AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 1996
REGISTRATION NO. 333-15423
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 2
to
FORM S-11
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
FIRST WASHINGTON REALTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
---------------
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
(301) 907-7800
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
William J. Wolfe
President and Chief Executive Officer
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
(301) 907-7800
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
R. Ronald Hopkinson, Esq. J. Warren Gorrell, Jr., Esq.
LATHAM & WATKINS James E. Showen, Esq.
Suite 1300, 1001 Pennsylvania Ave., HOGAN & HARTSON L.L.P.
Washington, D.C. 20004 Columbia Square
(202) 637-2200 555 13th Street, N.W.
Washington, D.C. 20004
(202) 637-5600
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
---------------
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] .
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] .
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION
NOVEMBER 22, 1996
1,500,000 Shares
FIRST WASHINGTON REALTY TRUST, INC.
Common Stock
First Washington Realty Trust, Inc. (the 'Company') engages in the
acquisition, management, renovation and development of principally
supermarket-anchored neighborhood shopping centers. The Company is a
fully-integrated, self-administered and self-managed real estate company that
operates as a real estate investment trust (a 'REIT'). The Company owns a
portfolio of 33 retail properties, and expects to complete the acquisition of
six additional retail properties promptly following the Offering (as defined
below). The 39 retail properties contain a total of approximately 3.9 million
square feet of gross leasable area in the Mid-Atlantic region. The Company also
manages properties owned by third parties.
All of the shares of common stock offered hereby ('Common Stock') are being
offered by the Company (the 'Offering'). To assist the Company in maintaining
its qualification as a REIT, transfer of the Common Stock and the Company's
outstanding 9.75% Series A Cumulative Participating Convertible Preferred Stock
(the 'Convertible Preferred Stock') is restricted, and actual or constructive
ownership by any person is limited to 9.8% of the outstanding shares of such
class of stock, subject to certain exceptions.
The Common Stock is listed on the New York Stock Exchange ('NYSE') under
the symbol FRW. On November 21, 1996, the last reported sale price of the Common
stock on the NYSE was $21 3/4 per share. Since inception the Company has paid
regular quarterly distributions of $.4875 on its Common Stock, representing an
annualized distribution per share of $1.95. See 'Price Range of the Common Stock
and Distributions.'
----------
SEE 'RISK FACTORS' BEGINNING ON PAGE EIGHT FOR CERTAIN FACTORS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK INCLUDING:
o Risks of leverage and default, including the uncertainty associated with
the ability of the Company to refinance mortgage indebtedness of
approximately $97.0 million at maturity dates ranging from 1997 to 2001 and
$25.0 million of Exchangeable Debentures (as defined) due 1999
o Limitations on distributions payable on the Common Stock, due to the right
of the Convertible Preferred Stock to receive a participating distribution
after specified distributions have been made on the Common Stock
o Substantially all distributions paid on the Common Stock for fiscal year
1995 represented a return of capital for tax purposes rather than ordinary
income
o General real estate investment considerations and financing risks
o Possible conflicts of interest in connection with the operation of the
Company
o Limitations on potential changes of control of the Company, including
restrictions on ownership of Common Stock and Convertible Preferred Stock
o Adverse consequences of failure to qualify as a REIT
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------ -------------- ----------
<S> <C> <C> <C>
Per share ........ $ $ $
Total(3) ......... $ $ $
- ----------
<FN>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See 'Underwriting.'
(2) Before deducting expenses of the Offering, estimated at $375,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See 'Underwriting.'
</FN>
</TABLE>
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and to the
right of the Underwriters to reject any order in whole or in part, and to
certain other conditions. It is expected that delivery of the shares of Common
Stock will be made at the offices of Alex. Brown & Sons Incorporated, Baltimore,
Maryland, on or about , 1996.
ALEX. BROWN & SONS
INCORPORATED
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
TUCKER ANTHONY
INCORPORATED
THE DATE OF THIS PROSPECTUS IS NOVEMBER , 1996.
[RED HERRING LANGUAGE:]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
[PHOTOGRAPHS OF CERTAIN OF THE RETAIL PROPERTIES
AND A MAP SPECIFYING THE GENERAL LOCATION OF ALL OF THE PROPERTIES.]
