan Area, as determined by Administrative Agent, or
other metropolitan areas as approved by the Requisite Lenders, and (y) except
for three (3) Properties, and the Worldgate Property, must contain more than one
hundred (100) dwelling units. If Borrower desires that Lenders accept an
additional property as a Borrowing Base Property, Borrower shall so notify
Administrative Agent, and the Administrative Agent shall promptly notify each
other Lender. No such additional Property will be evaluated by Lenders as a
potential Borrowing Base Property unless Borrower delivers to Administrative
Agent in form and substance acceptable to Administrative Agent:
(a) A current operating statement for such property audited or
certified by Borrower as being true and correct in all material respects and
prepared in accordance with GAAP and comparative operating statements (in the
general form of Borrowing Base Property Statements) for the current period and
for the previous two (2) Fiscal Years; provided, however, that, if Borrower
-------- -------
shall have owned such property for less than the period. to be covered by such
operating statements, then the audit and certification requirements shall extend
only to the period of ownership by Borrower, so long as Borrower provides
operating statements prepared and certified by the former owner(s) for the
remainder of the period required hereunder;
(b) A current rent roll for such property and a three (3) year
operating and occupancy history of such property or such lesser period as
Borrower or any subsidiary of Borrower shall have owned or managed such property
in form satisfactory to the Administrative Agent and certified by Borrower to be
true and correct and with respect to
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<PAGE>
periods that such property shall not have been owned or managed by Borrower or
any subsidiary of Borrower for such three (3) year period, a copy of such
information received from the Seller thereof;
(c) A copy of Borrower's most recent Owner's Policy of Title
Insurance and a current (not more than ninety (90) days old) preliminary report
covering such property and showing the identity of the fee titleholder thereto
(and any ground lessee) and all matters of record, together with copies of all
such matters of record;
(d) A survey of such property certified by a surveyor licensed
in the applicable jurisdiction to have been prepared in accordance with the then
effective Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys,
including a certification that such property is not located in a Special Flood
Hazard Area as defined by the Federal Insurance Administration not more than six
(6) months old;
(e) A "Phase I" environmental assessment of such property not
more than twelve (12) months old in form and content acceptable to
Administrative Agent after consultation with the Lenders in connection with
which the Administrative Agent will give due regard to the reasonable
requirements of the Lenders;
(f) Copies of (i) all Major Agreements, (ii) the form or forms
of tenant lease used at such property and (iii) all material maintenance or
service agreements affecting such property;
(g) Copies of engineering, mechanical, structural or
maintenance studies performed (if not previously performed, such studies as
shall be required by Administrative Agent with respect to such property in form
and content acceptable to Administrative Agent after consultation with the
Lenders in connection with which the Administrative Agent will give due regard
to the reasonable requirements of the Lenders;
(h) A schedule of all personal property, including intangible
personal property owned by Borrower or the Pledgor Subpartnership, as
applicable, and used in connection with the maintenance or operation of such
property;
(i) A copy of any existing soil's report from a qualified soil
engineer; and
(j) Such other information as may be reasonably requested by
Administrative Agent in order to evaluate the potential Borrowing Base Property
to include without limitation the types of information provided by Borrower in
--------
respect of the Borrowing Base Properties initially mortgaged to Lenders.
If, after receipt and review of the foregoing documents and
information, Administrative Agent is prepared to proceed with acceptance of such
property as a Borrowing Base Property, Administrative Agent will so notify
Borrower, and the Administrative Agent will obtain an Appraisal of such property
in order to determine the Appraised Value thereof. After approving such
Appraised Value, Administrative Agent will
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<PAGE>
submit the foregoing documents and information and the Appraised Value to the
Lenders, for their consideration in deciding whether to accept or reject the
Property as a Borrowing Base Property which decisions will be made by all of the
Lenders. Lenders agree to make a decision with respect to such property within
ten (10) Business Days after the receipt of such documents and information and
the Appraised Value. Upon execution and delivery of documents and completion of
all other closing requirements imposed by Administrative Agent (including
without limitation provision of the documents or supplements thereto described
on the Closing Checklist or in Section 4.1, and such other items or documents as
-----------
may be appropriate under the circumstances, including updates and modifications
of any documents described in this Section 3.1 or in Section 4.1, and the
----------- -----------
execution and delivery of those documents and instruments set forth in Section
-------
4.1 with respect to the addition of such Borrowing Base Property and the
- ---
increase in the amount of Loan Availability occasioned thereby as may be
required by the Administrative Agent), such property shall become a Borrowing
Base Property.
3.2 Release of Borrowing Base Properties.
------------------------------------
Upon repayment and satisfaction in full of all Obligations and the
termination of all Commitments and this Agreement, or if required pursuant to
Section 3.5 hereof, the Administrative Agent will release the Mortgage Documents
with respect to each of the Borrowing Base Properties. From time to time
Borrower may request, upon not less than thirty (30) days' prior written notice
to Administrative Agent (Administrative Agent shall promptly send a copy thereof
to each other Lender), that a Borrowing Base Property be released from the Liens
created by the Mortgage Documents applicable thereto, which release ("Property
Release") shall be delivered by the Administrative Agent if all of the following
conditions are satisfied as of the date of such Property Release:
(a) no Unmatured Event of Default or Event of Default has
occurred and is then continuing or will occur after giving effect to such
Property Release and the reduction in the Borrowing Base Value by reason of the
release of such Borrowing Base Property;
(b) the Termination Date has not occurred;
(c) Borrower shall have delivered to Administrative Agent a
Borrowing Base Certificate reflecting the Borrowing Base after giving effect to
such Property Release;
(d) The Administrative Agent shall have determined that the
outstanding principal balance of the Loans will not exceed the Borrowing Base
after giving effect to such Property Release and any prepayment to be made
and/or the acceptance of any property as additional or replacement Borrowing
Base Property to be given concurrently with such Property Release; and
(e) the title insurance policy or policies issued in favor of
the Administrative Agent shall, at the request of the Administrative Agent, be
endorsed to reflect such release of Collateral, and Borrower shall pay all costs
and expenses incurred by or for the account of the Administrative Agent in
connection with such Property Release.
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<PAGE>
3.3 Borrowing Base Determinations.
-----------------------------
(a) Appraisals. The Appraised Value of a Borrowing Base
----------
Property or Properties shall be determined or redetermined, as applicable, under
each of the following circumstances:
(i) Upon initial acceptance of a property as a Borrowing
Base Property the Administrative Agent will determine the Appraised Value
thereof;
(ii) The Appraised Value of all Borrowing Base Properties
(based upon preparation of current Appraisals) will be redetermined when and if
required under Section 2.1(e)(iv);
------------------
(iii) From time to time a Borrowing Base Property may be
reappraised, at Borrower's request, upon notice by Borrower to Administrative
Agent to reappraise a Borrowing Base Property, in which event Administrative
Agent shall cause an Appraisal thereof to be made; and
(iv) at any time and from time to time upon five (5)
Business Days' prior written notice to Borrower, Administrative Agent may (and
shall at the direction of Requisite Lenders) redetermine the Appraised Value of
a Borrowing Base Property or Properties in any of the following circumstances:
(A) if a material adverse change occurs with respect
to a Borrowing Base Property, including, without limitation, a material
deterioration in the Net Operating Income of a Borrowing Base Property
(including the actual or anticipated loss without replacement of a Major BBP
Lease), or a major casualty or condemnation or a material change in the market
conditions affecting such Borrowing Base Property; or if necessary in order to
comply with Requirements of Law applicable to any Lender. Any Appraised Value
so determined or redetermined shall be submitted by Administrative Agent to
Borrower and to Lenders.
(b) Borrowing Base Value. Borrowing Base Values will be
--------------------
adjusted downward as of the end of a Fiscal Quarter if application of the
formula described in clause (b) of the definition of Borrowing Base Value
----------
justifies such adjustment. In the event the Borrowing Base Value of any
Borrowing Base Property is increased, such increase shall not become effective
until Borrower delivers to the Administrative Agent an endorsement, if
necessary, to the Administrative Agent's title insurance policy increasing the
amount thereof as related to such Borrowing Base Property by the adjustment to
the Borrowing Base Value.
3.4 Covenants Relating to Borrowing Base Properties.
-----------------------------------------------
(a) Insurance, Casualty. Borrower shall maintain or cause to
-------------------
be maintained insurance covering the Borrowing Base Properties in such amounts
and covering such risks as is set forth in Exhibit H or otherwise required from
---------
time to time pursuant to the Mortgages.
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<PAGE>
(b) BBP Leases: Major Agreements. Unless otherwise consented
----------------------------
to by the Administrative Agent, in writing, all BBP Leases entered into after
the date of this Agreement with respect to the Worldgate Property (as identified
on Schedule 1) and any other non-residential property shall (i) be to third
parties under market terms, (ii) provide for uses of such Borrowing Base
Property that are consistent with first-class management thereof, and (iii)
contain provisions regarding insurance, waiver of claims, damage and
destruction, condemnation, notice to mortgagee and subordination and attornment
and other material matters in substantial conformity with the standard form(s)
of space lease utilized by Borrower for each Borrowing Base Property, all of
which standard forms (including revisions thereto) shall be submitted by
Borrower to the Administrative Agent for approval in writing. Leases to
residential tenants for residential properties shall be on forms approved by the
Administrative Agent and shall be on market terms and conditions. Upon request
by the Administrative Agent, Borrower shall provide to the Administrative Agent
a copy of each BBP Lease, including all amendments, estoppel certificates and
related documentation. In addition, promptly following the execution of any
Major Agreement (or the termination or material modification thereof), Borrower
shall provide a copy thereof to the Administrative Agent, and the Administrative
Agent shall promptly provide a copy thereof to each other Lender. Upon the
execution of any Major Agreement (or the termination or material modification
thereof) not approved in writing by the Administrative Agent prior to such
execution, the Administrative Agent may (and shall at the direction of Requisite
Lenders) redetermine the Appraised Value for the subject Borrowing Base
Property; such reappraisal right shall be in addition to the rights to
re-appraise set forth in Section 3.3(a)(iv).
------------------
(c) Non-Disturbance Agreements. Borrower or, as applicable, a
--------------------------
Pledgor Subpartnership, will obtain, prior to Closing, from all tenants under
current Major BBP Leases an estoppel, subordination, non-Disturbance and/or
attornment agreement in a form approved by the Administrative Agent (each a
"Non-Disturbance Agreement"). If any Non-Disturbance Agreement asserts a
material claim or set-off right by the tenant, which is materially inconsistent
with the rent roll for such Borrowing Base Property, or is delivered in a form
materially different from the Non-Disturbance Agreement, then, in any such
circumstance, the Administrative Agent shall have the right to establish an
appropriate reserve against Loan Availability until the Administrative Agent
determines that the circumstance leading to such reserve as aforesaid has been
favorably resolved. Borrower or, as applicable, a Pledgor Subpartnership, shall
obtain, from each tenant under a Major BBP Lease entered into after the Closing
Date, a Non-Disturbance Agreement in a form approved by the Administrative Agent
as a part of the approval of such Major BBP Lease.
(d) Management Agreements. Borrower and Pledgor
---------------------
Subpartnerships have entered into the Management Agreements identified on
Exhibit M. Neither Borrower nor any Pledgor Subpartnership shall enter into any
- ---------
other management agreement, or hereafter amend in any material manner or
terminate, a management agreement with respect to any Borrowing Base Property,
except upon thirty (30) days' prior written notice to and approval by the
Administrative Agent. Borrower shall timely provide to the Administrative Agent
a copy of any proposed management agreement, and the Administrative Agent shall
promptly provide a copy thereof to each other Lender. Without limiting in any
way the Administrative Agent's approval rights with respect thereto, each
proposed management agreement shall
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<PAGE>
include an absolute right of Borrower or the Pledgor Subpartnership to terminate
same upon thirty (30) days' notice to the property manager and shall provide for
management fees, reimbursements or other payments to the property manager at
levels not in excess of applicable market levels.
(e) Major Construction. If Borrower or any Pledgor
------------------
Subpartnership intends to engage in any construction, remodeling or demolition
project or series of related projects with respect to a Borrowing Base Property
(each, a "Construction Project"), the aggregate cost of which will exceed Ten
Percent (10%) of the Appraised Value of such property, Borrower shall first
notify the Administrative Agent, and such Construction Project shall be subject
to Requisite Lenders' approval, which approval shall not be unreasonably
withheld.
3.5 Unsecured Election.
------------------
Upon Borrower's delivery of the Unsecured Election to the
Administrative Agent and the Administrative Agent's confirmation that the
Borrower is entitled to make the Unsecured Election, all provisions and
requirements contained in this Agreement relating to the Borrowing Base
Properties shall thereafter be deemed inapplicable and, within thirty (30) days
thereafter, the Administrative Agent shall release or terminate all Mortgage
Documents and all related Uniform Commercial Code financing statements, provided
that the Unsecured Election shall not become effective and the Administrative
Agent shall have no obligation to release or terminate all Mortgage Documents
and all related Uniform Commercial Code financing statements unless and until
the following conditions shall have been satisfied:
(a) the Borrower and the Lenders shall enter into an amendment
of this Agreement acceptable in all respects to Borrower and to all Lenders
wherein the various representations, warranties, covenants and agreements
contained herein shall be supplemented or modified as required by each of the
Lenders in its sole and absolute discretion to contain, inter alia such
----- ----
provisions relating to the Unencumbered Assets (or any Property which, following
this Section 3.5 becoming effective, will become an Unencumbered Asset) as all
-----------
of the Lenders shall deem appropriate in their sole and absolute discretion
including without limitation, prohibitions against the granting of any Liens or
other assignments of the Unencumbered EBITDA;
(b) the Borrower shall cause the Majority Partnerships which
own any of the Unencumbered Assets (or any Property, which, following this
Section 3.5 becoming effective, will become an Unencumbered Asset) to execute
- -----------
such documents as the Lenders shall require in their sole and absolute
discretion to allow the Lenders to have recourse against the Unencumbered Assets
(or any Property, which, following this Section 3.5 becoming effective, will
-----------
become an Unencumbered Asset) without dissolving or liquidating such Majority
Partnerships, which documents shall not include the grant of any Liens or
negative pledges;
(c) the Borrower and the REIT shall execute any other
amendments to the other Loan Documents which the Lenders may determine are
required in their sole and
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<PAGE>
absolute discretion to confirm the continued validity and enforceability of
such Loan Documents;
(d) the Borrower shall provide such due diligence materials as
the Lenders may require to confirm the validity and enforceability of the
documents described in subparagraphs (a), (b) and (c) above, including, without
limitation, legal opinions, corporate resolutions, and similar documents; and
(e) the Borrower shall reimburse the Administrative Agent for
all reasonable costs and expenses, including legal fees and expenses, incurred
in connection with the documentation described above and the release or
termination of the Mortgage Documents and all related Uniform Commercial Code
financing statements.
4. CONDITIONS TO LOANS
-------------------
4.1 Conditions to Initial Disbursement of Loans.
-------------------------------------------
The obligation of Lenders to make the initial disbursement of the
Loans shall be subject to satisfaction of each of the following conditions
precedent on or before the Closing Date:
(a) Borrower Loan Documents. Borrower shall have executed and
-----------------------
delivered to the Administrative Agent each of the following, in form and
substance acceptable to the Administrative Agent and each other Lender:
(i) this Agreement;
(ii) the Loan Notes;
(iii) Uniform Commercial Code financing statements;
(iv) all applicable Mortgage Documents;
(iv) an environmental indemnification; and
(vi) all other documents to be executed by or on behalf
of Borrower as listed on the Closing Checklist.
(b) Pledgor Subpartnership Loan Documents. Each Pledgor
-------------------------------------
Subpartnership shall have executed and delivered to the Administrative Agent
each of the following, in form and substance acceptable to the Administrative
Agent:
(i) all applicable Mortgage Documents;
(ii) Uniform Commercial Code financing statements;
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<PAGE>
(iii) an environmental indemnification; and
(iv) all other documents to be executed by or on
behalf of each Pledgor Subpartnership as listed on the Closing Checklist.
(c) REIT Loan Documents. The REIT shall have executed and
-------------------
delivered to the Administrative Agent, each in form and substance acceptable to
the Administrative Agent:
(i) a pledge to the Administrative Agent of all
distributions payable to the REIT by Borrower in form and substance acceptable
to the Administrative Agent; and
(ii) all other documents to be executed by or on behalf of
the REIT as listed on the Closing Checklist.
(d) Borrowing Base Property Documents. The Administrative
---------------------------------
Agent shall have received the following documents with respect to each Borrowing
Base Property in form and substance acceptable to the Administrative Agent and
each other Lender:
(i) an Appraisal;
(ii) an American Land Title Association extended coverage
Lender's policy of title insurance or a commitment to issue such policy, from a
title company acceptable to the Administrative Agent in the amount of the total
Borrowing Base Values insuring the Mortgage against each Borrowing Base Property
as a first mortgage subject only to Permitted Liens, with endorsements and
otherwise in form and substance acceptable to the Administrative Agent and the
Administrative Agent's counsel;
(iii) a survey in the form described in Section 3.1(d)
--------------
certified to the Administrative Agent;
(iv) such opinions of local counsel pertaining to such
Borrowing Base Property as the Administrative Agent shall require, in form and
substance satisfactory to the Administrative Agent and the Administrative
Agent's counsel;
(v) Non-Disturbance Agreements pursuant to
Section 3.4(c);
- --------------
(vi) a rent roll, in form satisfactory to the
Administrative Agent, certified by Borrower to be true, correct and complete in
all material respects;
(vii) an environmental audit for each Borrowing Base
Property, conducted by an environmental engineering firm acceptable to Lenders,
and satisfactory evidence that Borrower, each Pledgor Subpartnership and all
Borrowing Base Properties are in compliance in all material respects with all
Environmental Laws, the violation of which could have a Material Adverse Effect
on Borrower, any Pledgor Subpartnership, any Borrowing Base Property or the
REIT;
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<PAGE>
(viii) an inspecting engineer's report; and
(ix) such other documents with respect to such Borrowing
Base Property as are listed on the Closing Checklist or as the Administrative
Agent shall otherwise reasonably require.
(e) Corporate and Partnership Documents. The Administrative
-----------------------------------
Agent shall have received the corporate and partnership documents with respect
to Borrower, the REIT and each Pledgor Subpartnership as listed on the Closing
Checklist, including a certificate of each such entity's Secretary or an officer
comparable thereto (a "Secretary's Certificate") with respect to authorization,
incumbency and all organizational documents.
(f) Borrowing Base and Compliance Certificates. Borrower shall
------------------------------------------
have delivered to the Administrative Agent a Borrowing Base Certificate
evidencing sufficient Loan Availability to support the Loans being requested and
a Compliance Certificate.
(g) Notice of Borrowing. Borrower shall have delivered to the
-------------------
Administrative Agent a Notice of Borrowing and, if applicable, the
Administrative Agent shall have delivered to Borrower a Fixed Rate Notice, in
each case in compliance with Section 2.1(b).
--------------
(h) Performance. Borrower, the REIT and each Pledgor
-----------
Subpartnership shall have performed in all material respects all agreements and
covenants hereof required by the Administrative Agent to be performed by them on
or before the Closing Date.
(i) Solvency. Each of the REIT, Borrower and each Pledgor
--------
Subpartnership shall be Solvent.
(j) Material Adverse Changes. No change, as determined by the
------------------------
Administrative Agent shall have occurred, during the Interim Period, which has a
Material Adverse Effect on Borrower, any Pledgor Subpartnership, any Borrowing
Base Property, the REIT or the operating performance of any Borrowing Base
Property.
(k) Litigation Proceedings. There shall not have been
----------------------
instituted or threatened, during the Interim Period, any litigation or
proceeding in any court or Governmental Authority affecting or threatening to
affect Borrower, any Pledgor Subpartnership, any Borrowing Base Property or the
REIT which has a Material Adverse Effect, as reasonably determined by the
Administrative Agent.
(l) Perfection of Liens. All Mortgages and financing
-------------------
statements shall have been recorded or filed, as applicable, and the
Administrative Agent shall have a valid, perfected first priority lien on all of
the Borrowing Base Properties and other Collateral.
(m) Indefeasible Title. Borrower and the Pledgor
------------------
Subpartnerships, as applicable, shall have good, indefeasible and merchantable
title to the Collateral, free and clear of all Liens other than Permitted Liens.
-44-
<PAGE>
(n) No Event of Default: Satisfaction of Financial Covenants.
--------------------------------------------------------
On the Closing Date and after giving effect to the initial disbursements of the
Loans, no Event of Default or Unmatured Event of Default shall exist and all of
the financial covenants contained in Sections 8.5 and Article 9 shall be
------------ ---------
satisfied.
(o) Fees. The Administrative Agent shall have received for the
----
account of Lenders, the fees set forth in Section 2.6 and provided for in the
----------- --------
letter dated May 24, 1994 to the extent payable at Closing, and Borrower shall
have performed all of its other obligations as set forth in the Loan Documents
to make payments to the Administrative Agent on or before the Closing Date and
all expenses of the Administrative Agent incurred prior to such Closing Date
(including without limitation all attorneys' and appraisers' fees) shall have
been paid by Borrower.
(p) Opinion of Counsel. The Administrative Agent shall have
------------------
received, on behalf of Lenders, favorable opinions of counsel (which may, as to
certain matters, be rendered by in-house counsel) for Borrower, each Pledgor
Subpartnership and the REIT dated as of the Closing Date, in form and substance
satisfactory to the Administrative Agent, and its counsel.
(q) Consents and Approvals. All material licenses, permits,
----------------------
consents, regulatory approvals and corporate action necessary to enter into the
financing transactions contemplated by this Agreement shall have been obtained
by Borrower, each Pledgor Subpartnership and the REIT.