----------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE CONVERTIBLE PREFERRED STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY...................................... 1
The Company........................................... 1
Risk Factors.......................................... 2
Recent Developments................................... 3
Properties............................................ 4
The Offering.......................................... 5
Summary Pro Forma and Historical Information.......... 6
RISK FACTORS............................................ 8
Risks Associated With Indebtedness.................... 8
Historical Operating Losses and Net Deficit........... 9
Limitation on the Level of Distributions Payable to
Common Stock; Subordination of Distributions with
Respect to Common Stock............................. 9
Distributions Representing Return of Capital.......... 9
Limited Geographic Diversification; Dependence on the
Mid-Atlantic Region................................. 9
Effect of Exchange of Exchangeable Indebtedness....... 10
Environmental Matters................................. 10
Risks of Third-Party Management, Leasing and Related
Service Business.................................... 11
Conflicts of Interest................................. 11
Changes in Investment and Financing Policies Without
Stockholder Approval................................ 12
Influence of Executive Officers....................... 12
Dependence on Key Personnel........................... 12
General Real Estate Investment Risks; Adverse Impact
on Ability to Make Distributions.................... 12
Ownership Limit and Limits on Changes in Control...... 14
Adverse Consequences of Failure to Qualify as a REIT.. 16
Effect on Price of Shares Available for Future Sale... 17
New Retail Properties................................. 18
THE COMPANY............................................. 19
General............................................... 19
Growth Strategies..................................... 19
Property Management, Leasing and Related Service
Business............................................ 20
PROPERTIES.............................................. 21
Tenant Diversification................................ 24
Additional Information Concerning Certain of the
Properties.......................................... 25
Indebtedness.......................................... 29
Competition........................................... 30
Regulations and Insurance............................. 30
Environmental Matters................................. 31
Legal Proceedings..................................... 32
USE OF PROCEEDS......................................... 33
PRICE RANGE OF THE COMMON STOCK AND DISTRIBUTIONS....... 33
CAPITALIZATION.......................................... 35
SELECTED PRO FORMA AND HISTORICAL FINANCIAL AND
PORTFOLIO INFORMATION............................... 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................... 39
Overview.............................................. 39
Results of Operations................................. 39
Liquidity and Capital Resources....................... 42
Inflation; Economic Conditions........................ 45
MANAGEMENT.............................................. 46
Directors and Executive Officers...................... 46
Board of Directors and Committees..................... 48
Compensation of Directors............................. 48
Compensation of Officers.............................. 49
Employment Agreements................................. 51
Additional Information................................ 54
Limitation of Liability and Indemnification........... 54
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............. 55
Investment Policies................................... 55
Financing Policies.................................... 56
Conflicts of Interest Policies........................ 57
Development Policies.................................. 57
Policies with Respect to Other Activities............. 57
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 59
Partnership Agreement; Exchange Rights................ 59
Certain Properties Not Transferred to the Company..... 59
Management Company.................................... 59
Other................................................. 59
PRINCIPAL STOCKHOLDERS.................................. 60
DESCRIPTION OF CAPITAL STOCK............................ 61
General............................................... 61
Common Stock.......................................... 61
Convertible Preferred Stock........................... 62
Power to Issue Additional Shares of Common Stock and
Preferred Stock....................................... 64
Restrictions on Ownership, Transfer and Conversion 64
Registration Rights Agreements........................ 67
NYSE Listing.......................................... 67
SHARES AVAILABLE FOR FUTURE SALE........................ 67
CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS...................................... 68
Classification of the Board of Directors.............. 68
Removal of Directors.................................. 69
Business Combinations................................. 69
Control Share Acquisitions............................ 69
Amendment to the Charter.............................. 70
Dissolution of the Company............................ 70
Advance Notice of Director Nominations and New
Business............................................ 70
FEDERAL INCOME TAX CONSIDERATIONS....................... 71
Taxation of the Company............................... 71
Failure to Qualify.................................... 77
Taxation of Taxable U.S. Stockholders................. 77
Backup Withholding.................................... 78
Taxation of Tax-Exempt Stockholders................... 78
Taxation of Non-U.S. Stockholders..................... 79
Tax Aspects of the Operating Partnership.............. 81
Other Tax Consequences................................ 84
UNDERWRITING............................................ 85
EXPERTS................................................. 86
LEGAL MATTERS........................................... 86
ADDITIONAL INFORMATION.................................. 86
GLOSSARY OF TERMS....................................... 87
INDEX TO FINANCIAL STATEMENTS........................... F-1
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Although the Company, the Operating Partnership and the
Management Company (as such terms are defined below) are separate entities, each
of which is managed in accordance with its governing documents, for ease of
reference the term 'Company' as used herein shall refer to the businesses and
properties of the Company, the Operating Partnership and the Management Company
(and their predecessors), unless the context indicates otherwise. Except as
otherwise specified, all information presented in this Prospectus assumes no
exercise of the Underwriters' over-allotment option and assumes consummation of
the acquisition of the New Retail Properties. Capitalized terms used herein
without definition shall have the meanings set forth in the Glossary.