(r) Insurance. The Administrative Agent shall have received
---------
evidence that Borrower and each Pledgor Subpartnership have property, casualty
and liability insurance satisfactory to the Administrative Agent, and loss
payable endorsements in form and substance satisfactory to the Administrative
Agent naming the Administrative Agent as loss payee with respect to property and
casualty insurance shall have been executed and delivered to the Administrative
Agent, together with such certificates of insurance and binders as are requested
by the Administrative Agent all in substantial compliance with the provisions of
Exhibit H hereto.
- ---------
(s) Leases. The Administrative Agent shall have completed its
------
review of the Major BBP Leases and basic lease forms in use in relevant
Borrowing Base Properties and shall be satisfied therewith.
(t) Accountant's Reliance Letter. The Administrative Agent
----------------------------
shall have received an Accountant's reliance letter in customary form and in
substance satisfactory to the Administrative Agent and Administrative Agent's
counsel.
(u) Due Diligence. The Administrative Agent shall have
-------------
obtained and completed its review of Appraisals of the Borrowing Base Properties
and determination of Appraised Values therefor and its review of the other
Collateral, and Lenders shall have completed such due diligence investigations
as they deem necessary, and such review and investigations shall provide Lenders
with results and information which, in each Lender's
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<PAGE>
determination, are satisfactory to permit such Lender to enter into this
Agreement and fund the Loans.
(v) Representations and Warranties. All representations and
------------------------------
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all material respects.
(w) Interest Rate Contracts. Borrower shall have obtained
-----------------------
appropriate Interest Rate Contracts, if then required by Section 9.8, and copies
-----------
of such Interest Rate Contracts shall have been provided to the Administrative
--------
Agent.
(x) Proceeds of Offering. The REIT shall have received gross
--------------------
proceeds of a minimum of One Hundred Eighty-Eight Million Dollars
($188,000,000.00) from its initial public offering being consummated on or about
the Closing Date and the Private Placement and shall have contributed the net
proceeds thereof to Borrower.
4.2 Conditions Precedent to All Loans.
---------------------------------
The obligation of each Lender to make any Loan requested to be made by
it, on any date, is subject to satisfaction of the following conditions
precedent as of such date:
(a) Documents. With respect to a request for a Loan, the
---------
Administrative Agent shall have received, on or before the Funding Date and in
accordance with the provisions of Section 2.1(b), an original and duly executed
--------------
Notice of Borrowing.
(b) Additional Matters. As of the Funding Date for any Loan
------------------
and after giving effect to the Loans being requested:
(i) Representations and Warranties. All of the
------------------------------
representations and warranties contained in this Agreement and in any other Loan
Document (other than representations and warranties which expressly speak only
as of a different date and other than for changes permitted or contemplated by
this Agreement) shall be true and correct in all material respects on and as of
such Funding Date, as though made on and as of such date; and
(ii) No Default. No Event of Default or Unmatured Event
----------
of Default shall have occurred and be continuing or would result from the making
of the requested Loan, and all of the financial covenants contained in
Section 8.5 and Article 9 shall be satisfied; and
- ----------- ---------
(iii) Each submission by Borrower to the Administrative
Agent of a Notice of Borrowing with respect to a Loan and the acceptance by
Borrower of the proceeds of each such Loan made hereunder shall constitute a
representation and warranty by Borrower and the REIT as of the Funding Date in
respect of such Loan that all the conditions contained in this Section 4.2(b)
--------------
have been satisfied.
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<PAGE>
5. REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Representations and Warranties as to Borrower, Etc.
--------------------------------------------------
In order to induce Lenders to make the Loans, Borrower hereby
represents and warrants to Lenders as follows:
(a) Organization: Partnership Powers. Borrower (i) is a
--------------------------------
limited partnership duly organized, validly existing and in good standing under
the laws of the jurisdiction of its formation, (ii) is duly qualified to do
business as a foreign limited partnership and in good standing under the laws of
each jurisdiction in which it owns or leases real property or in which the
nature of its business requires it to be so qualified, except for those
jurisdictions where failure to so qualify and be in good standing would not have
a Material Adverse Effect on Borrower, and (iii) has all requisite partnership
power and authority to own, operate and encumber its property and assets and to
conduct its business as presently conducted and as proposed to be conducted in
connection with and following the consummation of the Loans contemplated by the
Loan Documents.
(b) Authority. Borrower has the requisite partnership power
---------
and authority to execute, deliver and perform each of the Loan Documents to
which it is or will be a party. The execution, delivery and performance thereof,
and the consummation of the transactions contemplated thereby, have been duly
approved by the general partner of Borrower, and no other partnership
proceedings or authorizations on the part of Borrower or its general or limited
partners are necessary to consummate such transactions. Each of the Loan
Documents to which Borrower is a party has been duly executed and delivered by
Borrower and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights generally.
(c) Ownership of Borrower, Each Pledgor Subpartnership.
--------------------------------------------------
Schedule 5.1(c) sets forth the general partners of Borrower and the general
- ---------------
partners and limited partners of each Pledgor Subpartnership and their
respective ownership percentages and there are no other partnership interests
outstanding. Except as set forth or referred to in the partnership agreement of
Borrower or Pledgor Subpartnership, and except as described in the REIT S-11, no
partnership interest (or any securities, instruments, warrants, option or
purchase rights, conversion or exchange rights, calls, commitments or claims of
any character convertible into or exercisable for partnership interests) of any
such Person is subject to issuance under any security, instrument, warrant,
option or purchase rights, conversion or exchange rights, call, commitment or
claim of any right, title or interest therein or thereto. All of the partnership
interests in Borrower and each Pledgor Subpartnership have been issued in
compliance with all applicable Requirements of Law.
(d) No Conflict. The execution, delivery and performance by
-----------
Borrower of the Loan Documents to which it is or will be a party, and each of
the transactions contemplated thereby, do not and will not (i) conflict with or
violate Borrower's limited partnership agreement or certificate of limited
partnership or other organizational documents,
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<PAGE>
as the case may be, or (ii) conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under any
Requirement of Law, Contractual Obligation or Court Order of or binding upon
Borrower, or (iii) require termination of any Contractual Obligation, or (iv)
result in or require the creation or imposition of any Lien whatsoever upon any
of the properties or assets of Borrower (other than Liens in favor of
Administrative Agent arising pursuant to the Loan Documents or Permitted Liens).
(e) Consents and Authorizations. Borrower has obtained all
---------------------------
consents and authorizations required pursuant to its Contractual Obligations
with any other Person, and shall have obtained all consents and authorizations
of, and effected all notices to and filings with, any Governmental Authority, as
may be necessary to allow Borrower to lawfully execute, deliver and perform its
obligations under the Loan Documents to which Borrower is a party.
(f) Governmental Regulation. Neither Borrower, the REIT nor
-----------------------
any Pledgor Subpartnership is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
the Investment Company Act of 1940 or any other federal or state statute or
regulation such that its ability to incur indebtedness is limited or its ability
to consummate the transactions contemplated by the Loan Documents is materially
impaired.
(g) Prior Financials. The Financial Statements of the REIT
----------------
showing the REIT's and the Borrower's financial condition as of March 31, 1994,
adjusted for the effects of the Borrower's initial public offering and the
Private Placement delivered to the Administrative Agent prior to the date
hereof, were prepared in accordance with GAAP and fairly present the results of
its operations and its cash flows, on a consolidated basis, for the periods
indicated therein.
(h) Financial Statements: Projections and Forecasts. Each of
-----------------------------------------------
the Financial Statements to be delivered to the Administrative Agent pursuant to
Sections 6.1(b) and 6.1(c), (i) has been, or will be, as applicable, prepared in
- --------------- ------
accordance with the books and records of the Borrower on a consolidated basis,
and (ii) either fairly present, or will fairly present, as applicable, the
financial condition of the Borrower on a consolidated basis, at the dates
thereof (and, if applicable, subject to normal year-end adjustments) and the
results of its operations and cash flows, on a consolidated basis, for the
period then ended. Each of the projections delivered to the Administrative Agent
prior to the date hereof and the financial plans and projections to be delivered
to the Administrative Agent pursuant to Section 6.1(e), (A) has been, or will
--------------
be, as applicable, prepared by the Borrower in light of the past business and
performance of the Borrower on a consolidated basis, and (B) represent, or will
represent, as of the date thereof, the reasonable good faith estimates of the
Borrower's financial personnel.
(i) Prior Operating Statements. Each of the operating
--------------------------
statements pertaining to each of the Borrowing Base Properties delivered to the
Administrative Agent prior to the date hereof was prepared in accordance with
GAAP in effect on the date such
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<PAGE>
operating statement of each Borrowing Base Property was prepared and fairly
presents the results of operations of such Borrowing Base Property for the
period then ended.
(j) Borrowing Base Property Statements and Projections. Each
--------------------------------------------------
of the Borrowing Base Property Statements to be delivered to the Administrative
Agent pursuant to Section 6.1(a), (i) has been or will be, as applicable,
--------------
prepared in accordance with the books and records of the applicable Borrowing
Base Property, and (ii) fairly presents or will fairly present, as applicable,
the results of operations of such Borrowing Base Property for the period then
ended. Each of the projections, financial plans and budgets delivered to the
Administrative Agent prior to the date hereof and the projections and budgets to
be delivered to the Administrative Agent pursuant to Sections 6.1(e) and 6.1(i),
--------------- ------
(A) has been, or will be, as applicable, prepared for each Borrowing Base
Property in light of the past business and performance of such Borrowing Base
Property, and (B) represents or will represent, as of the date thereof, the
reasonable good faith estimates of the Borrower's and the REIT's financial
personnel.
(k) Litigation: Adverse Effects.
---------------------------
(i) Except as set forth in the most recent Financial
Statements, there is no action, suit, proceeding, governmental investigation or
arbitration, at law or in equity, or before or by any Governmental Authority,
pending or, to the best of Borrower's knowledge, threatened against Borrower or
any Property of Borrower (including any Borrowing Base Property), which (A)
result in a Material Adverse Effect on Borrower or any Borrowing Base Property,
(B) materially and adversely affect the ability of any party to any of the Loan
Documents to perform its obligations thereunder, or (C) materially and adversely
affect the ability of Borrower to perform its obligations contemplated in the
Loan Documents.
(ii) Borrower is not (A) in violation of any applicable
law, which violation has a Material Adverse Effect on Borrower or any Borrowing
Base Property, or (B) subject to or in default with respect to any Court Order
which has a Material Adverse Effect on Borrower or any Borrowing Base Property.
There are no material Proceedings pending or, to the best of Borrower's
knowledge, threatened against Borrower or any Borrowing Base Property, which, if
adversely decided, would have a Material Adverse Effect on Borrower or any
Borrowing Base Property.
(l) Payment of Taxes. All tax returns and reports to be filed
----------------
by Borrower have been timely filed, and all taxes, assessments, fees and other
governmental charges shown on such returns or otherwise payable by Borrower have
been paid when due and payable (other than real property taxes, which may be
paid prior to delinquency so long as no penalty or interest shall attach
thereto), except such taxes, if any, as are reserved against in accordance with
GAAP and are being contested in good faith by appropriate proceedings or such
taxes, the failure to make payment of which when due and payable will not have,
in the aggregate, a Material Adverse Effect on Borrower. Borrower has no
knowledge of any proposed tax assessment against Borrower that will have a
Material Adverse Effect on Borrower, which is not being actively contested in
good faith by Borrower.
-49-
<PAGE>
(m) Material Adverse Agreements. Borrower is not a party to or
---------------------------
subject to any Contractual Obligation or other restriction contained in its
limited partnership agreement, certificate of limited partnership or similar
governing documents which has a Material Adverse Effect on Borrower.
(n) Performance. Borrower is not in default in the
-----------
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any Contractual Obligation applicable to it, and no
condition exists which, with the giving of notice or the lapse of time or both,
would constitute a default under such Contractual Obligation in each case,
except where the consequences, direct or indirect, of such default or defaults,
if any, will not have a Material Adverse Effect on Borrower.
(o) Federal Reserve Regulations. No part of the proceeds of
---------------------------
the Loan hereunder will be used to purchase or carry any "margin security" as
defined in Regulation G or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulation G. Neither Borrower, the
REIT nor any Pledgor Subpartnership is engaged primarily in the business of
extending credit for the purpose of purchasing or carrying out any "margin
stock" as defined in Regulation U. No part of the proceeds of the Loan hereunder
will be used for any purpose that violates, or which is inconsistent with, the
provisions of Regulation X or any other regulation of the Federal Reserve Board.
(p) Disclosure. The representations and warranties of Borrower
----------
contained in the Loan Documents and all certificates, financial statements and
other documents delivered to the Administrative Agent in connection therewith,
do not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading. Borrower has given to the Administrative Agent true, correct and
complete copies of all BBP Leases, organizational documents, Financial
Statements, Borrowing Base Property Statements, and all other documents and
instruments referred to in the Loan Documents as having been delivered to the
Administrative Agent. Borrower has not intentionally withheld any material fact
from the Administrative Agent and Lenders in regard to any matter raised in the
Loan Documents. Notwithstanding the foregoing, with respect to projections of
Borrower's future performance such representations and warranties are made in
good faith and to the best judgment of Borrower.
(q) Requirements of Law. Borrower, the REIT and each Pledgor
-------------------
Subpartnership are in compliance with all Requirements of Law (including without
limitation the Securities Act and the Securities Exchange Act, and the
applicable rules and regulations thereunder, state securities law and "Blue Sky"
laws) applicable to it and its respective businesses, in each case, where the
failure to so comply will have a Material Adverse Effect on any such Person. The
REIT has made all filings with and obtained all consents of the Commission
required under the Securities Act and the Securities Exchange Act in connection
with the execution, delivery and performance by the REIT of the Loan Documents.
-50-
<PAGE>
(r) Patents, Trademarks, Permits, Etc. Borrower, the REIT and
---------------------------------
each Pledgor Subpartnership own, are licensed or otherwise have the lawful right
to use, or have all permits and other governmental approvals, patents,
trademarks, trade names, copyrights, technology, know-how and processes used in
or necessary for the conduct of each such Person's business as currently
conducted, the absence of which would have a Material Adverse Effect upon such
Person. The use of such permits and other governmental approvals, patents,
trademarks, trade names, copyrights, technology, know-how and processes by each
such Person does not infringe on the rights of any Person, subject to such
claims and infringements as do not, in the aggregate, give rise to any liability
on the part of any such Person which would have a Material Adverse Effect on any
such Person.
(s) Environmental Matters. Except as set forth on Schedule
--------------------- --------
5.1(u), to the best of Borrower's knowledge, (i) the operations of Borrower, the
- ------
REIT and each Pledgor Subpartnership comply in all material respects with all
applicable local, state and federal environmental, health and safety
Requirements of Law ("Environmental Laws"); (ii) none of Borrower's or any
Pledgor Subpartnership's present Property or operations are subject to any
Remedial Action or other Liabilities and Costs arising from the Release or
threatened Release of a Contaminant into the environment in violation of any
Environmental Laws, which Remedial Action or other Liabilities and Costs would
have a Material Adverse Effect on any such Person; (iii) neither Borrower, the
REIT nor any Pledgor Subpartnership has filed any notice under applicable
Environmental Laws reporting a Release of a Contaminant into the environment in
violation of any Environmental Laws, except as the same may have been heretofore
remedied; (iv) there is not now on or in the Property of Borrower or any Pledgor
Subpartnership (except in compliance in all material respects with all
applicable Environmental Laws): (A) any underground storage tanks, (B) any
asbestos-containing material, or (C) any polychlorinated biphenyls (PCB's) used
in hydraulic oils, electrical transformers or other equipment owned by such
Person; and (v) neither Borrower, the REIT nor any Pledgor Subpartnership has
received any notice or claim to the effect that it is or may be liable to any
Person as a result of the Release or threatened Release of a Contaminant into
the environment.
(t) Major Agreements: BBP Leases. With respect to each
----------------------------
Borrowing Base Property, the Administrative Agent has received true, complete
and correct copies of each Major Agreement. All management agreements in effect
as to any Borrowing Base Properties are identified on Exhibit M. All such Major
---------
Agreements are in full force and effect and have not been and will not be
modified or terminated (except for modifications which comply with the
requirements of clauses 3.4(b)(i) through 3.4(b)(iii) and terminations by reason
----------------- -----------
of a material default), and no default or event of default (or event or
occurrence which upon with the passage of time or the giving of notice, or both,
will constitute a default or event of default) exists or will exist under such
Major Agreements as a result of the consummation of the transactions
contemplated by the Loan Documents. The Administrative Agent has received the
form BBP Lease used for each Borrowing Base Property, and the BBP Leases for
each Borrowing Base Property, taken as a whole, do not and will not vary
materially from the requirements of clauses 3.4(b)(i) through 3.4(b)(iii). All
----------------- -----------
commercial BBP Leases contain provisions pursuant to which the tenant thereunder
agrees to attorn to a mortgagee in the event of a foreclosure, subject only to
customary conditions. Except as
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<PAGE>
reflected on the most current rent rolls delivered to the Administrative Agent,
all BBP Leases are in full force and effect and no default or event or default
(or event or occurrence which upon with the passage of time or the giving of
notice, or both, will constitute a default or event of default) exists or will
exist thereunder as a result of the consummation of the transactions
contemplated by the Loan Documents. Except as set forth on Schedule 5.1(v),
---------------
other than BBP Leases and Permitted Liens there are no Contractual Obligations
relating to the maintenance, occupancy, use or operation of any of the Borrowing
Base Properties which are not terminable by Borrower or a mortgagee-in-
possession upon thirty (30) days or less notice.
(u) Solvency. Borrower is and will be Solvent after giving
--------
effect to the disbursements of the Loans and the payment and accrual of all fees
then payable.
(v) Title to Assets; No Liens. Borrower has good, indefeasible
-------------------------
and merchantable title to all Properties owned or leased by it, including,
without limitation, any Borrowing Base Properties owned or leased by Borrower,
and all of the Collateral is free and clear of all Liens, except Permitted
Liens.
(w) Use of Proceeds. Borrower's use of the proceeds of the
---------------
Loans are, and will continue to be, legal and proper uses (and to the extent
necessary, duly authorized by Borrower's partners) and such uses are consistent
with all applicable laws and statutes and Section 7.1(j).
--------------
(x) Other Loan Agreements. The material aspects of the
---------------------
proposed borrowing from FNMA and The Northwestern Mutual Life Insurance Company
shall be as shown on Exhibit L.
---------
5.2 Representations and Warranties as to Each Pledgor
-------------------------------------------------
Subpartnership, Etc.
- -------------------
In order to induce Lenders to make the Loans, Borrower hereby
represents and warrants to Lenders as follows:
(a) Organization; Partnership Powers. Each Pledgor
--------------------------------
Subpartnership (i) is a general or limited partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (ii) is duly qualified to do business as a foreign partnership and
in good standing under the laws of each jurisdiction in which it owns or leases
real property or in which the nature of its business requires it to be so
qualified, except for those jurisdictions where failure to so qualify and be in
good standing would not have a Material Adverse Effect on such Pledgor
Subpartnership, and (iii) has all requisite partnership power and authority to
own, operate and encumber its Property and assets and to conduct its business as
presently conducted and as proposed to be conducted in connection with and
following the consummation of the transactions contemplated by the Loan
Documents.
(b) Authority. Each Pledgor Subpartnership has the requisite
---------
partnership power and authority to execute, deliver and perform each of the Loan
Documents to which it
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<PAGE>
is or will be a party. The execution, delivery and performance thereof, and the
consummation of the transactions contemplated thereby, have been duly approved
by the requisite partners of each such Pledgor Subpartnership, and no other
partnership proceedings on the part of any Pledgor Subpartnership are necessary
to consummate such transactions. Each of the Loan Documents to which each
Pledgor Subpartnership is a party has been duly executed and delivered by each
Pledgor Subpartnership and constitutes its legal, valid and binding obligation,
enforceable against each Pledgor Subpartnership in accordance with its terms,
subject to bankruptcy, insolvency and other laws affecting creditors' rights
generally.
(c) No Conflict. The execution, delivery and performance of
-----------
the Loan Documents by each Pledgor Subpartnership, and each of the transactions
contemplated thereby, do not and will not (i) conflict with or violate such
Pledgor Subpartnership's partnership agreement or other organizational
documents, (ii) conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under any Requirement of Law,
Contractual Obligation or Court Order of any Pledgor Subpartnership, (iii)
require termination of any Contractual Obligation, (iv) result in or require the
creation or imposition of any Lien whatsoever upon any of the properties or
assets of any Pledgor Subpartnership (other than Liens in favor of
Administrative Agent arising pursuant to the Loan Documents or Permitted Liens),
or (v) require any approval of any partners of any Pledgor Subpartnership which
has not been obtained.
(d) Consents and Authorizations. Each Pledgor Subpartnership
---------------------------
has obtained all consents and authorizations required pursuant to its
Contractual Obligations with any other Person, and shall have obtained all
consents and authorizations of, and effected all notices to and filings with,
any Governmental Authority, as may be necessary to allow such Pledgor
Subpartnership to lawfully execute, deliver and perform its obligations under
the Loan Documents to which such Pledgor Subpartnership is a party.
(e) Litigation: Adverse Effects.
---------------------------
(i) There is no action, suit, proceeding, governmental
investigation or arbitration, at law or in equity, or before or by any
Governmental Authority, pending or, to the best of Borrower's knowledge,
threatened against any Pledgor Subpartnership, any Property of any Pledgor
Subpartnership or any Borrowing Base Property, which would (A) result in a
Material Adverse Effect on any such Pledgor Subpartnership or any such Borrowing
Base Property, (B) materially and adversely affect the ability of any party to
any of the Loan Documents to perform its obligations thereunder, or (C)
materially and adversely affect the ability of any Pledgor Subpartnership to
perform its obligations as contemplated in the Loan Documents.
(ii) No Pledgor Subpartnership is (A) in violation of any
applicable law, which violation has a Material Adverse Effect on such Pledgor
Subpartnership or any Borrowing Base Property, or (B) subject to or in default
with respect to any Court Order which has a Material Adverse Effect on such
Pledgor Subpartnership or any Borrowing Base Property. There are no material
Proceedings pending or, to the best of Borrower's knowledge, threatened against
any Pledgor Subpartnership or any Borrowing Base Property,
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<PAGE>
which, if adversely decided, would have a Material Adverse Effect on any Pledgor
Subpartnership or any Borrowing Base Property.
(f) Payment of Taxes. All tax returns and reports to be filed
----------------
by any Pledgor Subpartnership have been timely filed, and all taxes,
assessments, fees and other governmental charges shown on such returns or
otherwise payable by such Pledgor Partnership have been paid when due and
payable (other than real property taxes, which may be paid prior to delinquency
so long as no penalty or interest shall attach thereto), except such taxes, if
any, as are reserved against in accordance with GAAP and are being contested in
good faith by appropriate proceedings or such taxes, the failure to make payment
of which when due and payable would not have, in the aggregate, a Material
Adverse Effect on any Pledgor Subpartnership. Borrower has no knowledge of any
proposed tax assessment against any Pledgor Subpartnership that would have a
Material Adverse Effect on any Pledgor Subpartnership, which is not being
actively contested in good faith by such Pledgor Subpartnership.
(g) Material Adverse Agreements. No Pledgor Subpartnership is
---------------------------
a party to or subject to any Contractual Obligation or other restriction
contained in its partnership agreement or similar governing documents which has
a Material Adverse Effect on such Pledgor Subpartnership.
(h) Performance. No Pledgor Subpartnership is in default in
-----------
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any Contractual Obligation applicable to it, and no
condition exists which, with the giving of notice or the lapse of time or both,
would constitute a default under such Contractual Obligation in each case,
except where the consequences, direct or indirect, of such default or defaults,
if any, would not have a Material Adverse Effect on such Pledgor Subpartnership.
(i) Disclosure. The representations and warranties of each
----------
Pledgor Subpartnership contained in the Loan Documents, and all certificates,
financial statements and other documents delivered to the Administrative Agent
in connection therewith, do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading. No Pledgor Subpartnership has intentionally withheld any
material fact from Administrative Agent and Lenders in regard to any matter
raised in the Loan Documents. Notwithstanding the foregoing, with respect to
projections of each Pledgor Subpartnership's future performance, such
representations and warranties are made in good faith and to the best judgment
of the Persons making such representations and warranties.
(j) Zoning. The improvements, fixtures and equipment now
------
installed upon each Borrowing Base Property identified in Schedule 1 will comply
with all applicable zoning ordinances, building codes and other laws, rules and
regulations, and any restrictive covenants affecting same except for such
violations as do not either individually or in the aggregate have a material
adverse affect on the value, utility or operation of such property.
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<PAGE>
(k) Solvency. Each Pledgor Subpartnership is and will be
--------
Solvent, in each case after giving effect to the disbursement of the Loans, and
the payment and accrual of all fees then payable.
(l) Title to Assets; No Liens. Each Pledgor Subpartnership has
-------------------------
good, indefeasible and merchantable title to the Properties owned or leased by
it, including without limitation, its Borrowing Base Property, and all of the
Collateral is free and clear of all Liens, except Permitted Liens.
(m) Single Purpose. Each Pledgor Subpartnership is a single
--------------
purpose partnership and is and will continue to be engaged only in the business
of owning, operating and developing one or more Borrowing Base Properties. No
Pledgor Subpartnership owns or has any interest in any Person. The sole partners
and beneficial owners of each Pledgor Subpartnership are and will continue to
be, directly or indirectly, Borrower and the REIT. The principal place of
business of each Pledgor Subpartnership is, and will continue to be, the
location of Borrower's principal place of business.
5.3 Representations and Warranties as to the REIT.
---------------------------------------------
In order to induce Lenders to make the Loans, Borrower hereby
represents and warrants to Lenders as follows:
(a) Organization; Corporate Powers. The REIT (i) is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland, (ii) is duly qualified to do business as a foreign
corporation and in good standing under the laws of each jurisdiction in which it
owns or leases real property or in which the nature of its business requires it
to be so qualified, and (iii) has all requisite corporate power and authority to
own, operate and encumber its property and assets and to conduct its business as
presently conducted and as proposed to be conducted in connection with and
following the consummation of the transactions contemplated by the Loan
Documents.
(b) Authority. The REIT has the requisite corporate power and
---------
authority to execute, deliver and perform each of the Loan Documents to which it
is or will be a party. The execution, delivery and performance thereof, and the
consummation of the transactions contemplated thereby, have been duly approved
by the Board of Directors of the REIT, and no other corporate proceedings on the
part of the REIT are necessary to consummate such transactions. Each of the Loan
Documents to which the REIT is a party has been duly executed and delivered by
the REIT and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights generally.
(c) No Conflict. The execution, delivery and performance by
-----------
the REIT of the Loan Documents to which it is party, and each of the
transactions contemplated thereby, do not and will not (i) conflict with or
violate its articles of incorporation, by-laws or other organizational
documents, (ii) conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under any Requirement of Law,
Contractual
-55-
<PAGE>
Obligation or Court Order of the REIT, (iii) require termination of any
Contractual Obligation, (iv) result in or require the creation or imposition of
any Lien whatsoever upon any of the properties or assets of the REIT (other than
Liens in favor of the Administrative Agent arising pursuant to the Loan
Documents), or (v) require any approval of the stockholders of the REIT.
(d) Consents and Authorizations. The REIT has obtained all
---------------------------
consents and authorizations required pursuant to its Contractual Obligations
with any other Person, and shall have obtained all consents and authorizations
of, and effected all notices to and filings with, any Governmental Authority, as
may be necessary to allow the REIT to lawfully execute, deliver and perform its
obligations under the Loan Documents to which the REIT is a party.
(e) Capitalization. All of the capital stock of the REIT has
--------------
been issued in compliance with all applicable Requirements of Law.
(f) Litigation; Adverse Effects.
---------------------------
(i) Except as set forth in the most recent Financial
Statements, there is no action, suit, proceeding, governmental investigation or
arbitration, at law or in equity, or before or by any Governmental Authority,
pending or, to best of Borrower's knowledge, threatened against the REIT or any
Property of the REIT, which will (A) result in a Material Adverse Effect on the
REIT, (B) materially and adversely affect the ability of any party to any of the
Loan Documents to perform its obligations thereunder, or (C) materially and
adversely affect the ability of the REIT to perform its obligations as
contemplated in the Loan Documents.
(ii) The REIT is not (A) in violation of any applicable
law, which violation has a Material Adverse Effect on the REIT, or (B) subject
to or in default with respect to any Court Order which has a Material Adverse
Effect on the REIT. There are no Proceedings pending or, to the best of
Borrower's knowledge, threatened against the REIT, which, if adversely decided,
would have a Material Adverse Effect on the REIT, Borrower or any Borrowing Base
Property.
(g) Payment of Taxes. All tax returns and reports to be filed
----------------
by the REIT have been timely filed, and all taxes, assessments, fees and other
governmental charges shown on such returns have been paid when due and payable,
except such taxes, if any, as are reserved against in accordance with GAAP and
are being contested in good faith by appropriate proceedings or such taxes, the
failure to make payment of which when due and payable would not have, in the
aggregate, a Material Adverse Effect on the REIT. The REIT has no knowledge of
any proposed tax assessment against the REIT that would have a Material Adverse
Effect on the REIT, which is not being actively contested in good faith by the
REIT.
(h) Material Adverse Agreements. The REIT is not a party to or
---------------------------
subject to any Contractual Obligation or other restriction contained in its
charter, by-laws or similar
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<PAGE>
governing documents which has a Material Adverse Effect on the REIT or the
ability of the REIT to perform its obligations under the Loan Documents to which
it is a party.
(i) Performance. The REIT is not in default in the
-----------
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any Contractual Obligation applicable to it, and no
condition exists which, with the giving of notice or the lapse of time or both,
would constitute a default under such Contractual Obligation in each case,
except where the consequences, direct or indirect, of such default or defaults,
if any, would not have a Material Adverse Effect on the REIT.
(j) Disclosure. The representations and warranties of the REIT
----------
contained in the Loan Documents, and all certificates, financial statements and
other documents delivered to Administrative Agent in connection therewith, do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. The REIT
has not intentionally withheld any material fact from Administrative Agent and
Lenders in regard to any matter raised in the Loan Documents. Notwithstanding
the foregoing, with respect to projections of the REIT's future performance such
representations and warranties are made in good faith and to the best judgment
of the management of the REIT.
(k) ERISA. Neither the REIT nor any ERISA Affiliate thereof
-----
(including, for all purposes under this Section 5.3(1), Borrower and each
--------------
Pledgor Partnership) has in the past five (5) years maintained or contributed to
or currently maintains or contributes to any Benefit Plan. No Investment
Subsidiary has or is likely to incur any liability with respect to any Benefit
Plan maintained or contributed to by such Investment Subsidiary or its ERISA
Affiliates, which would have a Material Adverse Effect on Borrower. Neither he
REIT nor any ERISA Affiliate thereof has during the past five (5) years
maintained or contributed to or currently maintains or contributes to any
employee welfare benefit plan within the meaning of Section 3(1) of ERISA which
provides benefits to retirees. Neither the REIT nor any ERISA Affiliate thereof
is now contributing nor has it ever contributed to or been obligated to
contribute to any Multiemployer Plan, no employees or former employees of the
REIT, or such ERISA Affiliate have been covered by any Multiemployer Plan in
respect of their employment by the REIT, and no ERISA Affiliate of the REIT has
or is likely to incur any withdrawal liability with respect to any Multiemployer
Plan which would have a Material Adverse Effect on the REIT.
(1) Solvency. The REIT is and will be Solvent, in each case
--------
after giving effect to the disbursement of the Loans, and the payment and
accrual of all fees then payable.
(m) Status as a REIT. The REIT (i) will make with its 1994 tax
----------------
return an election to be taxed as a real estate investment trust as defined in
Section 856 of the Internal Revenue Code (or any successor provision thereto),
(ii) will not revoke its election to be a real estate investment trust, (iii)
has not engaged in any "prohibited transactions" as defined in Section
856(b)(6)(iii) of the Internal Revenue Code (or any successor provision
thereto),
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<PAGE>
and (iv) for its current "tax year" (as defined in the Internal Revenue Code) is
and for all prior tax years subsequent to its election to be a real estate
investment trust has been entitled to a dividends paid deduction which meets the
requirements of Section 857 of the Internal Revenue Code.
(n) Ownership. The REIT does not own or have any interest in
---------
any other Person, other than its general and limited partnership interests in
Borrower and its interests in wholly owned subsidiary corporations whose sole
assets are partnership interests of 1 % or less in partnerships in which the
Borrower directly or indirectly owns a 99% interest.
(o) NYSE Listing. The common stock of the REIT is and will
------------
continue to be listed for trading and traded on the New York Stock Exchange.
(p) Executive Officer Ownership. Schedule 5.3(q) sets forth
--------------------------- --------------
the direct and indirect ownership interests of the Executive Officers in
Borrower and the REIT, indicating the actual names of such owners, the actual
ownership interests of each such owner in Borrower and the REIT and the
percentage ownership interests of each such owner in Borrower and the REIT in
the aggregate.
6. REPORTING COVENANTS.
-------------------
Borrower covenants and agrees that, on and after the date hereof,
until payment in full of all of the Obligations, the expiration of the
Commitments and termination of this Agreement:
6.1 Financial Statements and Other Financial and Operating
------------------------------------------------------
Information.
- -----------
Borrower shall maintain or cause to be maintained a system of
accounting established and administered in accordance with sound business
practices and consistent with past practice to permit preparation of quarterly
and annual financial statements in conformity with GAAP, and each of the
financial statements described on Exhibit P shall be prepared on a consolidated
basis for the Borrower and the REIT from such system and records. Borrower shall
deliver or cause to be delivered to the Administrative Agent, in form and
substance acceptable to Administrative Agent, the Financial Statements and other
materials described on Exhibit P hereto.
6.2 Environmental Notices.
---------------------
Borrower shall notify Administrative Agent, in writing, as soon as
practicable, and in any event within ten (10) days after Borrower's, any Pledgor
Subpartnership's or the REIT's learning thereof, of any: (a) written notice or
claim to the effect that Borrower, any Pledgor Subpartnership or the REIT is or
may be liable to any Person as a result of any material Release or threatened
Release of any Contaminant into the environment; (b) written notice that
Borrower, any Pledgor Subpartnership or the REIT is subject to investigation by
any Governmental Authority evaluating whether any Remedial Action is needed to
respond to the Release or threatened Release of any Contaminant into the
environment; (c) written notice
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<PAGE>
that any Property is subject to an Environmental Lien; (d) written notice of
violation to Borrower, any Pledgor Subpartnership or the REIT or awareness of a
condition which might reasonably result in a notice of violation of any
Environmental Laws by Borrower, any Pledgor Subpartnership or the REIT; (e)
commencement or written threat of any judicial or administrative proceeding
alleging a violation of any Environmental Laws; (f) written notice from a
Governmental Authority of any changes to any existing Environmental Laws that
will have a Material Adverse Effect on the operations of Borrower, any Pledgor
Subpartnership or the REIT; or (g) any proposed acquisition of stock, assets,
real estate or leasing of property, or any other action by Borrower that, to the
best of Borrower's knowledge, could subject Borrower, any Pledgor Subpartnership
or the REIT to environmental, health or safety Liabilities and Costs that will
have a Material Adverse Effect on Borrower, any Pledgor Subpartnership or the
REIT. With regard to the matters referred to in subsections 6.2(a)-(e) above,
the same shall apply in respect of each Borrowing Base Property and, in the case
of other Property of Borrower, any Pledgor Sub partnership or the REIT, only if
the matter will have a Material Adverse Effect on Borrower, any Pledgor
Subpartnership or the REIT.
7. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, on and after the date hereof, until
payment in full of all of the Obligations, the expiration of the Commitments and
termination of this Agreement:
7.1 With Respect to Borrower.
------------------------
(a) Existence. Borrower shall at all times maintain its
---------
existence as a limited partnership and preserve and keep in full force and
effect its rights and franchises unless the failure to maintain such rights and
franchises does not have a Material Adverse Effect on Borrower.
(b) Qualification, Name. Borrower shall qualify and remain
-------------------
qualified to do business in each jurisdiction in which the nature of its
business requires it to be so qualified except for hose jurisdictions where
failure to so qualify does not have a Material Adverse Effect on Borrower.
Borrower will transact business solely in its own name or in the name of a
Pledgor Subpartnership as referred to in Section 7.2(b).
(c) Compliance With Laws. Etc. Borrower shall (i) comply with
-------------------------
all Requirements of Law, and all restrictive covenants affecting Borrower or the
properties, performance, prospects, assets or operations of Borrower, and (ii)
obtain as needed all Permits necessary for its operations and maintain such in
good standing, except in each of the foregoing cases where the failure to do so
will not have a Material Adverse Effect on Borrower.
(d) Payment of Taxes and Claims. Borrower shall pay (i) all
---------------------------
taxes, assessments and other governmental charges imposed upon it or on any of
its properties or assets or in respect of any of its franchises, business,
income or property before any penalty or interest accrues thereon, the failure
to make payment of which will have a Material
-59-
<PAGE>
Adverse Effect on Borrower, and (ii) all claims (including, without limitation,
claims for labor, services, materials and supplies) for sums, material in the
aggregate to Borrower, which have become due and payable and which by law have
or may become a Lien other than a judgment lien upon any of Borrower's
properties or assets, prior to the time when any penalty or fine shall be
incurred with respect thereto.
(e) Maintenance of Properties: Insurance. Borrower shall
------------------------------------
maintain in good repair, working order and condition, excepting ordinary wear
and tear, all of its Property and will make or cause to be made all appropriate
repairs, renewals and replacements thereof. Borrower shall maintain commercially
reasonable and appropriate amounts of fire and extended coverage and liability
insurance, and otherwise comply with the insurance requirements set forth in
Exhibit H attached hereto.
- ---------
(f) Inspection of Property: Books and Records: Discussions.
------------------------------------------------------
Borrower shall permit, and shall cause he REIT and each Pledgor Subpartnership
to permit, any authorized representative(s) designated by any Lender to visit
and inspect any of its properties, including all Borrowing Base Properties, to
inspect financial and accounting records and leases, and to make copies and take
extracts therefrom, all at such times during normal business hours and as often
as any Lender may reasonably request. In connection herewith, Borrower shall pay
all expenses of the types described in Section 12.1. Borrower will keep proper
------------
books of record and account in which entries, in conformity with GAAP and as
otherwise required by this Agreement and applicable Requirements of Law, shall
be made of all dealings and transactions in relation to its businesses and
activities and as otherwise required under Section 6.1.
-----------
(g) Maintenance of Permits, Etc. Borrower will maintain in
---------------------------
full force and effect all Permits, franchises, patents, trademarks, trade names,
copyrights, authorizations or other rights necessary for the operation of its
business, except where the failure to obtain any of the foregoing would not have
a Material Adverse Effect on Borrower; and notify Administrative Agent in
writing, promptly after learning thereof, of the suspension, cancellation,
revocation or discontinuance of or of any pending or threatened action or
proceeding seeking to suspend, cancel, revoke or discontinue any material
Permit, patent, trademark, trade name, copyright, governmental approval,
franchise authorization or right.
(h) Required Interest Rate Contracts. To he extent necessary
--------------------------------
to ensure compliance with the provisions of Section 9.8, Borrower shall maintain
-----------
one or more Interest Rate Contracts on terms reasonably acceptable to
Administrative Agent and with any Lender (or other counterparties determined by
Borrower and acceptable to Administrative Agent). Borrower shall determine to
its own satisfaction whether such Interest Rate Contracts are sufficient to
provide protection and to meet its needs, and (notwithstanding any approval, or
failure to approve, by Administrative Agent) neither Administrative Agent nor
any Lender shall have any obligation or accountability with respect thereto or
any obligation to propose, quote or enter into any Interest Rate Contract.
(i) Conduct of Business. Except as described in the REIT 5-11
-------------------
and except for Permitted Investments pursuant to Section 9.7 and Investments in
-----------
cash and Cash
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<PAGE>
Equivalents, Borrower shall engage only in the business of direct ownership,
operation and development of residential rental apartments and the Worldgate
Property and Skyline Mall on Route 7 in Fairfax County, Virginia, and any other
business activities of Borrower will remain incidental thereto.
(j) Use of Proceeds. Borrower shall use the proceeds of the
---------------
Loans only for pre-developments costs, development costs, construction costs,
acquisitions, working capital, equity Investments and repayment of Indebtedness,
including required interest and/or principal payments thereon and payments to
reduce the interest rate of Borrower to The Northwestern Mutual Life Insurance
Company under that certain REIT Private Debt Placement Pool #3 Charles E. Smith
Residential Realty L.P. (RELP) Term Sheet dated February 28, 1994 (attached
hereto as Exhibit L) pursuant to the Interest Rate Buy Down section thereof.
Loan proceeds shall not be used for the payment of dividends or other
distributions to, or the repurchase of shares or limited partnership interests
from, the holder of any equity interest in Borrower or the REIT. Use of proceeds
for other than acquisition of Properties used predominantly for residential
apartments for rent shall not exceed Fifty Million Dollars ($50,000,000.00) at
any one time.
7.2 With Respect to Pledgor Subpartnerships.
---------------------------------------
(a) Existence. Borrower will cause each Pledgor Subpartnership
---------
at all times to maintain its existence as a partnership and preserve and keep in
full force and effect its rights and franchises unless the failure to maintain
such rights and franchises would not have a Material Adverse Effect on such
Pledgor Subpartnership. Borrower will cause each Pledgor Subpartnership to be
owned and continue to be owned, directly or indirectly, only by Borrower and the
REIT, as hereinabove more specifically referred to.
(b) Qualification, Name. Borrower will cause each Pledgor
-------------------
Subpartnership to qualify and remain qualified to do business in each
jurisdiction in which the nature of its business requires it to be so qualified
except for hose jurisdictions where failure to so qualify does not have a
Material Adverse Effect on such Pledgor Subpartnership. Borrower will cause each
Pledgor Subpartnership to transact business solely in its own name or in the
commonly known name of the Borrowing Base Property it owns.
(c) Compliance With Laws, Etc. Borrower will cause each
-------------------------
Pledgor Subpartnership to (i) comply with all Requirements of Law, and all
restrictive covenants affecting such Pledgor Subpartnership or the properties,
performance, prospects, assets or operations of such Pledgor Subpartnership, and
(ii) obtain as needed all Permits necessary for its operations and maintain such
in good standing, except in each of the foregoing cases where the failure to do
so will not have a Material Adverse Effect on such Pledgor Subpartnership.
(d) Payment of Taxes and Claims. Borrower will cause each
---------------------------
Pledgor Subpartnership to pay (i) all taxes, assessments and other governmental
charges imposed upon it or on any of its properties or assets or in respect of
any of its franchises, business, income or property before any penalty or
interest accrues thereon, the failure to make
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<PAGE>
payment of which will have a Material Adverse Effect on such Pledgor
Subpartnership, and (ii) all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums, material in the aggregate to
such Pledgor Subpartnership, which have become due and payable and which by law
have or may become a Lien other than a judgment lien upon any of such Pledgor
Subpartnership's properties or assets, prior to the time when any penalty or
fine shall be incurred with respect thereto.
(e) Material Contracts. Borrower will cause each Pledgor
------------------
Subpartnership to perform all of its obligations under its leases and agreements
except where the failure to perform such obligations will not have a Material
Adverse Effect on such Pledgor Subpartnership.
(f) Maintenance of Permits. Etc. Borrower will cause each
---------------------------
Pledgor Subpartnership to maintain in full force and effect all Permits,
franchises, patents, trademarks, trade names, copyrights, authorizations or
other rights necessary for the operation of its business, except where the
failure to obtain any of the foregoing will not have a Material Adverse Effect
on such Pledgor Subpartnership; and Borrower shall notify Administrative Agent
in writing, promptly after learning thereof, of the suspension, cancellation,
revocation or discontinuance of or of any pending or threatened action or
proceeding seeking to suspend, cancel, revoke or discontinue any material
Permit, patent, trademark, trade name, copyright, governmental approval,
franchise authorization or right.