THE COMPANY
First Washington Realty Trust, Inc. (the 'Company') is a fully integrated,
self-administered and self-managed real estate company that operates as a REIT
with expertise in the acquisition, management, renovation and development of
principally supermarket-anchored neighborhood shopping centers. As of September
30, 1996, the Company owned a portfolio of 33 retail properties (the 'Existing
Retail Properties'). The Company expects to complete the acquisition of six
additional retail properties promptly following the closing of the Offering (the
'New Retail Properties,' and together with the Existing Retail Properties, the
'Retail Properties'). The Retail Properties contain a total of approximately 3.9
million square feet of gross leasable area ('GLA') in the Mid-Atlantic region.
The Company also owns two multifamily properties in the Mid-Atlantic region (the
'Multifamily Properties') (the Retail Properties and the Multifamily Properties
are collectively referred to as the 'Properties').
The Company's business strategy is highly focused with respect to property
type and location. The Company concentrates its efforts on supermarket-anchored
neighborhood shopping centers. The Company generally seeks to own properties
located in densely populated areas, that have high visibility, open-air designs
and ease of entry and exit, and that may be readily adaptable over time to
expansion, renovation and redevelopment.
The Retail Properties are strategically located neighborhood shopping
centers, principally anchored by well-known tenants such as Shoppers Food
Warehouse, Weis Markets, Rite Aid, A&P Superfresh, Giant Food, CVS/Pharmacy,
Safeway, Winn Dixie and Acme Markets. As of September 30, 1996, national and
regional tenants accounted for approximately 73% of leased GLA and approximately
60% of annualized minimum rents for the Retail Properties. The anchor tenants at
the Retail Properties typically offer daily necessity items. Management believes
that anchor tenants offering daily necessity items help to generate regular
consumer traffic and to provide economic stability.
Since December 31, 1991, the occupancy rate for the Existing Retail
Properties (during the respective periods each such property was owned by the
Company) has averaged approximately 95%. Average effective net rents (as
measured by base rent divided by square feet leased, excluding vacant space)
increased from $8.89 per square foot as of December 31, 1991 to $10.54 as of
September 30, 1996.
The Company manages and leases all of the Existing Retail Properties and
will manage and lease the New Retail Properties. In addition, the Company
provides management, leasing and related services for third parties. As of
September 30, 1996, the Company provided management, leasing and related
services to third-party clients for 33 shopping centers containing approximately
3.5 million square feet of GLA throughout the Mid-Atlantic region.
1
<PAGE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See 'Risk
Factors' for certain factors relevant to an investment in the Common Stock,
including:
o Risks associated with borrowing, including: (i) the uncertainty associated
with the ability of the Company to refinance mortgage indebtedness of
approximately $97.0 million at maturity dates ranging from 1997 to 2001 and
$25.0 million of Exchangeable Debentures due 1999, (ii) that indebtedness
might be refinanced on less favorable terms, (iii) that there is a lack of
limitations on the amount of indebtedness that the Company may incur, (iv)
that interest rates might increase on variable rate or refinanced
indebtedness and (v) that the Company's leverage may limit its ability to
grow through additional debt financing.
o Limitations on the level of distributions payable on the Common Stock due
to the right of the Convertible Preferred Stock to participate in quarterly
distributions on the Common Stock to the extent that such per share
distributions exceed $0.4875 per quarter.