(g) Conduct of Business. Each Pledgor Subpartnership shall
-------------------
continue to be a single purpose, single asset partnership with its sole business
being owning, operating and developing the Borrowing Base Property owned by it.
7.3 With Respect to the REIT.
------------------------
(a) Corporate Existence. The REIT shall at all times maintain
-------------------
its corporate existence and preserve and keep in full force and effect its
rights and franchises unless the failure to maintain such rights and franchises
will not have a Material Adverse Effect on the REIT.
(b) Qualification,Name. The REIT shall qualify and
-------------------
remain qualified to do business in each jurisdiction in which the nature of its
business requires it to be so qualified except for those jurisdictions where
failure to so qualify does not have a Material Adverse Effect on the REIT. The
REIT will transact business solely in its own name.
(c) Securities Law Compliance. The REIT shall comply in
-------------------------
all material respects with all rules and regulations of the Commission and
file all reports required by the Commission relating to the REIT's publicly held
Securities.
(d) Continued Status as a REIT;Prohibited Transactions.
---------------------------------------------------
The REIT (i) will continue to be a real estate investment trust as defined in
Section 856 of the Internal Revenue Code (or any successor provision thereto),
(ii) will not revoke its election to be a real estate investment trust, (iii)
will not engage in any "prohibited transactions" as defined
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<PAGE>
in Section 856(b)(6)(iii) of the Internal Revenue Code (or any successor
provision thereto), and (iv) will continue to be entitled to a dividend paid
deduction meeting the requirements of Section 857 of the Internal Revenue Code.
(e) NYSE Listed Company. The common stock of the REIT
-------------------
shall at all times be listed for trading and be traded on the New York Stock
Exchange.
(f) Compliance With Laws. Etc. The REIT shall (i) comply
-------------------------
with all Requirements of Law and restrictive covenants affecting the REIT and
(ii) obtain as needed all Permits necessary for its operations and maintain
such in good standing, except in each of the foregoing cases where the failure
to do so will not have a Material Adverse Effect on the REIT.
(g) Payment of Taxes and Claims. The REIT shall pay (i) all
---------------------------
taxes, assessments and other governmental charges imposed upon it or on any of
its properties or assets or in respect of any of its franchises, business,
income or property before any penalty or interest accrues thereon, the failure
to make payment of which will have a Material Adverse Effect on the REIT, and
(ii) all claims (including, without limitation, claims for labor, services,
materials and supplies) for sums, material in the aggregate to the REIT, which
have become due and payable and which by law have or may become a Lien other
than a judgment lien upon any of the REIT's properties or assets, prior to the
time when any penalty or fine shall be incurred with respect hereto.
(h) Offering and Debt Proceeds. The REIT shall concurrently
--------------------------
contribute to the Borrower as additional capital all Net Offering Proceeds and
all REIT Debt Proceeds received by the REIT upon receipt thereof by the REIT.
8. NEGATIVE COVENANTS
Borrower covenants and agrees hat, on and after the date hereof, until
payment in full of all of the Obligations, the expiration of the Commitments and
termination of this Agreement:
8.1 With Respect to All Parties.
---------------------------
Neither Borrower, the REIT nor any Pledgor Subpartnership shall:
(a) Liens. Directly or indirectly create, incur, assume or
-----
permit to exist any Lien on or with respect to any Collateral or any non-real
estate Property, except (i) Liens in favor of Administrative Agent securing the
Obligations and (ii) Permitted Liens.
(b) Transfers of Collateral. Transfer, directly or
-----------------------
indirectly, all or any interest in any Borrowing Base Property or other
Collateral.
(c) Restrictions on Fundamental Changes.
-----------------------------------
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<PAGE>
(i) Enter into any merger or consolidation or
liquidate, wind-up or dissolve (or suffer any liquidation or dissolution);
(ii) Change its Fiscal Year;
(iii) Except for Permitted Investments, engage in any
line of business other than as expressly permitted under Section 7.1(i); or
--------------
(iv) Create or acquire any Subsidiary not referred
to in the REIT S-11.
(d) ERISA. Permit any ERISA Affiliates to do any of the
-----
following to the extent that such act or failure to act would result in the
aggregate, after taking into account any other such acts or failure to act, in a
Material Adverse Effect on Borrower or the REIT:
(i) Engage, or knowingly permit an ERISA Affiliate
to engage, in any prohibited transaction described in Section 406 of ERISA or
Section 4975 of the Internal Revenue Code which is not exempt under Section 407
or 408 of ERISA or Section 4975(d) of the Internal Revenue Code for which a
class exemption is not available or a private exemption has not been previously
obtained from the DOL;
(ii) Permit to exist any accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the Internal
Revenue Code), whether or not waived;
(iii) Fail, or permit an ERISA Affiliate to fail, to
pay timely required contributions or annual installments due with respect to
any waived funding deficiency to any Plan if such failure could result in the
imposition of a Lien or otherwise would have a Material Adverse Effect on
Borrower or the REIT;
(iv) Terminate, or permit an ERISA Affiliate to
terminate, any Benefit Plan which would result in any liability of Borrower or
an ERISA Affiliate under Title IV of ERISA or the REIT; or
(v) Fail, or permit any ERISA Affiliate to fail,
to pay any required installment under Section (m) of Section 412 of the
Internal Revenue Code or any other payment required under Section 412 of the
Internal Revenue Code on or before the due date for such installment or other
payment, if such failure could result in the imposition of a Lien or otherwise
would have a Material Adverse Effect on Borrower or the REIT.
8.2 Amendment of Constituent Documents.
----------------------------------
Neither Borrower nor any Pledgor Subpartnership shall amend its or any
Pledgor Subpartnership's partnership agreement or certificate of limited
partnership (including, without limitation, as to the admission of any new
partner, directly or indirectly), and the REIT shall not amend its articles of
incorporation or by-laws, except upon at least ten (10)
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<PAGE>
Business Days' prior written notice directly or indirectly to the Administrative
Agent and then, if the Administrative Agent notifies Borrower that such
amendment is, in the Administrative Agent's reasonable judgment, a material
amendment, only with the prior written consent of the Requisite Lenders.
8.3 Disposal of Pledgor Subpartnership Interests.
--------------------------------------------
Neither Borrower nor the REIT will directly or indirectly convey, sell,
transfer, assign, pledge or otherwise encumber or dispose of any of its
partnership interests in any Pledgor Subpartnership at any time when there
exists a Mortgage on Property owned by such Pledgor Subpartnership.
8.4 Margin Regulations.
------------------
No portion of the proceeds of any Loans shall be used in any manner
which might cause the extension of credit or the application of such proceeds to
violate Regulation G, U or X or any other regulation of the Federal Reserve
Board or to violate the Securities Exchange Act or the Securities Act, in each
case as in effect on the applicable Funding Date.
8.5 Minimum Ownership Interests.
---------------------------
The aggregate ownership interests of Robert H. Smith, Robert P. Kogod
and their immediate families (including within such term their respective wives
and natural and presently adopted children) in the REIT and Borrower directly
and indirectly (including through corporations owned by them) shall not be
reduced below ten percent (10%) of the common equity interests, on a combined
basis, in the REIT and Borrower, provided that said ten percent (10%) minimum
--------
shall be adjusted from time to time to reflect the dilution of such ownership
interests as a result of transactions after the Effective Date involving the
receipt of Net Offering Proceeds.
8.6 [Intentionally Deleted.]
---------------------
8.7 Organization of Borrower. Etc.
-----------------------------
Borrower shall remain a Delaware limited partnership with the REIT as
its sole general partner. At no time shall Borrower be taxed as an association
under the Internal Revenue Code.
8.8 With Respect to Each Pledgor Subpartnership.
-------------------------------------------
(a) No Pledgor Subpartnership shall directly or indirectly
create, incur, assume or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness, except Indebtedness secured by
Permitted Liens, the Obligations and trade debt incurred in the ordinary course
of business.
-65-
<PAGE>
(b) No Pledgor Subpartnership shall directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to any of
its Property or assets (including all Collateral), except (i) Liens in favor of
Administrative Agent securing the Obligations and (ii) Permitted Liens.
(c) No Pledgor Subpartnership shall engage in any line of
business other than owning and operating its Borrowing Base Property.
(d) There shall be no change in the ownership interests of any
Pledgor Subpartnership.
8.9 With Respect to the REIT.
------------------------
(a) The REIT shall not own any material assets or engage in
any line of business other than owning partnership interests in Borrower and
Pledgor Subpartnerships and those assets described in the REIT 6-11.
(b) The REIT shall not directly or indirectly create, incur,
assume or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, except the Obligations and other Borrower Debt.
(c) The REIT shall not directly or indirectly create, incur,
assume or permit to exist any Lien on or with respect to any of its Property or
assets except Liens in favor of Administrative Agent securing the Obligations.
(d) The REIT shall at no time (i) cease to be a listed company
on the New York Stock Exchange, or, (ii) cease to be a qualified real estate
investment trust in the manner referred to in Section 5.3(m).
--------------
(e) The REIT will not directly or indirectly convey, sell,
transfer, assign, pledge or otherwise encumber or dispose of any of its
partnership interests in Borrower or any Pledgor Subpartnerships, except to
secure the Obligations.
9. FINANCIAL COVENANTS
-------------------
Borrower covenants and agrees that, on and after the date of this
Agreement and until payment in full of all the Obligations, the expiration of
all Commitments and the termination of this Agreement:
9.1 [Intentionally Deleted].
---------------------
9.2 Implied Market Equity.
---------------------
Borrower Implied Market Equity shall not be less than Five Hundred
Fifty Million Dollars ($550,000,000) plus seventy-five percent (75%) of Net
----
Offering Proceeds received
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<PAGE>
by Borrower after the Effective Date and other than from the REIT's offering as
described in the REIT 5-11.
9.3 Borrower Debt to Market Value Ratio.
-----------------------------------
The ratio of Borrower Debt to Market Value shall not exceed sixty
percent (60%).
9.4 EBITDA to Interest Expense Ratio.
--------------------------------
The ratio of EBITDA to Interest Expense shall not be less than 2.0:1.
9.5 EBITDA to Debt Service and Capital Expenditures Ratio.
-----------------------------------------------------
The ratio of EBITDA to the sum of Debt Service and Capital Expenditures
shall not be less than 1.75:1.
9.6 Distributions.
-------------
(a) Subject to Section 9.6(b), aggregate distributions to
--------------
shareholders of the REIT and all limited partners of Borrower) shall not exceed
ninety-five percent (95%) (the "Distribution Limitation") of Cash Available for
Distribution for the four (4) consecutive Fiscal Quarters ending (i) on June 30,
1995 and (ii) on the last day of each Fiscal Quarter thereafter, provided,
--------
however, that Borrower may in any Fiscal Quarter distribute up to one hundred
percent (100%) of Cash Available for Distribution provided that it first shall
--------
have received the prior written approval of Administrative Agent to do so, which
approval shall be given if Borrower shall establish to Administrative Agent
satisfaction based on reasonable projections supplied by Borrower that Borrower
will not distribute in the aggregate for the Fiscal Quarter in respect of which
the excess distribution is sought to be made and in respect of the next
succeeding three (3) Fiscal Quarters, not more than ninety-five percent (95%) of
Cash Available for Distribution, and (iii) for Fiscal Quarters ending after June
30, 1995, the Borrower may make one (1) quarterly distribution in excess of the
Distribution Limitation in each twelve (12) month period, provided that the
--------
aggregate of all distributions in such twelve (12) month period does not exceed
the Distribution Limitation.
For purposes of this Section 9.6, the term "distributions" shall mean
-----------
and include all dividends and other distributions to, and the repurchase of
stock or limited partnership interests from, the holder of any equity interests
in Borrower or the REIT.
(b) Aggregate distributions during the continuance of any
Event of Default shall not exceed the lesser of (i) the aggregate amount
permitted to be made during the continuance hereof under Section 9.6(a), and
--------------
(ii) with respect to the REIT, that portion of the REIT's share of the taxable
income reportable by the Borrower which is the minimum amount that the REIT must
distribute to its shareholders in order to remain qualified as a real estate
investment trust as defined in Section 856 of the Internal Revenue Code (or any
successor provision hereto); provided that the parties hereto expressly
--------
acknowledge that this Section 9.6(b) shall in no event limit or restrict in any
--------------
way any of Administrative Agent's or
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<PAGE>
any Lender's rights, remedies or recourse under this Agreement or any other Loan
Document.
9.7 Permitted Investments.
---------------------
Notwithstanding the limitations set forth in Section 7.1(i), Borrower
--------------
may make the following Permitted Investments, so long as (a) the aggregate
amount of all Permitted Investments does not exceed, at any time, One Hundred
Million Dollars ($100,000,000) and (b) the aggregate amount of each of the
following categories of Permitted Investments does not exceed the following
amounts, in each case as of the date made:
<TABLE>
<CAPTION>
Permitted Investments Maximum Amount
--------------------- --------------
<S> <C>
Land: $50,000,000, which as of the Effective Date
will be $0.
Non-Apartment Properties: $50,000,000, excluding the Worldgate Property
and the Skyline Property (which as of the
Effective Date will be $0).
Securities: $50,000,000, exclusive of those shown on Page 8
of the REIT 5-11, which, as of the Effective
Date, will be $0.
Investment Mortgages: $50,000,000, not including liens securing
indebtedness owned by one Affiliate of
Borrower to another Affiliate of Borrower
which as of the Effective Date will be $0.
Mortgages/Seller
Financing: No more than $50,000,000, not including
mortgages on multifamily properties in amounts
not exceeding the value of such property at
the time of the making thereof, which, as of
the Effective Date, will be $0.
</TABLE>
For purposes of his Section 9.7, investments in partnerships, joint
-----------
ventures and other non-public entities will be treated as investments in the
assets owned by such partnership, joint venture and other entities in proportion
to Borrower's ownership interest herein, provided that Borrower owns in excess
--------
of fifty percent (50%) of any such partnership, joint venture or other entity.
9.8 Excess Floating Rate Debt.
-------------------------
Borrower shall at no time incur or maintain Excess Floating Rate Debt
unless (a) its Borrower Implied Market Equity is no less than (i) the sum of
Five Hundred Fifty Million
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<PAGE>
Dollars ($550,000,000) and (ii) seventy-five percent (75%) of Net Offering
Proceeds after the Effective Date and other than from the REIT IPO as described
in the REIT S-11 and (b) it obtains and maintains Interest Rate Contracts
sufficient to effectively establish a maximum aggregate annual interest rate
(including any reserve or cost adjustments) of no more than nine percent (9%)
per annum for such Excess Floating Rate Debt, through the Termination Date or
earlier maturity of such Debt.
9.9 Excess Debt.
-----------
Until such time as the Borrower makes the Unsecured Election, Borrower
shall at no time incur or maintain recourse debt or Unsecured Debt, guaranties
or lines of credit other than the Facility from any source whatsoever (other
than from trade accounts payable and the FNMA Pool Financing, provided that he
FNMA Pool Financing shall not exceed the lesser of Seventy-Five Million Dollars
($75,000,000) or fifty-five percent (55%) of the FNMA Pool Value) aggregating in
excess of One Hundred Fifty Million Dollars ($150,000,000); provided, further,
-------- -------
with respect to any lines of credit for acquisition purposes (but not
construction or other purposes), only the amount of the debt outstanding at any
time, and not the aggregate commitment, shall be used to calculate the aggregate
debt under this Section 9.9.
-----------
9.10 Properties under Development
----------------------------
The Borrower shall not permit the aggregate Budgeted Project Costs of
Properties under Development at any time to exceed One Hundred Sixty-Five
Million Dollars ($165,000,000).
9.11 Maximum Leverage on Unencumbered Assets.
---------------------------------------
At any time following the Unsecured Election, Unsecured Debt shall not
exceed fifty percent (50%) of Unencumbered Market Value.
9.12 Minimum Cash Flow Coverage on Unencumbered Assets.
-------------------------------------------------
At any time following the Unsecured Election, the ratio of Unencumbered
EBITDA to Fixed Charges and Capital Expenditures shall be not less than 2 to 1.
9.13 Secured Debt.
------------
At any time following the Unsecured Election, Secured Debt shall be
Non-Recourse Indebtedness and the ratio of Secured Debt to Market Value shall
not exceed thirty percent (30%).
9.14 Calculation.
-----------
Each of the foregoing ratios and financial requirements shall be
calculated as of the last day of each Fiscal Quarter, but, except as provided in
Sections 9.9, 9.11 9.12, and 9.13
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<PAGE>
shall be satisfied at all times. For purposes of determining compliance with
Sections 9.4, 9.5, and 9.12, the period covered thereby shall be the immediately
- ------------ ---
preceding four (4) Fiscal Quarters or, if shorter, the period commencing July 1,
1994.
10. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
--------------------------------------
10.1 Events of Default.
-----------------
Each of the following occurrences shall constitute an Event of Default
under this Agreement:
(a) Failure to Make Payments When Due. Borrower shall fail to
---------------------------------
pay (i) any amount due on the Termination Date, (ii) any principal when due, or
(iii) any interest on any Loan, or any fee or other amount payable under any
Loan Documents, within fifteen (15) days after the same becomes due.
(b) Distributions. Borrower or the REIT shall breach any
-------------
covenant set forth in Sections 7.3(d) or 9.6.
--------------- ---
(c) Breach of Financial Covenants. Borrower shall fail to
-----------------------------
satisfy any financial covenant set forth in Article 9 (other than the
---------
requirement in Section 9.6) and such failure shall continue for sixty (60) days.
-----------
(d) Other Defaults. Borrower, the REIT or any Pledgor
--------------
Subpartnership shall fail duly and punctually to perform or observe any
agreement, covenant or obligation binding on Borrower, the REIT or any Pledgor
Subpartnership under this Agreement or under any of the other Loan Documents
(other than as described in any other provision of his Section 10.1), and with
------------
respect to agreements, covenants or obligations for which no time period for
performance is otherwise provided, such failure shall continue for fifteen (15)
--------
days after Borrower, the REIT or any Pledgor Subpartnership knew of such failure
(or such lesser period of time as is mandated by applicable Requirements of
Law); provided, however, if such failure is not capable of cure within such
--------
fifteen (15) day period, then if Borrower promptly undertakes action to cure
such failure and thereafter diligently prosecutes such cure to completion within
forty-five (45) days after Borrower, the REIT or any Pledgor Subpartnership knew
of such failure, then Borrower shall not be in default hereunder.
(e) Breach of Representation or Warranty. Any representation
------------------------------------
or warranty made or deemed made by Borrower, the REIT or any Pledgor
Subpartnership to Administrative Agent or any Lender herein or in any of he
other Loan Documents or in any statement, certificate or financial statements at
any time given by Borrower pursuant to any of the Loan Documents shall be false
or misleading in any material respect on the date as of which made.
(f) Default as to Other Indebtedness. (i) Borrower, the REIT, any Pledgor
--------------------------------
Subpartnership or any Majority Partnership shall have defaulted (beyond any
applicable grace period) under any Indebtedness of such party other than the
Obligations if the aggregate
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<PAGE>
amount of such other Indebtedness is One Hundred Thousand Dollars ($100,000) or
more; or (ii) the holder(s) of any Lien, in any amount, commence foreclosure of
such Lien upon any Property having an aggregate value in excess of Five Hundred
Thousand Dollars ($500,000).
(g) Involuntary Bankruptcy; Appointment of Receiver, Etc.
-----------------------------------------------------
(i) An involuntary case shall be commenced against the REIT,
Borrower, any Pledgor Subpartnership or any Majority Partnership and the
petition shall not be dismissed within sixty (60) days after commencement of the
case, or a court having jurisdiction shall enter a decree or order for relief in
respect of any such Person in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereinafter in effect; or any
other similar relief shall be granted under any applicable federal, state or
foreign law; or
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over the REIT, Borrower, any
Pledgor Subpartnership or any Majority Partnership, or over all or a substantial
part of the property of any such Person, shall be entered; or an interim
receiver, trustee or other custodian of any such Person or of all or a
substantial part of the property of any such Person shall be appointed or a
warrant of attachment, execution or similar process against any substantial part
of the property of any such Person shall be issued and any such event shall not
be stayed, vacated, dismissed, bonded or discharged within sixty (60) days of
entry, appointment or issuance.
(h) Voluntary Bankruptcy; Appointment of Receiver, Etc. The REIT,
---------------------------------------------------
Borrower, any Pledgor Subpartnership or any Majority Partnership shall have an
order for relief entered with respect to it or commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking of possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; any such Person shall make any assignment for the benefit of creditors
or shall be unable or fail, or admit in writing its inability, to pay its debts
as such debts become due; or the general partner of Borrower, any Pledgor
Subpartnership or any Majority Partnership or the REIT's Board of Directors (or
any committee thereof) adopts any resolution or otherwise authorizes any action
to approve any of the foregoing.
(i) Judgments and Attachments. (i) Any money judgment (other
-------------------------
than a money judgment covered by insurance but only if the insurer has admitted
liability with respect to such money judgment), writ or warrant of attachment,
or similar process involving in any case an amount in excess of One Hundred
Thousand Dollars ($100,000) shall be entered or filed against the REIT,
Borrower, any Pledgor Subpartnership or any Majority Partnership or their
respective assets and shall remain undischarged, unvacated, unbonded or unstayed
for a period of thirty (30) days, or (ii) any judgment or order of any court or
administrative agency awarding material damages shall be entered against any
such Person in any action under the Federal securities laws seeking rescission
of the purchase or sale of, or
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<PAGE>
for damages arising from the purchase or sale of, any Securities, such judgment
or order shall have become final after exhaustion of all available appellate
remedies and, in Administrative Agent's judgment, the payment of such judgment
or order would have a Material Adverse Effect on such Person.
(j) Dissolution. Any order, judgment or decree shall be
-----------
entered against the REIT, Borrower, any Pledgor Subpartnership or any Majority
Partnership decreeing its involuntary dissolution or split up and such order
shall remain undischarged and unstayed for a period in excess of thirty (30)
days; or the REIT, Borrower or any Pledgor Subpartnership shall otherwise
dissolve or cease to exist.
(k) Loan Documents; Failure of Security or Subordination.
----------------------------------------------------
Except as provided in Section 3.2, if for any reason any Loan Document shall
-------- -----------
cease to be in full force and effect or any Lien intended to be created thereby
shall cease to be or is not valid or perfected; or any Lien in favor of
Administrative Agent contemplated by his Agreement or any Loan Document shall,
at any time, be invalidated or otherwise cease to be in full force and effect;
or any such Lien or any Obligation shall be subordinated or shall not have the
priority contemplated by this Agreement or the Loan Documents for any reason,
and, in the case of any of the foregoing, such condition or event shall continue
for fifteen (15) days after Borrower, the REIT or any Pledgor Subpartnership
knew of such condition or event.
(I) ERISA Liabilities. Any Termination Event occurs which will
-----------------
or is reasonably likely to subject Borrower, the REIT or any Pledgor
Subpartnership or any ERISA Affiliate of any of them to a liability which
Administrative Agent reasonably determines will have a Material Adverse Effect
on Borrower, the REIT or any Pledgor Subpartnership, or the plan administrator
of any Benefit Plan applies for approval under Section 412(d) of the Internal
Revenue Code for a waiver of the minimum funding standards of Section 412(a) of
he Internal Revenue Code and Administrative Agent reasonably determines that the
business hardship upon which the Section 412(d) waiver was based will or would
reasonably be anticipated to subject Borrower, the REIT or any Pledgor
Subpartnership to a liability which Administrative Agent determines will have a
Material Adverse Effect on Borrower, the REIT or any Pledgor Subpartnership.
(m) Environmental Liabilities. Borrower, the REIT or any
-------------------------
Pledgor Subpartnership becomes subject to any Liabilities and Costs which
Administrative Agent reasonably deems to have a Material Adverse Effect on such
Person arising out of or related to (i) the Release or threatened Release at any
Property of any Contaminant into the environment, or any Remedial Action in
response thereto, or (ii) otherwise any violation of any Environmental Laws.
(n) Solvency. Borrower, any Pledgor Subpartnership or the
--------
REIT shall cease to be Solvent.
(o) Breach of Mortgage Document. Any Pledgor Subpartnership
---------------------------
shall fail to duly and punctually perform or observe any agreement, covenant or
obligation under any Mortgage Document.
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<PAGE>
(p) An Event of Default shall be deemed "continuing" until
cured or waived in writing in accordance with Section 12.4.
------------
10.2 Rights and Remedies.
-------------------
(a) Acceleration, Etc. Upon the occurrence of any Event of
-----------------
Default described in the foregoing Section 10.1(g) or 10.1(h) with respect to
--------------- -------
the REIT, Borrower or any Pledgor Subpartnership, the Commitments shall
automatically and immediately terminate and the unpaid principal amount of and
any and all accrued interest on the Loans shall automatically become immediately
due and payable, with all additional interest from time to time accrued thereon
and without presentment, demand or protest or other requirements of any kind
(including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate or notice of
acceleration), all of which are hereby expressly waived by Borrower, and he
obligations of Lenders to make any Loans hereunder shall hereupon terminate; and
upon the occurrence and during the continuance of any other Event of Default,
Administrative Agent shall, at the request, or may, with the consent of
Requisite Lenders, by written notice to Borrower, (i) declare that the
Commitments are terminated, whereupon the Commitments and the obligation of
Lenders to make any Loan hereunder shall immediately terminate, and/or (ii)
declare the unpaid principal amount of, any and all accrued and unpaid interest
on the Loans and all of the other Obligations to be, and the same shall
thereupon be, immediately due and payable with all additional interest from time
to time accrued thereon and without presentment, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and of acceleration), all of which are hereby expressly waived by Borrower.
Without limiting Administrative Agent's authority hereunder, on or after the
Termination Date, Administrative Agent shall, at the request, or may, with the
consent, of Requisite Lenders exercise any or all rights and remedies under he
Loan Documents or applicable law, including, without limitation, foreclosure
upon all or any part of the Collateral.
(b) Access to Information. If an Event of Default then exists,
---------------------
the Administrative Agent shall have, in addition to and not by way of a
limitation of any other rights and remedies contained in this Agreement or in
the other Loan Documents, the right within forty-eight (48) hours after notice
to Borrower to obtain access to Borrower's, the REIT's and each Pledgor
Subpartnership's records (including computerized information, files and
supporting software) relating to the Borrowing Base Properties and the other
Collateral, and its accounting information relating to the Borrowing Base
Properties and the other Collateral, and to use all of the foregoing and the
information contained therein in any manner the Administrative Agent deems
appropriate which is related to the preservation or disposition of the Borrowing
Base Properties and the other Collateral or to the collection of the
Obligations. Borrower hereby authorizes any accountant or management agent
employed by Borrower or any Pledgor Subpartnership to deliver such items and
information to the Administrative Agent. Notwithstanding anything to the
contrary contained in the Loan Documents, upon the occurrence of and during the
continuance of an Event of Default, the Administrative Agent shall be entitled
to request and receive, by or through Borrower or appropriate legal process, any
and all information concerning the REIT, Borrower, any
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Pledgor Subpartnership or any property of any of them, which is reasonably
available to or obtainable by Borrower.
(c) Use of Intangibles. To the extent Borrower has the power,
------------------
without violating the terms of any agreement existing as of the Closing Date, to
grant such a license, Administrative Agent (on behalf of all Lenders) is hereby
granted a license or other right to use, without charge, Borrower's and each
Pledgor Subpartnership's copyrights, rights of use of any name, trade secrets,
trade names, tradestyles, trademarks, service marks and advertising matter, or
any property of a similar nature, as it pertains to the Collateral.
(d) Waiver of Demand. Demand, presentment, protest and notice
----------------
of nonpayment are hereby waived by Borrower. Borrower also waives, to the extent
permitted by law, the benefit of all valuation, appraisal and exemption laws.
(e) Waivers, Amendments and Remedies. No delay or omission of
--------------------------------
Administrative Agent or Lenders to exercise any right under any Loan Document
shall impair such right or be construed to be a waiver of any Event of Default
or an acquiescence therein, and any single or partial exercise of any such right
shall not preclude other or further exercise thereof or the exercise of any
other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in a writing signed by Administrative Agent after obtaining written approval
thereof or the signature thereon of those Lenders required to approve such
waiver, amendment or other variation, and then only to the extent in such
writing specifically set forth. All remedies contained in the Loan Documents or
by law afforded shall be cumulative and all shall be available to Administrative
Agent and Lenders until the Obligations have been paid in full, the Commitments
have expired or terminated and this Agreement has been terminated.
10.3 Rescission.
----------
If at any time after acceleration of the maturity of the Loans,
Borrower shall pay all arrears of interest and all payments on account of
principal of the Loans which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified in this Agreement) and all Events of
Default and Unmatured Events of Default (other than nonpayment of principal of
and accrued interest on the Loans due and payable solely by virtue of
acceleration) shall be remedied or waived pursuant to Section 12.4, then by
------------
written notice to Borrower, Requisite Lenders may elect, in their sole
discretion, to rescind and annul the acceleration and its consequences; but such
action shall not affect any subsequent Event of Default or Unmatured Event of
Default or impair any right or remedy consequent thereon. The provisions of the
preceding sentence are intended merely to bind Lenders to a decision which may
be made at the election of Requisite Lenders; they are not intended to benefit
Borrower and do not give Borrower the right to require Lenders to rescind or
annul any acceleration hereunder, even if the conditions set forth herein are
met.
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11. AGENCY PROVISIONS
-----------------
11.1 Appointment.
-----------
(a) Each Lender hereby (i) designates and appoints the
Administrative Agent as agent of such Lender as set forth in this Agreement and
designates and appoints the Administrative Agent as its agent under the Loan
Documents, (ii) authorizes and directs the Administrative Agent to enter into
the Loan Documents other than this Agreement for the benefit of Lenders, and
(iii) authorizes the Administrative Agent to take such action on its behalf
under the provisions of this Agreement and the Loan Documents and to exercise
such powers as are set forth herein or therein, together with such other powers
as are reasonably incidental thereto, subject to the limitations referred to in
Sections 11.10(a) and 11.10(b). Administrative Agent agrees to act as such agent
- ----------------- --------
on the express conditions contained in this Article 11.
----------
(b) The provisions of this Article 11 are solely for the
----------
benefit of Administrative Agent and Lenders, and Borrower shall not have any
rights to rely on or enforce any of the provisions hereof (other than as
expressly set forth in Sections 11.3, 11.9 and 11.13, provided, however, that
------------- ---- ----- -------- -------
the foregoing shall in no way limit Borrower's obligations under this Article
-------
11. In performing its functions and duties under this Agreement, the
- --
Administrative Agent shall act solely as Administrative Agent and Administrative
Agent does not assume and shall not be deemed to have assumed any obligation
toward or relationship of agency or trust with or for Borrower or any other
Person.
11.2 Nature of Duties.
----------------
Administrative Agent shall not have any duties or responsibilities
except those expressly set forth in this Agreement or in the Loan Documents. The
duties of Administrative Agent shall be administrative in nature. Subject to the
provisions of Sections 11.5 and 11.7, Administrative Agent shall administer the
------------- ----
Loans in the same manner as it administers its own loans. Promptly following the
effectiveness of this Agreement, Administrative Agent shall send to each Lender
its originally executed Note and the executed original, to the extent the same
are available in sufficient numbers, of each other document set forth on the
Lender Index (Exhibit N). Recorded security documents or instruments shall be
held and retained by the Administrative Agent for the benefit of all Lenders.
Administrative Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender. Nothing in this Agreement or any of the
Loan Documents, expressed or implied, is intended or shall be construed to
impose upon the Administrative Agent any obligation in respect of this Agreement
or any of the Loan Documents except as expressly set forth herein or therein.
Each Lender shall make its own independent investigation of the financial
condition and affairs of the REIT, Borrower, each Pledgor Subpartnership and
each Borrowing Base Property in connection with the making and the continuance
of the Loans hereunder and shall make its own appraisal of the credit worthiness
of the REIT, Borrower, each Pledgor Subpartnership and each Borrowing Base
Property, and, except as specifically
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provided herein, the Administrative Agent shall have no duty or responsibility,
- --------
either initially or on a continuing basis, to provide any Lender with any credit
or other information with respect thereto, whether coming into its possession
before the Closing Date or at any time or times thereafter.
11.3 Loan Disbursements.
------------------
(a) Not later than the next Business Day following receipt of
a Notice of Borrowing, the Administrative Agent shall send a copy thereof by
facsimile to each other Lender and shall otherwise notify each Lender of the
proposed Borrowing and the Funding Date. Each Lender shall make available to the
Administrative Agent the amount of such Lender's Pro Rata Share of such
Borrowing in immediately available funds not later than the times designated in
Section 11.3(b). Unless the Administrative Agent shall have been notified by any
- ---------------
Lender prior to such time for funding in respect of any Borrowing that such
Lender does not intend to make available to the Administrative Agent such
Lender's Pro Rata Share of such Borrowing, the Administrative Agent may assume
that such Lender has made such amount available to the Administrative Agent. In
any case where a Lender (a "Non-Funding Lender") does not for any reason make
available to the Administrative Agent such Non-Funding Lender's Pro Rata Share
of such Borrowing, the other Lenders ("Funding Lenders") in their sole
discretion may, but shall not be obligated to, fund to Borrower such Non-Funding
Lender's Pro Rata Share of such Borrowing. If the amount so funded by Funding
Lender is not in fact made available to Funding Lenders by the Non-Funding
Lender, then Borrower agrees to repay to Funding Lenders within five (5)
Business Days after demand by the Administrative Agent such amount, together
with interest thereon at the Variable Rate for each day from the date such
amount is made available to Borrower until the date such amount is repaid to
Funding Lenders. In addition, such Non-Funding Lender agrees to pay to Funding
Lenders forthwith on demand such corresponding amount, together with interest
thereon at the Federal Funds Rate. If Non-Funding Lender shall pay to the
Administrative Agent such corresponding amount, such amount so paid shall
constitute such Non-Funding Lender's Pro Rata Share of such Borrowing, and if
both such Non-Funding Lender and Borrower shall have paid and repaid,
respectively, such corresponding amount, the Administrative Agent shall promptly
return to Borrower such corresponding amount in same day funds; interest paid by
Borrower in respect of such corresponding amount shall be prorated, as of the
date of payment thereof by such Non-Funding Lender to Funding Lenders. Nothing
in this Section 11.3 shall alter the respective rights and obligations of the
------------
parties hereunder in respect of a Defaulting Lender or a Non-Pro Rata Loan.
(b) Requests by the Administrative Agent for funding by
Lenders of Loans will be made by telecopy. Each Lender shall make the amount of
its Loan available to the Administrative Agent in Dollars and in immediately
available funds, to such bank and account, in Pittsburgh, Pennsylvania, as
Administrative Agent may designate, not later than 11:00 a.m. (Eastern Time) on
the Funding Date designated in the Notice of Borrowing with respect to such
Loan, but, except as otherwise set forth in Section 2. 1(b)(i), in no event
------------------
earlier than two (2) Business Days following Lender's receipt of the applicable
Notice of Borrowing.
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(c) Nothing in this Section 11.3 shall be deemed to relieve
------------
any Lender of its obligation hereunder to make its Pro Rata Share of Loans on
any Funding Date, nor shall any Lender be responsible for the failure of any
other Lender to perform its obligations to make any Loan hereunder, and the
Commitment of any Lender shall not be increased or decreased as a result of the
failure by any other Lender to perform its obligation to make a Loan.
11.4 Distribution and Apportionment of Payments.
------------------------------------------
(a) Subject to Section 11.4(b), payments actually received by
---------------
the Administrative Agent for the account of Lenders shall be paid to them
promptly after receipt thereof by the Administrative Agent, but in any event
within two (2) Business Days, provided that the Administrative Agent shall pay
--------
to Lenders interest thereon, at the lesser of (i) Federal Funds Rate and (ii)
the rate of interest applicable to such Loans, from the Business Day following
receipt of such funds by the Administrative Agent until such funds are paid in
immediately available funds to Lenders. Subject to Section 11.4(b), all payments
---------------
of principal and interest in respect of outstanding Loans, all payments of the
fees described in this Agreement, and all payments in respect of any other
Obligations shall be allocated among such of Lenders as are entitled thereto, in
proportion to their respective Pro Rata Shares or otherwise as provided herein.
--------
The Administrative Agent shall promptly distribute, but in any event within two
(2) Business Days, to each Lender at its primary address set forth on the
appropriate signature page hereof or on the Assignment and Assumption, or at
such other address as a Lender may request in writing, such funds as it may be
entitled to receive, provided that the Administrative Agent shall in any event
--------
not be bound to inquire into or determine the validity, scope or priority of any
interest or entitlement of any Lender and may suspend all payments and seek
appropriate relief (including, without limitation, instructions from Requisite
Lenders or all Lenders, as applicable, or an action in the nature of
interpleader) in the event of any doubt or dispute as to any apportionment or
distribution contemplated hereby. The order of priority herein is set forth
solely to determine the rights and priorities of Lenders as among themselves and
may at any time or from time to time be changed by Lenders as they may elect, in
writing in accordance with Section 12.4, without necessity of notice to or
------------
consent of or approval by Borrower or any other Person. All payments or other
sums received by the Administrative Agent for the account of Lenders (including,
without limitation, principal and interest payments, the proceeds of any and all
insurance maintained with respect to any of the Collateral, and any and all
condemnation proceeds with respect to any of the Collateral) shall not
constitute property or assets of the Administrative Agent and shall be held by
the Administrative Agent, solely in their capacity as agent for itself and the
other Lenders, subject to the Loan Documents.
(b) Notwithstanding any provision hereof to the contrary,
until such time as a Defaulting Lender has funded its Pro Rata Loan which was
previously a Non Pro Rata Loan, or all other Lenders have received payment in
full (whether by repayment or prepayment) of the principal and interest due in
respect of such Non Pro Rata Loan, all of the Obligations owing to such
Defaulting Lender hereunder shall be subordinated in right of payment, as
provided in the following sentence, to the prior payment in full of all
- --------
principal, interest and fees in respect of all Non Pro Rata Loans in which the
Defaulting Lender has not
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funded its Pro Rata Share (such principal, interest and fees being referred to
as "Senior Loans"). All amounts paid by Borrower and otherwise due to be applied
to the Obligations owing to the Defaulting Lender pursuant to the terms hereof
shall be distributed by Administrative Agent to the other Lenders in accordance
with their respective Pro Rata Shares (recalculated for purposes hereof to
exclude the Defaulting Lender's Commitment), until all Senior Loans have been
paid in full. This provision governs only the relationship among Administrative
Agent, each Defaulting Lender, and the other Lenders; nothing hereunder shall
limit the obligation of Borrower to repay all Loans in accordance with the terms
of this Agreement. The provisions of this Section 11.4(b) shall apply and be
---------------
effective regardless of whether an Event of Default occurs and is then
continuing, and notwithstanding (i) any other provision of this Agreement to the
contrary, (ii) any instruction of Borrower as to its desired application of
payments or (iii) the suspension of such Defaulting Lender's right to vote on
matters which are subject to the consent or approval of Requisite Lenders or all
Lenders. No Facility Fee or any other fee shall accrue in favor of, or be
payable to, such Defaulting Lender from the date of any failure to fund Loans or
reimburse the Administrative Agent for any Liabilities and Costs as herein
provided until such failure has been cured, and Administrative Agent shall be
- --------
entitled to (A) withhold or set-off, and to apply to the payment of the
defaulted amount and any related interest, any amounts to be paid to such
Defaulting Lender under this Agreement, and (B) bring an action or suit against
such Defaulting Lender in a court of competent jurisdiction to recover the
defaulted amount and any related interest. In addition, the Defaulting Lender
shall indemnify, defend and hold the Administrative Agent and each of the other
Lenders harmless from and against any and all Liabilities and Costs, plus
interest thereon at the Default Rate, which they may sustain or incur by reason
of or as a direct consequence of the Defaulting Lender's failure or refusal to
abide by its obligations under this Agreement.
11.5 Rights, Exculpation, Etc.
------------------------
Neither the Administrative Agent, any Affiliate of the Administrative
Agent, nor any of their respective officers, directors, employees, agents,
attorneys or consultants shall be liable to any Lender for any action taken or
omitted by them hereunder or under any of the Loan Documents, or in connection
herewith or therewith, except that the Administrative Agent shall be liable for
its gross negligence or willful misconduct in the performance of its express
obligations hereunder. In the absence of gross negligence or willful misconduct,
the Administrative Agent shall not be liable for any apportionment or
distribution of payments made by it in good faith pursuant to Section 11.4, and
------------
if any such apportionment or distribution is subsequently determined to have
been made in error, the sole recourse of any Person to whom payment was due, but
not made, shall be to recover from the recipients of such payments any payment
in excess of the amount to which they are determined to have been entitled.
Administrative Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein or for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement, any of the Mortgage Documents or any of the other
Loan Documents, or any of the transactions contemplated hereby and thereby; or
for the financial condition of the REIT, Borrower, any Pledgor Subpartnership or
any of their Affiliates. The Administrative Agent shall not be required to make
any inquiry concerning either the performance or observance of any of the
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terms, provisions or conditions of this Agreement or any of the Loan Documents
or the financial condition of the REIT, Borrower, any Pledgor Subpartnership or
any of their Affiliates, or the existence or possible existence of any Unmatured
Event of Default or Event of Default.
11.6 Reliance.
--------
The Administrative Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents, telecopies or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice of legal counsel (including counsel for
Borrower), independent public accountant and other experts selected by it.
11.7 Indemnification.
---------------
To the extent that the Administrative Agent is not reimbursed and
indemnified by Borrower, Lenders will reimburse, within ten (10) Business Days
after notice from the Administrative Agent, and indemnify and defend the
Administrative Agent for and against any and all Liabilities and Costs which may
be imposed on, incurred by, or asserted against it in any way relating to or
arising out of this Agreement, the Mortgage Documents or any of the other Loan
Documents or any action taken or omitted by the Administrative Agent under this
Agreement, the Mortgage Documents or any of the other Loan Documents, in
proportion to each Lender's Pro Rata Share; provided that no Lender shall be
--------
liable for any portion of such Liabilities and Costs resulting from the
Administrative Agent's gross negligence or willful misconduct. The obligations
of Lenders under this Section 11.7 shall survive the payment in full of all
------------
Obligations and the termination of this Agreement. In the event that after
payment and distribution of any amount by the Administrative Agent to Lenders,
any Lender or third party, including Borrower, any creditor of Borrower or a
trustee in bankruptcy, recovers from the Administrative Agent any amount found
to have been wrongfully paid to the Administrative Agent or disbursed by the
Administrative Agent to Lenders, then Lenders, in proportion to their respective
Pro Rata Shares, shall reimburse the Administrative Agent for all such amounts.
Notwithstanding the foregoing, the Administrative Agent shall not be obligated
to advance Liabilities and Costs and may require the deposit by each Lender of
its Pro Rata Share of any material Liabilities and Costs anticipated by the
Administrative Agent before they are incurred or made payable.
11.8 Administrative Agent Individually.
---------------------------------
With respect to its Pro Rata Share of the Commitments hereunder and the
Loans made by it, the Administrative Agent shall have and may exercise the same
rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Lender. The
terms "Lenders," "Requisite Lenders" or any similar terms may include the
Administrative Agent in its individual capacity as a Lender or one of the
Requisite Lenders, but Requisite Lenders shall not include the Administrative
Agent
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solely in its capacity as Administrative Agent and need not necessarily include
the Administrative Agent in its capacity as a Lender. The Administrative Agent
and any Lender and its Affiliates may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with Borrower
or any of its Affiliates as if they were not acting as the Administrative Agent
or Lender pursuant hereto.