o That: (i) 100% of the distributions on the Common Stock for fiscal year
1995 represented a return of capital for federal income tax purposes and
(ii) based on the level of distributions on the Common Stock that
represented a return of capital in 1995, the Company would not have been
required to make any distributions on the Common Stock in 1995 to satisfy
its obligation under federal income tax law to distribute annually at least
95% of its REIT taxable income.
o General real estate investment and financing risks, such as the effect of
local economic and other conditions on property values, the ability of the
Properties to generate income sufficient to meet operating expenses, risks
associated with the renovation and acquisition of properties and the
potential liability of the Company for unknown or future environmental
liabilities on its past, present or future properties.
o Risks associated with the Company's third-party management business, which
is conducted by the Management Company (as defined), including the
inability of the Company to control the Management Company, which could
result in decisions which do not fully reflect the Company's interest, and
the risk that most management contracts are generally cancelable by the
Company's third-party clients upon 30 days' notice.
o Possible conflicts of interest in connection with the Company's operations.
o Limitations on the stockholders' ability to change control of the Company,
due to restrictions on actual or constructive ownership of more than 9.8%
of the Company's outstanding shares of stock or any class thereof, a
staggered Board of Directors, and a supermajority vote requirement
involving the merger or sale of all or substantially all of the assets of
the Company, any of which may discourage a change in control and limit the
opportunity for stockholders to receive a premium over then-current market
prices for their shares of stock.
o Taxation of the Company as a regular corporation if it fails to qualify as
a REIT, treatment of the Operating Partnership (or any subsidiary
partnership of the Operating Partnership) as an association taxable as a
corporation if any such partnership fails to qualify as a partnership (and
the resulting failure of the Company to qualify as a REIT), and the
resulting decrease in funds available for distribution.
2
<PAGE>
RECENT DEVELOPMENTS
New Retail Properties. The following table sets forth certain information
with respect to the New Retail Properties:
<TABLE>
<CAPTION>
Purchase GLA
Name Location Price (sq. ft.)
- ---- -------- ----- ---------
<S> <C> <C> <C>
City Line Shopping Center(1)........... Philadelphia, PA $13,150,000 153,899
Four Mile Fork Shopping Center......... Fredericksburg, VA 5,700,000 101,262
Kings Park Shopping Center............. Burke, VA 5,700,000 76,212
Newtown Square Shopping Center......... Newtown Square, PA 11,700,000 137,569
Northway Shopping Center............... Millersville, MD 9,000,000 91,276
Shoppes of Graylyn..................... Wilmington, DE 7,200,000 65,746
----------- -------
Total.............................. $52,450,000(2) 625,964
=========== =======
- ----------
<FN>
(1) The Company will own an 89% interest in this property. The seller of City
Line Shopping Center will retain an 11% interest which it is obligated to
transfer to the Company and which the Company is obligated to acquire
approximately three years after the initial closing in exchange for Common
Units. In addition, the Company is obligated to issue to the seller
additional Common Units with a value of up to $750,000 if certain portions
of this property are re-leased within three years after closing at rental
rates higher than rates as of the closing of the acquisition of the
property.
(2) This amount includes assumption of $21.1 million of mortgage indebtedness
and the issuance of 300,000 Common Units with a market value as of the date
of each acquisition of approximately $6.2 million.
</FN>
</TABLE>
Recent Acquisitions. The following table sets forth certain information with
respect to the eight Retail Properties acquired since July 1995:
<TABLE>
<CAPTION>
Purchase GLA
Name Location Price (sq. ft.)
- ---- -------- ----- ---------
<S> <C> <C> <C>
Centre Ridge Marketplace............... Centreville, VA $ 9,449,000 69,854
Clopper's Mill Village................. Germantown, MD 19,833,000 137,952
15th & Allen Shopping Center........... Allentown, PA 4,242,000 46,503
Firstfield Shopping Center............. Gaithersburg, MD 3,600,000 22,504
Kenhorst Plaza Shopping Center......... Reading, PA 11,000,000 138,034
Southside Marketplace.................. Baltimore, MD 10,998,000 125,146
Stefko Boulevard Shopping Center....... Bethlehem, PA 5,618,000 135,864
Takoma Park Shopping Center............ Takoma Park, MD 4,605,000 103,581
------------ ---------
Total.............................. $ 69,345,000(1) 779,438
============ =========
- ----------
<FN>
(1) This amount includes assumptions of $8.1 million of mortgage indebtedness, a
seller note of $2.5 million and the issuance of: (i) approximately 36,189
shares of Convertible Preferred Stock with a market value of approximately
$0.8 million; (ii) approximately 69,000 Preferred Units with a market value
of approximately $1.7 million and (iii) approximately 304,000 Common Units
with a market value of approximately $5.7 million.