11.9 Successor Administrative Agent; Resignation of Administrative Agent;
--------------------------------------------------------------------
Removal of Administrative Agent.
--------------------------------
(a) The Administrative Agent may resign from the performance
of all its functions and duties hereunder at any time by giving at least thirty
(30) Business Days' prior written notice to Lenders and Borrower, and shall
automatically cease to be Administrative Agent hereunder in the event a petition
in bankruptcy shall be filed by or against Administrative Agent or the Federal
Deposit Insurance Corporation or any other Governmental Authority shall assume
control of the Administrative Agent or the Administrative Agent's interest under
the Facility. Further, Requisite Lenders may for good cause remove
Administrative Agent at any time by giving at least thirty (30) Business Days'
prior written notice to Borrower and all other Lenders. Such resignation or
removal of the Administrative Agent shall take effect upon the acceptance by a
successor Administrative Agent of appointment pursuant to Section 11.9(b);
---------------
concurrent with the effectiveness of such appointment, Borrower shall pay to the
retiring or removed Administrative Agent any accrued and unpaid agency fee, or
Administrative Agent shall refund to Borrower any prepaid agency fee, in each
case prorated to the effective date of such appointment of a successor
Administrative Agent.
(b) Upon any such notice of resignation by or removal of
Administrative Agent, Requisite Lenders shall appoint a successor Administrative
Agent with the consent of Borrower, which shall not be unreasonably withheld or
delayed. Any successor Administrative Agent must be a bank (i) the senior debt
obligations of which (or such bank's parent's senior unsecured debt obligations)
are rated not less than Baa-2 by Moody's Investors Services, Inc. or a
comparable rating by a rating agency acceptable to Requisite Lenders and (ii)
which has total assets in excess of Ten Billion Dollars ($10,000,000,000). Such
successor Administrative Agent shall separately confirm in writing with Borrower
the fee to be paid to such Administrative Agent pursuant to Section 2.6(e).
--------------
(c) If a successor Administrative Agent shall not have been so
appointed within said thirty (30) Business Day period, the retiring or removed
Administrative Agent, with the consent of Borrower (which may not be
unreasonably withheld or delayed), shall then appoint a successor Administrative
Agent who shall meet the requirements described in Section 11.9(b) above and who
---------------
shall serve as Administrative Agent until such time, if any, as Requisite
Lenders, with the consent of Borrower, appoint a successor Administrative Agent
as provided above.
--------
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11.10 Consent and Approvals.
----------------------
(a) Each of the following shall require the approval or consent
of Requisite Lenders:
(i) Approval of a Construction Project on any Borrowing
Base Property (Section 3.4(e));
--------------
(ii) [Intentionally Deleted]
(ii) Acceleration following an Event of Default
(Section 10.2(a)) or rescission of such acceleration (Section 10.3);
--------------- ------------
(iii) In the event that an Unmatured Event of Default
shall have occurred which could become an Event of Default following the
giving of notice, and the Administrative Agent does not wish to, declines or
fails to send a notice thereof to Borrower, the sending of such notice (which
notice, upon such approval, the Administrative Agent agrees to send);
(iv) Approval of the exercise of rights and remedies
under the Loan Documents following an Event of Default (Section 10.2(a));
---------------
(v) Removal of the Administrative Agent and
appointment of a successor to the Administrative Agent (Section 11.9);
------------
(vi) Approval of certain Protective Advances
(Section 11.11(a));
----------------
(vii) Approval of a Post-Foreclosure Plan an related
matters (Section 11.11(e)); and
----------------
(viii) Except as referred to in Section 11.10(b)
----------------
below, approval of any amendment, modification or termination of this Agreement
or Mortgages, assignment of leases and rents, environmental indemnity agreement,
the security agreement from the REIT relating to the pledge of partnership
distributions or waiver of any provision herein or therein.
(b) Each amendment, modification or waiver specifically
enumerated in Section 12.4 shall require the consent of all Lenders.
------------
(c) In addition to the required consents or approvals referred
to in Section 11.10(a) above, the Administrative Agent may at any time request
----------------
instructions from Requisite Lenders with respect to any actions or approvals
which, by the terms of this Agreement or of any of the Loan Documents, such
Person is permitted or required to take or to grant without instructions from
any Lenders, and if such instructions are promptly requested, such Person shall
be absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
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refraining from taking any action or withholding any approval under any of the
Loan Documents until it shall have received such instructions from Requisite
Lenders. Without limiting the foregoing, no Lender shall have any right of
action whatsoever against the Administrative Agent as a result of such Person
acting or refraining from acting under this Agreement, the Mortgage Documents or
any of the other Loan Documents in accordance with the instructions of Requisite
Lenders or, where applicable, all Lenders. The Administrative Agent shall
promptly notify each Lender at any time that the Requisite Lenders have
instructed the Administrative Agent to act or refrain from acting pursuant
hereto.
(d) Each Lender agrees that any action taken by the
Administrative Agent at the direction or with the consent of Requisite Lenders
in accordance with the provisions of this Agreement or any Loan Document, and
the exercise by the Administrative Agent at the direction or with the consent of
Requisite Lenders of the powers set forth herein or therein, together with such
other powers as are reasonably incidental thereto, shall be authorized and
binding upon all Lenders, except for actions specifically requiring the approval
of all Lenders. All communications from the Administrative Agent to Lenders
requesting Lenders' determination, consent, approval or disapproval (i) shall be
given in the form of a written notice to each Lender, (ii) shall be accompanied
by a description of the matter or thing as to which such determination,
approval, consent or disapproval is requested, or shall advise each Lender where
such matter or thing may be inspected, or shall otherwise describe the matter or
issue to be resolved, (iii) shall include, if reasonably requested by a Lender
and to the extent not previously provided to such Lender, written materials and
--------
a summary of all oral information provided to the Administrative Agent by
--------
Borrower in respect of the matter or issue to be resolved, and (iv) shall
include the Administrative Agent's recommended course of action or determination
in respect thereof. Each Lender shall reply promptly, but in any event within
ten (10) Business Days (the "Lender Reply Period"). Unless a Lender shall give
written notice to the Administrative Agent that it objects to the recommendation
or determination of the Administrative Agent (together with a written
explanation of the reasons behind such objection) within the Lender Reply
Period, such Lender shall be deemed to have approved of or consented to such
recommendation or determination. With respect to decisions requiring the
approval of Requisite Lenders or all Lenders, the Administrative Agent shall
submit its recommendation or determination for approval of or consent to such
recommendation or determination to all Lenders and upon receiving the required
approval or consent shall follow the course of action or determination
recommended to Lenders by the Administrative Agent or such other course of
action recommended by Requisite Lenders, and each non-responding Lender shall be
deemed to have concurred with such recommended course of action.
11.11 Agency Provisions Relating to Collateral.
----------------------------------------
(a) The Administrative Agent is hereby authorized on behalf of
all Lenders, without the necessity of any notice to or further consent from any
Lender, from time to time prior to an Event of Default, to take any action with
respect to any Collateral or Loan Document which may be necessary to perfect and
maintain perfected Liens upon the Collateral granted pursuant to the Loan
Documents. The Administrative Agent may make,
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and shall be reimbursed by Lenders (in accordance with their Pro Rata Shares),
to the extent not reimbursed by Borrower, for Protective Advance(s) during any
one calendar year with respect to each Borrowing Base Property up to the sum of
(i) amounts expended to pay real estate taxes, assessments and governmental
charges or levies imposed upon such Borrowing Base Property, (ii) amounts
expended to pay insurance premiums for policies of insurance related to such
Borrowing Base Property, or (iii) One Hundred Thousand Dollars ($100,000).
Protective Advances in excess of said sum during any calendar year for any
Borrowing Base Property shall require the consent of Requisite Lenders. In
addition, the Administrative Agent is hereby authorized on behalf of all
Lenders, without the necessity of any notice to or further consent from any
Lender, to waive the imposition of the late fees provided for in Section 2.5(e)
-------- --------------
up to a maximum of four (4) times during the term of this Agreement, including
any extensions.
(b) Lenders hereby irrevocably authorize the Administrative
Agent, at its option and in its discretion, to release any Lien granted to or
held by the Administrative Agent upon any Collateral (i) upon termination of the
Commitments and repayment and satisfaction of all Loans, and all other
Obligations and the termination of this Agreement, or (ii) constituting property
being released in compliance with Section 3.2 or Section 3.5, or (iii) if
----------- -----------
approved, authorized or ratified in writing by the Administrative Agent at the
direction of all Lenders. Without in any manner limiting the Administrative
Agent's authority to act without any specific or further authorization or
consent, upon request by the Administrative Agent at any time, Requisite Lenders
will confirm in writing the Administrative Agent's authority to release the
Mortgage Documents with respect to any Borrowing Base Property pursuant to
Section 3.2 or Section 3.5. The Administrative Agent shall not be required to
- ----------- ------------
execute any document to evidence the release of the Liens granted to the
Administrative Agent for the benefit of Lenders herein or pursuant hereto upon
any Collateral if, in the Administrative Agent's opinion, such document would
expose the Administrative Agent to liability or create any obligation or entail
any consequence other than the release of such Liens without recourse or
warranty, and such release shall not in any manner discharge, affect or impair
the Obligations or any Liens upon (or obligations of Borrower in respect of) any
Property which shall continue to constitute part of the Collateral.
(c) Except as provided in this Agreement, the Administrative
--------
Agent shall have no obligation whatsoever to any Lender or to any other Person
to assure that the Collateral exists or is owned by Borrower or is cared for,
protected or insured or has been encumbered or that the Liens granted to the
Administrative Agent herein or in any of the other Loan Documents or pursuant
hereto or thereto have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular priority.
(d) Should the Administrative Agent (i) employ counsel for
advice or other representation (whether or not any suit has been or shall be
filed) with respect to any Collateral or any part thereof, or any of the Loan
Documents, or the attempt to enforce any security interest or Lien on any of the
Collateral, or (ii) commence any proceeding or in any way seek to enforce its
rights or remedies under the Loan Documents, irrespective of whether as a result
thereof the Administrative Agent shall acquire title to any Collateral, either
through foreclosure, deed in lieu of foreclosure or otherwise, each Lender, upon
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demand therefor from time to time, shall contribute its share (based on its Pro
Rata Share) of the reasonable costs and/or expenses of any such advice or other
representation, enforcement or acquisition, including, but not limited to, fees
of receivers or trustees, court costs, title company charges, filing and
recording fees, appraisers' fees and fees and expenses of attorneys to the
extent not otherwise reimbursed by Borrower; provided that in the event of any
--------
litigation between the Administrative Agent and the other Lenders arising out of
this Agreement, the non-prevailing party in such litigation shall pay the
counsel fees and expenses of the prevailing party(ies) incurred in such
litigation. Any loss of principal and interest resulting from any Event of
Default shall be shared by Lenders in accordance with their respective Pro Rata
Shares. In the event the Administrative Agent determines it is necessary to
engage counsel for Lenders from and after the occurrence of an Event of Default,
said counsel shall be selected by the Administrative Agent and written notice of
such selection, together with a copy of such counsel's engagement letter and fee
estimate, shall be delivered to Lenders.
(e) In the event that all or any portion of the Collateral is
acquired by the Administrative Agent as the result of a foreclosure or the
acceptance of a deed or assignment in lieu of foreclosure, or is retained in
satisfaction of all or any part of Borrower's or any Pledgor Subpartnership's
obligations, title to any such Collateral or any portion thereof shall be held
in the name of the Administrative Agent or a nominee or subsidiary of the
Administrative Agent, as agent, for the ratable benefit of Lenders. The
Administrative Agent shall prepare a recommended course of action for such
Collateral (the "Post-Foreclosure Plan"), which shall be subject to the approval
of the Requisite Lenders. In the event that Requisite Lenders do not approve
such Post-Foreclosure Plan, any Lender shall be permitted to submit an
alternative Post-Foreclosure Plan to the Administrative Agent, and the
Administrative Agent shall submit any and all such additional Post-Foreclosure
Plans to the Lenders for evaluation and the approval of Requisite Lenders. In
accordance with the approved Post-Foreclosure Plan, the Administrative Agent
shall manage, operate, repair, administer, complete, construct, restore or
otherwise deal with the Collateral acquired and administer all transactions
relating thereto, including, without limitation, employing a management agent,
leasing agent and other agents, contractors and employees, including agents of
the sale of such Collateral, and the collecting of rents and other sums from
such Collateral and paying the expenses of such Collateral; actions taken by the
Administrative Agent with respect to the Collateral, which are not provided for
--------
in the approved Post-Foreclosure Plan or reasonably incidental thereto, shall
require the consent of Requisite Lenders by way of supplement to such Plan. Upon
demand therefor from time to time, each Lender will contribute its share (based
on its Pro Rata Share) of all reasonable costs and expenses incurred by the
Administrative Agent pursuant to the Post-Foreclosure Plan in connection with
the construction, operation, management, maintenance, leasing and sale of such
Collateral. In addition, the Administrative Agent shall render or cause to be
rendered by the managing agent, to each of the Lenders, monthly, an income and
expense statement for such Collateral, and each of the Lenders shall promptly
contribute its Pro Rata Share of any operating loss for such Collateral, and
such other expenses and operating reserves as Administrative Agent shall deem
reasonably necessary pursuant to and in accordance with the Post-Foreclosure
Plan. To the extent there is net operating income from such Collateral, the
Administrative Agent shall, in accordance with the Post-Foreclosure
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Plan, determine the amount and timing of distributions to Lenders. All such
distributions shall be made to Lenders in accordance with their respective Pro
Rata Shares. Lenders acknowledge that if title to any Collateral is obtained by
the Administrative Agent or its nominee, such Collateral will not be held as a
permanent investment but will be liquidated as soon as practicable. The
Administrative Agent shall undertake to sell such Collateral, at such price and
upon such terms and conditions as the Requisite Lenders shall reasonably
determine to be most advantageous. Any purchase money mortgage or deed of trust
taken in connection with the disposition of such Collateral in accordance with
the immediately preceding sentence shall name Administrative Agent, as agent for
Lenders, as the beneficiary or mortgagee. In such case, the Administrative Agent
and Lenders shall enter into an agreement with respect to such purchase money
mortgage defining the rights of Lenders in the same Pro Rata Shares as provided
--------
hereunder, which agreement shall be in all material respects similar to this
Article 11 insofar as the same is appropriate or applicable.
- ----------
11.12 Lender Actions Against Collateral.
---------------------------------
Each Lender agrees that it will not take any action, nor institute any
actions or proceedings, against Borrower, the REIT, any Pledgor Subpartnership
or any other obligor hereunder, under the Mortgage Documents or under any other
Loan Documents with respect to exercising claims against or rights in any
Collateral without the consent of Requisite Lenders.
11.13 Assignments and Participation.
-----------------------------
(a) After first obtaining the approvals of the Administrative
Agent and Borrower, which approvals will not be unreasonably withheld (provided
that the approval of the Borrower shall not be required as long as any Event of
Default shall exist), each Lender may assign to one or more banks or financial
institutions all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment and the Loans
owing to it) and other Loan Documents; provided, however, that (i) each such
-------- -------
assignment shall be of a constant, and not a varying, percentage of the
assigning Lender's rights and obligations under this Agreement and other Loan
Documents, and the assignment shall cover the same percentage of such Lender's
Commitment and Loans, (ii) unless the Administrative Agent and Borrower
otherwise consent, the aggregate amount of the Commitment of the assigning
Lender being assigned pursuant to each such assignment (determined as of the
date of the Assignment and Assumption with respect to such assignment) shall in
no event be less than Ten Million Dollars ($10,000,000.00) and shall be an
integral multiple of One Hundred Thousand Dollars ($100,000.00), (iii) after
giving effect to such assignment, the aggregate amount of the Commitment, if
any, retained by the assigning Lender shall in no event be less than Ten Million
Dollars ($10,000,000.00), (iv) unless consented to by Borrower or unless an
Event of Default shall have occurred, so long as PNC is the Administrative
Agent, PNC shall retain not less than thirty-three and one-third percent
(33 1/3%) of the Loans, (v) the parties to each such assignment shall execute
and deliver to the Administrative Agent, for its approval and acceptance, an
Assignment and Assumption, and (vi) the Administrative Agent shall receive from
the assignee a processing fee of Three Thousand Dollars ($3,000.00). Without
restricting the right of Borrower or the
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Administrative Agent to reasonably object to any bank or financial institution
becoming an assignee of an interest of a Lender hereunder, each proposed
assignee must be an existing Lender or a bank or financial institution which (A)
has (or, in the case of a bank which is a subsidiary, such bank's parent has) a
rating of its senior unsecured debt obligations of not less than Baa-2 by
Moody's or a comparable rating by a rating agency acceptable to the
Administrative Agent and (B) has total assets in excess of Ten Billion Dollars
($10,000,000,000). Unless the Administrative Agent or Borrower gives written
notice to the assigning Lender that it objects to the proposed assignment
(together with a written explanation of the reasons behind such objection)
within ten (10) Business Days following receipt of the assigning Lender's
written request for approval of the proposed assignment, the Administrative
Agent or Borrower, as the case may be, shall be deemed to have approved such
assignment. Upon such execution, delivery, approval and acceptance, and upon the
effective date specified in the applicable Assignment and Assumption, (1) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Assumption, have the rights and obligations of a Lender hereunder, and (2) the
assigning Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Assumption,
relinquish its rights and be released from its obligations under this Agreement.
(b) By executing and delivering an Assignment and Assumption,
the assigning Lender thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Assumption, such assigning Lender makes no
- --------
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
Loan Document or any other instrument or document furnished pursuant hereto;
(ii) such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the REIT, Borrower or
any Pledgor Subpartnership or the performance or observance by the REIT,
Borrower or any Pledgor Subpartnership of any of their respective obligations
under any Loan Document or any other instrument or document furnished pursuant
hereto; (iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the financial statements referred to in
Article 5 or delivered pursuant to Article 6 to the date of such assignment and
- --------- ---------
such other Loan Documents and other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Assumption; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee appoints and authorizes
Administrative Agent to take such action as Administrative Agent on its behalf
and to exercise such powers under this Agreement and the other Loan Documents as
are delegated to Administrative Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto; and (vi) such assignee
agrees that it will perform in accordance with their
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<PAGE>
terms all of the obligations which by the terms of this Agreement are required
to be performed by it as a Lender.
(c) Administrative Agent shall maintain, at its address
referred to on the counterpart signature pages hereof, a copy of each Assignment
and Assumption delivered to and accepted by it and shall record in the Loan
Account the names and addresses of each Lender and the Commitment of, and
principal amount of the Loans owing to, such Lender from time to time. Borrower
and Lenders may treat each Person whose name is recorded in the Loan Account as
a Lender hereunder for all purposes of this Agreement.
(d) Upon its receipt of an Assignment and Assumption executed
by an assigning Lender and an assignee, Administrative Agent shall, if such
Assignment and Assumption has been properly completed and is in substantially
the form of Exhibit A, (i) accept such Assignment and Assumption, (ii) record
---------
the information contained therein in the Loan Account, and (iii) give prompt
notice thereof to Borrower. Upon request, Borrower will execute and deliver to
Administrative Agent an appropriate replacement promissory note or replacement
promissory notes in favor of each assignee (and assignor, if such assignor is
retaining a portion of its Commitment and Loans) reflecting such assignee's (and
assignor's) Pro Rata Share(s) of the Facility. Upon execution and delivery of
such replacement promissory notes, the original promissory note or notes
evidencing all or a portion of the Commitments and Loans being assigned shall be
canceled and returned to Borrower.
(e) Each Lender may sell participations to one or more banks
or other entities in or to all or a portion of its rights and obligations under
this Agreement (including without limitation all or a portion of its Commitment
and the Loans owing to it) and other Loan Documents; provided, however, that (i)
-------- -------
such Lender's obligations under this Agreement (including without limitation its
Commitment to Borrower hereunder) shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) Borrower and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and with regard to any and all payments to be
made under this Agreement, and (iv) the holder of any such participation shall
not be entitled to voting rights under this Agreement except for voting rights
with respect to (A) increases in the Facility; (B) extensions of the Termination
Date; (C) decreases in the interest rates described in this Agreement; and (D)
the release of all or substantially all of the Collateral, except as
specifically authorized in Sections 3.2, 3.5 and 11.11. No participant shall be
------------ --- -----
entitled to vote on any matter until the Lender with which such participant is
participating in the Facility and the Loans confirms such participant's status
as a participant hereunder.
(f) Borrower will use reasonable efforts to cooperate with the
Administrative Agent and Lenders in connection with the assignment of interests
under this Agreement or the sale of participations herein.
(g) Borrower agrees that any Lender may disseminate to any
such potential purchaser(s), assignee(s) or participant(s) all documents and
information (including, without limitation, all financial information) which has
been or is hereafter provided to or known to
--------
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<PAGE>
Lender with respect to: (i) the Property and its operation; (ii) any party
connected to the Facility (including, without limitation, the Borrower, any
partner of Borrower, any guarantor and any non-borrower pledgor of property);
and/or (iii) any lending relationship other than the Facility which any Lender
may have with any party connected with the Facility.
(h) Anything in this Agreement to the contrary
notwithstanding, and without the need to comply with any of the formal or
procedural requirements of this Agreement, including Section 11.13, any Lender
-------------
may at any time and from time to time pledge and assign all or any portion of
its rights under all or any of the Loan Documents to a Federal Reserve Bank;
provided that no such pledge or assignment shall release such Lender from its
- --------
obligations thereunder. To facilitate any such pledge or assignment, the
Administrative Agent shall, at the request of such Lender, enter into a letter
agreement with the Federal Reserve Bank in substantially the form of the exhibit
to Appendix C to the Federal Reserve Bank of New York Operating Circular No.12.