</FN>
</TABLE>
3
<PAGE>
Renovations and Expansions. As part of its operating strategy, the Company
regularly renovates and expands its Retail Properties. The Company seeks
expansion and renovation opportunities that enhance operating results through
favorable internal rates of return on invested capital. The following table sets
forth information with respect to the Company's recent and ongoing renovations
and expansions:
<TABLE>
<CAPTION>
ESTIMATED
COMPLETION ESTIMATED ADDITIONAL
NAME DESCRIPTION DATE COST SQUARE FEET
- ---- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Fox Mill Shopping Center............ Expansion--Giant Food Fourth Quarter 1996 -- (1) 10,560
Glen Lea Shopping Center............ Facade renovations Fourth Quarter 1996 $ 186,000(2) --
Laburnum Square Shopping Center..... Facade renovations Fourth Quarter 1996 189,600(2) --
Takoma Park Shopping Center......... Expansion--Shoppers Food
Warehouse First Quarter 1997 -- (1) 22,000
Takoma Park Shopping Center......... Facade renovations First Quarter 1997 800,000(3) --
First State Plaza................... Expansion--Shop Rite
Supermarket First Quarter 1997 -- (1) 2,075
Centre Ridge Marketplace............ Expansion--Sears Paint and
Hardware and small shop
space Second Quarter 1997 1,500,000(3) 30,600
Firstfield Shopping Center.......... Facade renovations Second Quarter 1997 109,000(2) --
Kenhorst Plaza Shopping Center...... Expansion--Sears Paint and
Hardware Second Quarter 1997 1,250,000(3) 21,000
Valley Centre Shopping Center....... Expansion--T.J. Maxx Second Quarter 1997 625,000 10,000
Kenhorst Plaza Shopping Center...... Expansion--Redner's
Supermarket Third Quarter 1997 -- (1) 8,000
Laburnum Park Shopping Center....... Expansion--Ukrops
Supermarket Third Quarter 1997 -- (1) 10,000
- ----------
<FN>
(1) Paid by tenant.
(2) Funded either through draws on the Company's Lines of Credit or by
working capital.
(3) Funded through specific construction loans secured by the property.
</FN>
</TABLE>
New York Stock Exchange Listing. The Common Stock commenced trading on the
New York Stock Exchange on August 13, 1996. From June 27, 1995 until such time,
the Common Stock was traded on the Nasdaq National Market.
PROPERTIES
Retail Properties. The Retail Properties are primarily supermarket-anchored
neighborhood shopping centers containing a total of approximately 3.9 million
square feet of GLA occupied by approximately 794 tenants. Neighborhood shopping
centers are typically open-air centers ranging in size from 50,000 to 150,000
square feet of GLA and anchored by supermarkets and/or drug stores. The Retail
Properties average approximately 100,000 square feet of GLA. The Company's
portfolio is comprised of a diversified tenant base, with no single tenant
representing more than 2.7% of the Company's annualized minimum rent. All of the
Existing Retail Properties are managed by the Company, and all of the New Retail
Properties will be managed by the Company upon acquisition. As of September 30,
1996, 60.0% of the Retail Properties' annualized minimum rents were derived from
lease payments by national and regional tenants. As of September 30, 1996, the
Retail Properties were 95.6% leased.