(i) Anything in this Agreement to the contrary
notwithstanding, any Lender may assign all or any portion of its rights and
obligations under this Agreement to another branch or Affiliate of such Lender
without first obtaining the approval of the Administrative Agent and Borrower,
provided that (i) at the time of such assignment such Lender is not a Defaulting
- --------
Lender, (ii) such Lender gives the Administrative Agent and Borrower at least
fifteen (15) days' prior written notice of any such assignment, (iii) the
parties to each such assignment execute and deliver to the Administrative Agent
an Assignment and Assumption, and (iv) the Administrative Agent receives from
assignor a processing fee of Three Thousand Dollars ($3,000).
(j) No Lender shall be permitted to assign or sell all or any
portion of its rights and obligations under this Agreement to Borrower or any
Affiliate of Borrower.
11.14 Ratable Sharing.
---------------
Subject to Sections 11.3 and 11.4, Lenders agree among themselves that
------------- ----
(i) with respect to all amounts received by them which are applicable to the
payment of the Obligations, equitable adjustment will be made so that, in
effect, all such amounts will be shared among them ratably in accordance with
their Pro Rata Shares, whether received by voluntary payment, by counterclaim or
cross action or by the enforcement of any or all of the Obligations, or the
Collateral, (ii) if any of them shall by voluntary payment or by the exercise of
any right of counterclaim or otherwise, receive payment of a proportion of the
aggregate amount of the Obligations held by it which is greater than its Pro
Rata Share of the payments on account of the Obligations, the one receiving such
excess payment shall purchase, without recourse or warranty, an undivided
interest and participation (which it shall be deemed to have done simultaneously
upon the receipt of such payment) in such Obligations owed to the others so that
all such recoveries with respect to such Obligations shall be applied ratably in
accordance with their Pro Rata Shares; provided, that if all or part of such
--------
excess payment received by the purchasing party is thereafter recovered from it,
those purchases shall be rescinded and the purchase prices paid for such
participation shall be returned to that party to the extent necessary to adjust
for such recovery, but without interest
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<PAGE>
except to the extent the purchasing party is required to pay interest in
connection with such recovery. Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this Section 11.14 may, to the
-------------
fullest extent permitted by law, exercise all its rights of payment with respect
to such participation as fully as if such Lender were the direct creditor of
Borrower in the amount of such participation. No Lender shall exercise any
set-off, banker's lien or other similar right in respect of any Obligations
without the prior written approval of Administrative Agent.
11.15 Delivery of Documents.
---------------------
The Administrative Agent shall as soon as reasonably practicable
distribute to each Lender at its primary address set forth on the appropriate
counterpart signature page hereof, or at such other address as a Lender may
request in writing, (i) such Lender's Loan Note, (ii) all documents set forth on
the Lender Closing Index attached hereto as Exhibit N, (iii) all other documents
---------
or information which the Administrative Agent is required to send to Lenders
pursuant to the terms of this Agreement, (iv) other information or documents
received by the Administrative Agent at the request of any Lender, and (v) all
notices received by the Administrative Agent pursuant to Section 6.2. In
-----------
addition, within fifteen (15) Business Days after receipt of a request in
writing from a Lender for written information or documents provided by or
--------
prepared by Borrower, the REIT or any Pledgor Subpartnership or Majority
Partnership, the Administrative Agent shall deliver such written information or
documents to such requesting Lender if Administrative Agent has possession of
such written information or documents in its capacity as the Administrative
Agent or as a Lender.
11.16 Inspection of Books and Records.
-------------------------------
Each Lender shall have the right to exercise the rights of the
Administrative Agent set forth in the Loan Documents to inspect the books and
records of the Borrower, the REIT, any Pledgor Subpartnership and any other
Person.
11.17 Notice of Events of Default.
---------------------------
The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Unmatured Event of Default or Event of Default
(other than nonpayment of principal of or interest on the Loans) unless the
Administrative Agent has received notice in writing from a Lender or Borrower
referring to this Agreement or the other Loan Documents, describing such event
or condition and expressly stating that such notice is a notice of an Unmatured
Event of Default or Event of Default. Should the Administrative Agent receive
such notice of the occurrence of an Unmatured Event of Default or Event of
Default, or should the Administrative Agent send Borrower a notice of Unmatured
Event of Default or Event of Default, the Administrative Agent shall promptly
give notice thereof to each Lender.
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12. MISCELLANEOUS
12.1 Expenses.
--------
(a) Generally. Borrower agrees upon demand to pay, or
---------
reimburse the Administrative Agent for, all of Administrative Agent's external
audit, legal, appraisal, valuation and investigation expenses and for all other
reasonable out-of-pocket costs and expenses of every type and nature (including,
without limitation, the reasonable fees, expenses and disbursements of
Administrative Agent's internal appraisers, environmental advisors or legal
counsel) incurred by Administrative Agent at any time (whether prior to, on or
after the date of this Agreement) in connection with (i) its own audit and
investigation of Borrower and the Borrowing Base; (ii) the negotiation,
preparation and execution of this Agreement (including, without limitation, the
satisfaction or attempted satisfaction of any of the conditions set forth in
Article 4), the Mortgage Documents and the other Loan Documents and the making
- ---------
of the Loans or the transfer and assignment thereof or portions thereof by the
Administrative Agent to other Lenders; (iii) the review and, if applicable,
acceptance of additional Borrowing Base Properties, including appraisal fees,
title charges, recording fees and reasonable attorneys' fees and costs incurred
in connection therewith; (iv) the creation, perfection or protection of
Administrative Agent's Liens on the Collateral (including, without limitation,
any fees and expenses for title and lien searches, local counsel in various
jurisdictions, filing and recording fees and taxes, duplication costs and
corporate search fees); (v) administration of this Agreement, the other Loan
Documents, the Loans and the Collateral, including, without limitation,
consultation with attorneys in connection therewith and obtaining periodic
Appraisals of the Borrowing Base Properties; and (vi) the protection, collection
or enforcement of any of the Obligations or the Collateral, including Protective
Advances.
(b) After Event of Default. Borrower further agrees to pay, or
----------------------
reimburse Administrative Agent and Lenders, for all reasonable out-of-pocket
costs and expenses, including, without limitation, reasonable attorneys' fees
and disbursements incurred by Administrative Agent or Lenders after the
occurrence of an Event of Default (i) in enforcing any Obligation or in
foreclosing against the Collateral or exercising or enforcing any other right or
remedy available by reason of such Event of Default; (ii) in connection with any
refinancing or restructuring of the credit arrangements provided under this
--------
Agreement in the nature of a "work-out" or in any insolvency or bankruptcy
proceeding; (iii) in commencing, defending or intervening in any litigation or
in filing a petition, complaint, answer, motion or other pleadings in any legal
proceeding relating to Borrower, the REIT or any Pledgor Subpartnership and
related to or arising out of the transactions contemplated hereby; (iv) in
taking any other action in or with respect to any suit or proceeding (whether in
bankruptcy or otherwise); (v) in protecting, preserving, collecting, leasing,
selling, taking possession of or liquidating any of the Collateral; or (vi) in
attempting to enforce or enforcing any Lien in any of the Collateral or any
other rights under the Mortgage Documents.
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12.2 Indemnity.
---------
Borrower further agrees to defend, protect, indemnify and hold harmless
Administrative Agent, each and all of the Lenders, each of their respective
Affiliates and participants and each of the respective officers, directors,
employees, agents, attorneys and consultants (including, without limitation,
those retained in connection with the satisfaction or attempted satisfaction of
any of the conditions set forth in Article 4) of each of the foregoing
---------
(collectively called the "Indemnities") from and against any and all Liabilities
and Costs imposed on, incurred by, or asserted against such Indemnities (whether
based on any federal or state laws or other statutory regulations, including,
without limitation, securities and commercial laws and regulations, under common
law or in equity, and based upon contract or otherwise, including any liability
and costs arising as a result of a "prohibited transaction" under ERISA to the
extent arising from or in connection with the past, present or future operations
of the REIT, Borrower or any Pledgor Subpartnership or their respective
predecessors in interest) in any manner relating to or arising out of this
Agreement, the Mortgage Documents or the other Loan Documents, or any act, event
or transaction related or attendant thereto, the making of and participation in
the Loans and the management of the Loans, or the use or intended use of the
proceeds of the Loans (collectively, the "Indemnified Matters"); provided,
--------
however, that Borrower shall have no obligation to an Indemnitee hereunder with
- -------
respect to (a) matters for which such Indemnitee has been compensated pursuant
to or for which an exemption is provided in Section 2.5(g) or any other
provision of this Agreement, and (b) Indemnified Matters to the extent caused by
or resulting from the willful misconduct or gross negligence of that Indemnitee,
as determined by a court of competent jurisdiction. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative. of any law or public
policy, Borrower shall contribute the maximum portion which it is permitted to
pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnities.
12.3 Change in Accounting Principles.
-------------------------------
Except as otherwise provided herein, if any changes in accounting
--------
principles from those used in the preparation of the most recent financial
statements delivered to Administrative Agent pursuant to the terms hereof are
hereinafter required or permitted by the rules, regulations, pronouncements and
opinions of the Financial Accounting Standards Board or the American Institute
of Certified Public Accountants (or successors thereto or agencies with similar
functions) and are adopted by the REIT, Borrower or any Pledgor Subpartnership
with the agreement of its independent certified public accountants and such
changes result in a change in the method of calculation of any of the financial
covenants, standards or terms found herein, the parties hereto agree to enter
into negotiations in order to amend such provisions so as to equitably reflect
such changes with the desired result that the criteria for evaluating the
financial condition of Borrower shall be the same after such changes as if such
changes had not been made; provided, however, that no change in GAAP that would
-------- -------
affect the method of calculation of any of the financial covenants, standards or
terms shall be given effect in such calculations until such provisions are
amended, in a
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manner satisfactory to Administrative Agent and Requisite Lenders, to so reflect
such change in accounting principles.
12.4 Amendments and Waivers.
----------------------
(a) No amendment or modification of any provision of this
Agreement or other Loan Document shall be effective without the written
agreement of Requisite Lenders (after notice to all Lenders) and Borrower
(except for amendments to Section 11.4(a) which do not require the consent of
---------------
Borrower), and (b) no termination or waiver of any provision of this Agreement,
or consent to any departure by Borrower therefrom (except as expressly provided
--------
in Section 11.11(a) with respect to waivers of late fees), shall in any event be
----------------
effective without the written concurrence of Requisite Lenders (after notice to
all Lenders), which Requisite Lenders shall have the right to grant or withhold
at their sole discretion, except that the following amendments, modifications or
------ ----
waivers shall require the consent of all Lenders:
(i) increasing the Commitments or Lender's Commitments;
(ii) changing the principal amount or final maturity of the
Loans except as provided in Section 2.1(d);
-------- --------------
(iii) reducing the interest rates applicable to the Loans;
(iv) reducing the rates on which fees payable pursuant
hereto are determined;
(v) forgiving or delaying any amount payable or receivable
under Article 2 (other than late fees);
---------
(vi) changing the definition of "Requisite Lenders," "Loan
Availability," "Pro Rata Shares" or "Borrowing Base Value";
(vii) changing any provision contained in this Section 12.4;
------------
(viii) releasing any obligor under any Loan Document or any
Collateral, unless such release is otherwise required or permitted by the terms
of this Agreement, including Section 11.11(b);
----------------
(ix) consent to assignment by Borrower of all of its duties
and Obligations hereunder pursuant to Section 12.15;
-------------
(x) the requirements of Letters of Credit pursuant to
Section 2.2(a)(iv);
- ------------------
(xi) approval of each new Borrowing Base Property (Section
-------
3.1);
- ----
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(xii) waiver of an Event of Default arising under
paragraph 10.1(a) (Failure to Make Payments When Due) of the Credit Agreement;
(xiii) modification or waiver of any of the covenants,
conditions or provisions of Article 9 of the Credit Agreement; or
(xiv) the termination by the Administrative Agent of any
Mortgage Documents or related Uniform Commercial Code financing statements, as
provided for in Section 3.5.
No amendment, modification, termination or waiver of any provision of Article 11
----------
or any other provision referring to Administrative Agent shall be effective
without the written concurrence of Administrative Agent, but only if such
amendment, modification, termination or waiver alters the obligations or rights
of Administrative Agent. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given. No notice
to or demand on Borrower in any case shall entitle Borrower to any other further
notice or demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 12.4
------------
shall be binding on each assignee, transferee or recipient of Administrative
Agent's or any Lender's Commitment under this Agreement or the Loans at the time
outstanding.
12.5 Independence of Covenants.
-------------------------
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitations of, another covenant shall not avoid the occurrence of an Event of
Default or Unmatured Event of Default if such action is taken or condition
exists, and if a particular action or condition is expressly permitted under any
covenant, unless expressly limited to such covenant, the fact that it would not
be permitted under the general provisions of another covenant shall not
constitute an Event of Default or Unmatured Event of Default if such action is
taken or condition exists.
12.6 Notices and Delivery.
--------------------
Unless otherwise specifically provided herein, any consent, notice or
--------
other communication herein required or permitted to be given shall be in writing
and may be personally served, telecopied or sent by courier service or United
States mail and shall be deemed to have been given if mailed by first-class
United States mail, postage prepaid, Federal Express or other reputable
overnight (or second day) delivery service, registered or certified with receipt
requested, or by delivering same in person to the intended addressee or by
prepaid telegram. All notices shall be effective upon the date of delivery or a
party's refusal of delivery, except in the case of a party's change of address
of which no notice of such changes was properly provided to the other parties,
--------
in which case, notice shall be deemed given on the date, if mailed, it is mailed
to the last known address or, in all other cases, delivery was attempted at the
last known address. For the purposes hereof, the addresses of the parties hereto
(until notice of a change thereof is delivered as provided in
--------
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<PAGE>
this Section 12.6) shall be as set forth below each party's name on the
------------
signature pages hereof, or, as to each party, at such other address as may be
designated by such party in a written notice to all of the other parties. All
deliveries to be made to the Administrative Agent for distribution to the
Lenders shall be made to the Administrative Agent at the addresses specified for
notice on the signature page hereto and, in addition, a sufficient number of
copies of each such delivery shall be delivered to the Administrative Agent for
delivery to each Lender at the address specified for deliveries on the signature
page hereto or such other address as may be designated by Administrative Agent
in a written notice.
12.7 Survival of Warranties, Indemnities and Agreements.
--------------------------------------------------
All agreements, representations, warranties and indemnities made or
given herein shall survive the execution and delivery of this Agreement and the
other Loan Documents and the making and repayment of the Loans hereunder and
such indemnities shall survive termination hereof.
12.8 Failure or Indulgence Not Waiver: Remedies Cumulative.
-----------------------------------------------------
No failure or delay on the part of the Administrative Agent or any
Lender in the exercise of any power, right or privilege under any of the Loan
Documents shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under the Loan Documents are cumulative to and not exclusive
of any rights or remedies otherwise available.
12.9 Marshalling: Recourse to Security: Payments Set Aside.
-----------------------------------------------------
Neither any Lender nor Administrative Agent shall be under any
obligation to marshall any assets in favor of Borrower or any other party or
against or in payment of any or all of the Obligations. Recourse to security
shall not be required at any time. To the extent that Borrower makes a payment
or payments to Administrative Agent or the Lenders, or Administrative Agent or
the Lenders enforce their Liens or exercise their rights of set-off, and such
payment or payments or the proceeds of such enforcement or set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such recovery, the Obligation or part thereof originally
intended to be satisfied, and all Liens, rights and remedies therefor, shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or set-off had not occurred.
12.10 Severability.
------------
In case any provision in or obligation under this Agreement or the
other Loan Documents shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or
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obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby, provided, however, that if the rates of interest or any other
-------- -------
amount payable hereunder, or the collectibility thereof, are declared to be or
become invalid, illegal or unenforceable, Lenders' obligations to make Loans
shall not be enforceable.
12.11 Headings.
--------
Section headings in this Agreement are included herein for convenience
of reference only and shall not constitute a part of this Agreement for any
other purpose or be given any substantive effect.
12.12 Governing Law.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
12.13 Limitation of Liability.
-----------------------
To the extent permitted by applicable law, no claim may be made by
Borrower, any Lender or any other Person against Administrative Agent or any
Lender, or the affiliates, directors, officers, employees, attorneys or agents
of any of them, for any special, indirect, consequential or punitive damages in
respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement, or
any act, omission or event occurring in connection therewith; and Borrower and
each Lender hereby waive, release and agree not to sue upon any claim for any
such damages, whether or not accrued and whether or not known or suspected to
exist in its favor, provided that if a Lender refuses to fund a Loan and a court
--------
of competent jurisdiction finds that such refusal was without justification and
in bad faith, such Lender may be liable to Borrower for Borrower's reasonable
and foreseeable damages resulting from such refusal to fund.
12.14 Limited Recourse Against Partners.
---------------------------------
Subject to the exceptions and qualifications set forth hereinbelow, the
general and limited partners of Borrower and any Pledgor Subpartnership shall
not be personally liable for the payment of the Obligations of the Borrower and
Pledgor Subpartnership respectively, and any judgment or decree in any action
brought to enforce any Obligation shall be enforceable only against the Borrower
and Pledgor Subpartnership and the assets of Borrower and the Pledgor
Subpartnerships, and any such judgment or decree shall not be subject to
execution upon or be a lien upon the assets of the general or limited partners
of the Borrower other than their respective partnership interests in Borrower or
any Pledgor Subpartnership. The foregoing limitation of personal liability shall
be subject to the following exceptions and qualifications:
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(a) The general partners of Borrower shall be fully and personally
liable as general partners for the following:
(i) the commission of fraud or any material misrepresentation
made in connection with, arising out of, or in any way related or incidental to
the application for or closing of this Agreement, the Loan Notes or any advance
made thereunder, or any of the Loan Documents executed or delivered in
connection herewith or the transactions related hereto or thereto;
(ii) any fraudulent conveyance made by Borrower, the REIT or any
Pledgor Subpartnership;
(iii) misappropriation or misapplication of funds associated with
the Property by such person, or failure by such person to apply funds in
accordance with the provisions of the Loan Documents, including, but not limited
to, (i) lease security deposits and prepaid rents, (ii) casualty insurance
proceeds and condemnation awards, (iii) judgments, settlements or bankruptcy
claims for unpaid rent, and (iv) gross revenues from a Property not applied to
payment of the expenses of a Borrowing Base Property, real estate taxes, debt
service and other expenditures required by the Loan Documents, which for this
purpose shall be allocable to such revenues on an accrual basis;
(iv) loss in connection with a Borrowing Base Property to the
extent not covered by insurance policies required by the Loan Documents,
including, but not limited to, uncompensated loss resulting from any deductible
in excess of One Hundred Thousand Dollars ($100,000.00) under the deductible
provisions of any such policy, underinsurance and the absence of insurance;
(v) waste in connection with a Borrowing Base Property;
(vi) removal from a Borrowing Base Property of any personal
property in violation of any of the Loan Documents by such person;
(vii) retention by Borrower or any Pledgor Subpartnership of any
rental income or other income arising with respect to a Borrowing Base Property,
including the proceeds of any sale of any portion thereof which, under the terms
of the Loan Documents, should have been paid to the Lenders, other than
distributions of earnings and profits of Borrower from operations determined in
accordance with GAAP;
(viii) failure to maintain, repair or restore any Property in
accordance with the terms of the Loan Documents;
(ix) failure of the Borrower to apply partnership assets to
remedy any removal, demolition, damage or destruction of the Property which is
neither consented to in writing by the Lenders nor fully compensated for by
insurance proceeds or condemnation awards; and
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(x) any expense, damage, loss or liability incurred by the
Lenders arising under Paragraph 4.15 of the Mortgages or under those certain
Environmental Indemnity Agreements and Partnership Borrowing Authorization and
Indemnity Agreements of even date with this Agreement from the Borrower and the
general partners of Borrower.
(b) Nothing contained in this Section 12.14 shall affect or limit the
-------------
ability of the Lenders to enforce any of their rights or remedies with respect
to any Borrowing Base Property.
12.15 Successors and Assigns.
----------------------
This Agreement and the other Loan Documents shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of the parties hereto and the successors and permitted assigns of
Administrative Agent and Lenders. The terms and provisions of this Agreement
shall inure to the benefit of any assignee or transferee of the Loans and the
Commitments of Lenders under this Agreement, and in the event of such transfer
or assignment, the rights and privileges herein conferred upon Administrative
Agent and Lenders shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. Borrower's rights
or any interest therein hereunder, and Borrower's duties and Obligations
hereunder, shall not be assigned without the consent of all Lenders.
12.16 Consent to Jurisdiction and Service of Process: Waiver of Jury
--------------------------------------------------------------
Trial.
- -----
EXCEPT WITH RESPECT TO FORECLOSURE PROCEEDINGS AGAINST ANY COLLATERAL
WHICH BY REQUIREMENT OF LAW MUST BE BROUGHT IN THE JURISDICTION WHERE SUCH
COLLATERAL IS LOCATED, ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST BORROWER WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE AND ALL JUDICIAL
PROCEEDINGS BROUGHT BY BORROWER WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION HAVING SITUS WITHIN THE BOUNDARIES OF THE FEDERAL COURT DISTRICT OF
THE EASTERN DISTRICT OF VIRGINIA, THE DISTRICT OF MARYLAND, THE DISTRICT OF
COLUMBIA OR THE WESTERN DISTRICT OF PENNSYLVANIA, AND BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, BORROWER ACCEPTS, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED
THEREBY FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS AVAILABLE. BORROWER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS NOTICE ADDRESS SPECIFIED
ON THE SIGNATURE PAGES HEREOF. BORROWER, THE ADMINISTRATIVE AGENT AND LENDERS
IRREVOCABLY WAIVE (a) TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO
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<PAGE>
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, AND (b) ANY OBJECTION (INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
12.17 Counterparts: Effectiveness: Inconsistencies.
--------------------------------------------
This Agreement and any amendments, waivers, consents or supplements may
be executed in counterparts, each of which when so executed and delivered shall
be deemed an original, but all such together shall constitute but one and the
same instrument. This Agreement shall become effective when Borrower and initial
Lenders have duly executed and delivered execution pages of this Agreement to
each other (delivery by Borrower to Lenders and by any Lender to Borrower and
any other Lender being deemed to have been made by delivery to the
Administrative Agent). Administrative Agent shall send written confirmation of
the Closing Date to Borrower and each other Lender promptly following the
occurrence thereof. This Agreement and each of the other Loan Documents shall be
construed to the extent reasonable to be consistent one with the other, but to
the extent that the terms and conditions of this Agreement are actually and
directly inconsistent with the terms and conditions of any other Loan Document,
this Agreement shall govern.
12.18 Performance of Obligations.
--------------------------
Borrower agrees that Administrative Agent may, but shall have no
obligation to, make any payment or perform any act required of Borrower or any
Pledgor Subpartnership under any Loan Document or take any other action which
Administrative Agent in its discretion deems necessary or desirable to protect
or preserve the Collateral, including, without limitation, any action to (a) pay
or discharge taxes, liens, security interests or other encumbrances levied or
placed on or threatened against any Collateral, and (b) effect any repairs or
obtain any insurance called for by the terms of any of the Loan Documents and to
pay all or any part of the premiums therefor and the costs thereof.
12.19 Construction.
------------
The parties acknowledge that each party and its counsel have reviewed
and revised this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments or
exhibits hereto.
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<PAGE>
12.20 Entire Agreement.
----------------
This Agreement, taken together with all of the other Loan Documents and
all certificates and other documents delivered by Borrower to Administrative
Agent, embodies the entire agreement and supersedes all prior agreements,
written and oral, relating to the subject matter hereof.
[REMAINDER OF PAGE
LEFT INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on the date
set forth above.
CHARLES E. SMITH RESIDENTIAL REALTY
L.P., a Delaware limited partnership
By: CHARLES E. SMITH RESIDENTIAL
REALTY, INC., a Maryland corporation,
its general partner
By: /s/ W.D. Minami
--------------------------------------
Its:
-------------------------------------
W. D. Minami
Chief Financial Officer
ADDRESS FOR NOTICE AND DELIVERY:
2345 Crystal Drive
Arlington, Virginia 22202
Attention: Paul Larner
PNC BANK, NATIONAL ASSOCIATION, a
national banking association, as Administrative
Agent and as a Lender
By: /s/ William R. Lynch, III
--------------------------------------
William R. Lynch, III
Assistant Vice President
ADDRESS FOR NOTICE AND DELIVERY:
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
P1 -POPP- 19-2
Pittsburgh, PA 15222-2707
Attention: Robin Hyde
Tel: (412) 762-2891
Fax: (412) 768-5754
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<PAGE>
With a copy to:
PNC Bank, National Association
1001 Pennsylvania Avenue, N.W.
Suite 305 South
Washington, D.C. 20004
Attention: William R. Lynch, III
Tel: (202) 393-3730
Fax: (202) 393-1545
LIBOR OFFICE:
Address:
--------------------------------
Attn:
-----------------------------------
Tel: ( )
----------------------------
Fax: ( )
----------------------------
Pro Rata Share: 33 1/3%
FIRST BANK NATIONAL ASSOCIATION, a national
banking association, as Documentation Agent and
as a Lender
By: /s/ Kathleen M. Connor
---------------------------------------
Name: Kathleen M. Connor
-------------------------------------
Title: Vice President
-------------------------------------
ADDRESS FOR NOTICE AND DELIVERY:
First Bank National Association
601 Second Avenue South MPFP0802
Minneapolis, Minnesota 55402
Attention: Kathleen M. Connor
-------------------
Tel: (612) 973-0306
--- ---------------
Fax: (612) 973-0830
--- ---------------
With a copy to:
FIRST BANK NATIONAL ASSOCIATION
------------------------------------
601 SECOND AVENUE SOUTH MPFP0802
------------------------------------
MINNEAPOLIS, MINNESOTA 55402
------------------------------------
Attention: Sherry Reynolds
-------------------------
Tel: (612) 973-0614
--- ---------------
Fax: (612) 973-0830
--- ---------------
Pro Rata Share: 33 1/3%
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<PAGE>
EXHIBIT P
---------
(a) Borrowing Base Property Statements and Operating Results. As soon as
--------------------------------------------------------
practicable, and in any event within twenty-five (25) days after the end of each
Fiscal Quarter, operating statements and lease status reports in the form of
Exhibit I hereto or other form approved by the Administrative Agent (the
- ---------
"Borrowing Base Property Statements"), certified by the REIT's chief financial
officer.
(b) Quarterly Financial Statements Certified by CFO. As soon as practicable, and
-----------------------------------------------
in any event within forty-five (45) days after the end of each Fiscal Quarter,
consolidated balance sheets, statements of operations and statements of cash
flow for the Borrower ("Financial Statements"), which may, in the case of the
first three Fiscal Quarters of each year, be in the form provided to the
Commission on the REIT's Form 10Q, and certified by the REIT's chief financial
officer, together with a schedule setting forth Cash Available for Distribution
in a form acceptable to the Administrative Agent.
(c) Annual Financial Statements. Within ninety (90) days after the close of each
---------------------------
Fiscal Year, annual Financial Statements of the Borrower, on a consolidated
basis (in the form provided to the Commission on the REIT's Form 10K), audited
--------
and certified without qualification by the Accountants. To the extent
Administrative Agent desires additional details or supporting information with
respect to Majority Partnerships, Investment Subsidiaries, Pledgor
Subpartnerships or individual Properties which are not Borrowing Base Properties
not contained in the REIT's Form 10K, Borrower shall provide the Administrative
Agent with such details or supporting information, including without limitation
unaudited financial statements of such Majority Partnership Investment
Subsidiaries or Pledgor Subpartnerships which have been used in the preparation
of Borrower's consolidated statements as Administrative Agent requests which is
reasonably available to Borrower. Without limiting the foregoing, within ninety
(90) days after the end of each Fiscal Year, Borrower shall provide to the
Administrative Agent operating statements and a schedule setting forth the
percentage of leasable area leased to tenants in occupancy, with footnotes
indicating which leases are in default in rent payments by more than forty-five
(45) days (other than technical, nonmaterial disputes concerning percentage
rentals due) any other material provisions in respect to which landlord has
issued a notice of default, for each Property which is not a Borrowing Base
Property.
(d) Officer's Certificate of Borrower. (i) Together with each delivery of any
---------------------------------
Borrowing Base Property Statement or Financial Statement pursuant to clauses
-------
6.1(b) or (c) and, an Officer's Certificate of the REIT, stating that the
- -------------
executive officer who is the signatory thereto (which officer shall be the chief
executive officer, the chief operating officer or the chief financial officer of
the REIT) has reviewed, or caused under his supervision to be reviewed, the
terms of this Agreement and the other principal Loan Documents, and has made, or
caused to be made under his supervision, a review in reasonable detail of the
transactions and condition of Borrower, the REIT and each
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<PAGE>
Pledgor Subpartnership, during the accounting period covered by such Borrowing
Base Property Statements or Financial Statements, and that such review has not
disclosed the existence during or at the end of such accounting period, and that
the signers do not have knowledge of the existence as of the date of the
Officer's Certificate, of any condition or event which constitutes an Event of
Default or Unmatured Event of Default, or, if any such condition or event
existed or exists, specifying the nature and period of existence thereof and
what action has been taken, is being taken and is proposed to be taken with
respect thereto; and (ii) together with each delivery pursuant to clauses 6.1(b)
--------------
and 6.1(c), a Compliance Certificate demonstrating in reasonable detail (which
------
detail shall include actual calculation and supporting information) compliance
during and at the end of such accounting periods with the financial covenants
contained in Section 8.5 and Article 9.
----------- ---------
(e) Cash Flow Projections. Within thirty (30) days after the end of each Fiscal
---------------------
Year, projections of the Borrower, on a consolidated basis and by Fiscal
Quarter, detailing expected sources and uses of cash for the then current Fiscal
Year, and within seventy-five (75) days after each Fiscal Year, a statement of
sources and uses of cash comparing the then current Fiscal Year with the
previous Fiscal Year, in a form acceptable to the Administrative Agent. With
respect to the foregoing cash flow reports, Borrower shall provide such
additional supporting details as reasonably requested by Administrative Agent
and reported by the chief executive officer or chief financial officer of the
REIT as being based, on the REIT's reasonable good faith estimates, upon
information and assumptions at the time.
(f) Tax Receipts and Insurance Certificates. Within thirty (30) days after the
---------------------------------------
due date of any ad valorem tax on any Borrowing Base Property, a receipt showing
-- -------
payment thereof and not later than thirty (30) days prior to the expiration or
any insurance required by this Agreement or any other Loan Document, a
certificate from the insurer showing renewal or replace thereof.
(g) Title Searches and Environmental Audits. Until the Loan shall have been
---------------------------------------
repaid in full, Administrative Agent may request title updates and supplemental
environmental reports, satisfactory to Administrative Agent. Prior to the
occurrence of an Event of Default or an Unmatured Event of Default, or such time
that Administrative Agent suspects there has been a Release or breach of any
representation or warranty or any agreement contained in any Loan Document
relating to any Contaminant, any such searches or audits will be requested not
more than once each year; after an Event of Default or an Unmatured Event of
Default shall have occurred, and, in the case of an environmental audit at any
time that Administrative Agent reasonably believes there has been a Release or a
breach of any representation or warranty or any agreement contained in any Loan
Document relating to any Contaminant they may be requested at any time in
Administrative Agent's sole discretion. All of the foregoing shall be in form
and substance satisfactory to Administrative Agent. Borrower shall be
responsible for all costs of any such title searches and environmental audits.
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(h) Borrowing Base Certificate. As soon as practicable, and in any event within
--------------------------
fifteen (15) days after the end of each Fiscal Quarter (and more often if so
requested by the Administrative Agent), a Borrowing Base Certificate, certified
as being true and correct by the REIT's chief executive officer, chief operating
officer or chief financial officer. Each Borrowing Base Certificate shall set
forth Borrowing Base calculations since the date of the last prior Borrowing
Base Certificate, and shall reflect any material adverse changes in the Net
Operating Income or other condition of a Borrowing Base Property of which such
officer has knowledge and which is not reflected in the most recent Borrowing
Base Property Statement.
(i) Budgets for Borrowing Base Properties. Not later than thirty (30) days prior
-------------------------------------
to the beginning of each Fiscal Year, annual operating budgets for each
Borrowing Base Property for the immediately following Fiscal Year, prepared on
an annual basis, in the form of Exhibit J hereto or other form approved by the
---------
Administrative Agent, together with all supporting details reasonably requested
by the Administrative Agent, and reported by the chief executive officer, chief
operating officer or chief financial officer of the REIT as being based upon the
REIT's reasonable good faith estimates, upon information and assumptions at the
time.
(j) Knowledge of Event of Default. Promptly upon Borrower obtaining knowledge
-----------------------------
(i) of any condition or event which constitutes an Event of Default or Unmatured
Event of Default, or becoming aware that any Lender has given notice or taken
any other action with respect to a claimed Event of Default or Unmatured Event
of Default or (ii) of any condition or event which has a Material Adverse Effect
on Borrower, any Pledgor Subpartnership, the REIT or any Borrowing Base
Property, an Officer's Certificate specifying the nature and period of existence
of any such condition or event, or specifying the notice given or action taken
by such Lender and the nature of such claimed Event of Default, Unmatured Event
of Default, event or condition, and what action Borrower, the Pledgor
Subpartnership and/or the REIT has taken, is taking and proposes to take with
respect thereto.
(k) Litigation. Arbitration or Government Investigation. Promptly upon Borrower,
---------------------------------------------------
any Pledgor Subpartnership or the REIT obtaining knowledge of (i) the
institution of, or threat of, any material action, suit, proceeding,
governmental investigation or arbitration against or affecting Borrower, any
Pledgor Subpartnership, the REIT or any Borrowing Base Property not previously
disclosed in writing by Borrower to Administrative Agent pursuant to this
Section 6.1(k), including any eminent domain or other condemnation proceedings
- --------------
affecting any Borrowing Base Property, or (ii) any material development in any
action, suit, proceeding, governmental investigation or arbitration already
disclosed, which, in either case, has a Material Adverse Effect on Borrower, any
Pledgor Subpartnership, the REIT or any Borrowing Base Property, a notice
thereof to Administrative Agent and such other information as may be reasonably
available to it to enable Administrative Agent, Lenders and their counsel to
evaluate such matters.
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<PAGE>
(1) ERISA Termination Event. As soon as possible, and in any event within thirty
-----------------------
(30) days after Borrower, any Pledgor Subpartnership or the REIT knows or has
reason to know that a Termination Event has occurred, a written statement of the
chief financial officer of the REIT describing such Termination Event and the
action, if any, which Borrower, any Pledgor Subpartnership, the REIT or any
ERISA Affiliate of any of them has taken, is taking or proposes to take, with
respect thereto, and, when known, any action taken or threatened by the IRS, the
DOL or the PBGC with respect thereto.
(m) Prohibited ERISA Transaction. As soon as possible, and in any event within
----------------------------
thirty (30) days, after Borrower, any Pledgor Subpartnership, the REIT or any
ERISA Affiliate of any of them knows or has reason to know that a prohibited
transaction (defined in Section 406 of ERISA and Section 4975 of the Internal
Revenue Code) has occurred, a statement of the chief financial officer of the
REIT describing such transaction.
(n) Benefit Plan Annual Report. Promptly upon the request of the Administrative
--------------------------
Agent or any Lender, copies of each annual report, including Schedule B thereto,
filed with the DOL, the IRS or the PBGC with respect to each Benefit Plan of
Borrower, any Pledgor Subpartnership, the REIT or any ERISA Affiliate of any of
them.
(o) Benefit Plan Funding Waiver Request. Within thirty (30) days after the
-----------------------------------
filing thereof with the IRS, a copy of each funding waiver request filed with
respect to any Benefit Plan of Borrower, any Pledgor Subpartnership, the REIT or
any ERISA Affiliate of any of them and all communications received by Borrower,
any Pledgor Subpartnership, the REIT or any ERISA Affiliate of any of them with
respect to such request.
(p) Establishment of Benefit Plan and Increase in Contributions to the Benefit
--------------------------------------------------------------------------
Plan. Not less than ten (10) days prior to the effective date thereof, a notice
- ----
to Administrative Agent of the establishment of a Benefit Plan (or the
incurrence of any obligation to contribute to a Multiemployer Plan) by Borrower,
any Pledgor Subpartnership, the REIT or any ERISA Affiliate of any of them.
Within thirty (30) days after the first to occur of an amendment of any
then-existing Benefit Plan of Borrower, any Pledgor Subpartnership, the REIT or
any ERISA Affiliate of any of them which will result in an increase in the
benefits under such Benefit Plan or a notification of any such increase, or the
establishment of any new Benefit Plan by Borrower, any Pledgor Subpartnership,
the REIT or any ERISA Affiliate of any of them or the commencement of
contributions to any Benefit Plan to which Borrower, any Pledgor Subpartnership,
the REIT or any ERISA Affiliate of any of them was not previously contributing,
a copy of said amendment, notification or Benefit Plan.
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<PAGE>
(q) Qualification of ERISA Plan. Promptly upon, and in any event within thirty
---------------------------
(30) days after, receipt by Borrower, any Pledgor Subpartnership, the REIT or
any ERISA Affiliate of any of them of an unfavorable determination letter from
the IRS regarding the qualification of a Plan under Section 401(a) of the
Internal Revenue Code, a copy of said determination letter, if such
disqualification would have a Material Adverse Effect on Borrower, any Pledgor
Subpartnership or the REIT.
(r) Multiemployer Plan Withdrawal Liability. Promptly upon, and in any event
---------------------------------------
within thirty (30) days after receipt by Borrower, any Pledgor Subpartnership,
the REIT or any ERISA Affiliate of any of them of a notice from a Multiemployer
Plan regarding the imposition of withdrawal liability, a copy of said notice.
(s) Failure to Make Section 412 Payment. Promptly upon, and in any event within
-----------------------------------
thirty (30) days after, Borrower, any Pledgor Subpartnership, the REIT or any
ERISA Affiliate of any of them fails to make a required installment under
subsection (m) of Section 412 of the Internal Revenue Code or any other payment
required under Section 412 of the Internal Revenue Code on or before the due
date for such installment or payment, a notification of such failure, if such
failure could result in either the imposition of a Lien under said Section 412
or otherwise have or could reasonably be anticipated to have a Material Adverse
Effect on Borrower, any Pledgor Subpartnership or the REIT.
(t) Failure of the REIT to Qualify as Real Estate Investment Trust. Promptly
--------------------------------------------------------------
upon, and in any event within forty-eight (48) hours after Borrower first has
actual knowledge of (i) the REIT failing to qualify or continue to qualify as a
real estate investment trust as defined in Section 856 of the Internal Revenue
Code (or any successor provision thereof), (ii) any act by the REIT causing its
election to be taxed as a real estate investment trust to be terminated, (iii)
any act causing the REIT to be subject to the taxes imposed by Section 857(b)(6)
of the Internal Revenue Code (or any successor provision thereto), or (iv) the
REIT failing to be entitled to a dividends paid deduction which meets the
requirements of Section 857 of the Internal Revenue Code, a notice of any such
occurrence or circumstance.
(u) Asset Acquisitions and Dispositions, Indebtedness; Etc. Without
------------------------------------------------------
limiting Article 8 or any other restriction in the Loan Documents, a description
---------
of any material Investments (other than in Cash Equivalents), material
acquisitions, dispositions, disposal, divestitures or similar transactions
involving Property, the raising of additional equity or the incurring or
repayment of material Indebtedness, by or with Borrower, any Pledgor
Subpartnership or the REIT (other than those entered into as shown in the REIT
5-11) ten (10) days prior to the occurrence thereof or if there are no
outstanding LSans five (5) days thereafter, with telephonic or facsimile notice
thereof to William R. Lynch, (202) 393-3730 (telephone) or (202) 393-1545
(facsimile), or such other
-107-
<PAGE>
person(s) as the Administrative Agent may designate from time to time, and,
promptly upon consummation of such transaction, a Compliance Certificate
demonstrating in reasonable detail (which detail shall include actual
calculations) compliance, after giving effect to such proposed transaction(s),
with the covenants contained in Section 8.5 and Article 9.
----------- ---------
(v) Other Information. Such other information, reports, contracts, schedules,
-----------------
lists, documents, agreements and instruments in the possession of the REIT,
Borrower or a Pledgor Subpartnership with respect to (i) the Collateral, (ii)
any material change in the REIT's investment, finance or operating policies, or
(iii) Borrower's, any Pledgor Subpartnership's or the REIT's business, condition
(financial or otherwise), operations, performance, properties or prospects as
the Administrative Agent may from time to time reasonably request, including,
without limitation, annual information with respect to cash flow projections,
budgets, operating statements (current year and immediately preceding year),
rent rolls, lease expiration reports, leasing status reports, note payable
summaries, bullet note summaries, equity funding requirements, contingent
liability summaries, line of credit summaries, line of credit collateral
summaries, wrap note or note receivable summaries, schedules of outstanding
letters of credit, summaries of cash and Cash Equivalents, projections of
leasing fees and overhead budgets. Provided that the Administrative Agent gives
--------
Borrower reasonable prior notice and an opportunity to participate, Borrower
hereby authorizes the Administrative Agent to communicate with the Accountants
and authorizes the Accountants to disclose to the Administrative Agent any and
all financial statements and other information of any kind, including copies of
any management letter or the substance of any oral information, that such
accountants may have with respect to the Collateral or Borrower's, any Pledgor
Subpartnership's or the REIT's condition (financial or otherwise), operations,
properties, performance and prospects. Concurrently therewith, the
Administrative Agent will notify Borrower of any such communication. At
Administrative Agent's request, Borrower shall deliver a letter addressed to the
Accountants instructing them to disclose such information in compliance with
this Section 6.1(v).
--------------
(w) Press Releases: SEC Filings Tax Returns and Financial Statements. Telephonic
----------------------------------------------------------------
or telecopy notice to the Administrative Agent concurrent with or prior to
issuance of any material press release concerning the REIT or Borrower and, as
soon as practicable after filing with the Commission, all reports and notices,
proxy statements, registration statements and prospectuses of the REIT. All
materials sent or made available generally by the REIT to the holders of its
publicly held Securities or to a trustee under any indenture or filed with the
Commission, including all periodic reports required to be filed with the
Commission, will be delivered to Administrative Agent within ten (10) days of
filing. All tax returns filed with the Internal Revenue Service within ten (10)
days of such filing.
(x) Accountant Reports. Copies of all reports prepared by the Accountants and
------------------
submitted to Borrower or the REIT in connection with each annual, interim or
special audit or review of the financial statements or practices of Borrower or
the REIT.
-108-
<PAGE>
(y) Senior Debt Rating Charges. Promptly, but in no event later than five (5)
--------------------------
Business Days after the issuance thereof, provide written notice to the
Administrative Agent of any change in any of the Senior Debt Ratings.
-109-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,290
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,400
<PP&E> 806,298
<DEPRECIATION> (199,914)
<TOTAL-ASSETS> 668,915
<CURRENT-LIABILITIES> 16,046
<BONDS> 543,342
0
19,772
<COMMON> 133
<OTHER-SE> 34,229
<TOTAL-LIABILITY-AND-EQUITY> 688,915
<SALES> 0
<TOTAL-REVENUES> 94,259
<CGS> 0
<TOTAL-COSTS> 49,910
<OTHER-EXPENSES> 3,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,151
<INCOME-PRETAX> 20,864
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,153
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