4
<PAGE>
The chart below shows certain additional information with respect to the
Retail Properties as of September 30, 1996:
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
NUMBER OF GLA PERCENTAGE OF ANNUALIZED ANNUALIZED
PROPERTIES (SQ. FT.) TOTAL GLA OCCUPANCY MINIMUM RENT MINIMUM RENT
---------- --------- ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
EXISTING RETAIL
PROPERTIES
Maryland...................... 12 1,480,339 37.9% 95.7% $15,094,620 40.4%
Virginia...................... 11 919,625 23.5 95.3 8,316,491 22.2
Pennsylvania.................. 5 460,164 11.8 96.3 4,186,571 11.2
District of Columbia.......... 2 25,052 0.6 100.0 575,809 1.5
South Carolina................ 1 88,557 2.3 100.0 584,638 1.6
North Carolina................ 1 148,205 3.8 98.9 1,289,204 3.4
Delaware...................... 1 162,404 4.2 100.0 1,605,604 4.3
-- --------- ----- ----- ----------- ----
Subtotal................. 33 3,284,346 84.1% 96.1% $31,652,937 84.6%
-- --------- ----- ----- ----------- ----
NEW RETAIL PROPERTIES
Maryland...................... 1 91,276 2.3% 97.8% $ 993,604 2.7%
Virginia...................... 2 177,474 4.5 95.5 1,254,374 3.4
Pennsylvania.................. 2 291,468 7.4 91.1 2,828,395 7.5
Delaware...................... 1 65,746 1.7 86.2 673,698 1.8
-- --------- ----- ----- ----------- ----
Subtotal................. 6 625,964 15.9% 92.8% $ 5,750,071 15.4%
-- --------- ----- ----- ----------- ----
Total.................. 39 3,910,310 100.0% 95.6% $37,403,008 100.0%
== ========= ===== ===== =========== =====
</TABLE>
Multifamily Properties. The two Multifamily Properties, comprising 401
units, are located in Charleston, South Carolina, in close proximity to one of
the Retail Properties. The Multifamily Properties comprise a relatively small
portion of the Company's revenues (4.0% as of September 30, 1996) and the
Company anticipates that its principal strategic focus will continue to be the
acquisition of additional supermarket-anchored neighborhood shopping centers.
THE OFFERING
Common Stock offered hereby ................ 1,500,000 shares
Common Stock to be outstanding after the
Offering(1)............................... 4,791,245 shares
Use of proceeds ............................ The net proceeds will be used to
acquire the New Retail Properties,
to expand certain Properties, to
repay existing indebtedness, and
for general working capital.
NYSE symbol................................. FRW
- ----------
(1) Does not reflect 5,921,497 shares of Common Stock issuable upon
exchange or conversion of Common Units, including Common Units issued
or to be issued in connection with the acquisition of the New Retail
Properties, Convertible Preferred Stock, Exchangeable Preferred Units,
Exchangeable Debentures and exchange of the FS Note, or 594,874 shares
of Common Stock reserved for issuance under the Company's 1994 Stock
Incentive Plan, 1994 Contingent Stock Awards, 1996 Restricted Stock
Plan and 1996 Contingent Stock Awards. See 'Shares Available for
Future Sale.'
5
<PAGE>
SUMMARY PRO FORMA AND HISTORICAL INFORMATION
The following tables set forth pro forma summary consolidated financial
information for the Company and historical summary financial information for the
Company and its predecessor, the FWM Group (as defined below). The unaudited pro
forma information for the year ended December 31, 1995 is presented as if: (i)
the June 1995 Offering had occurred and the proceeds therefrom had been used, as
of January 1, 1995, to purchase the Retail Properties acquired in connection
with the June 1995 Offering; and (ii) the Offering had occurred and the net
proceeds therefrom had been used, as of January 1, 1995, as described in 'Use of
Proceeds,' and the 1996 Acquisitions had occurred as of January 1, 1995. The
unaudited pro forma information for the nine months ended September 30, 1996 is
presented as if the Offering had occurred and the net proceeds therefrom had
been used, as of January 1, 1996, as described in 'Use of Proceeds,' and the
1996 Acquisitions had occurred as of January 1, 1996. The 'FWM Group' consists
of the combined financial statements for the periods presented of: (i) the FWM
Properties and (ii) the third party management, leasing, and related service
business of FWM. The following summary financial information should be read in
conjunction with the discussion set forth in 'Management's Discussion and
Analysis of Financial Condition and Results of Operations,' and all of the
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------ -------------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 1995 1996 1996
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FINANCIAL INFORMATION:
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues............................ $ 17,192 $ 20,199 $ 29,580 $ 45,204 $ 20,792 $ 30,113 $ 36,963
--------- --------- --------- --------- --------- --------- ---------
Total expenses............................ 18,432 21,535 27,098 39,417 19,433 26,779 32,312
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income from
Management Company, extraordinary item
and minority interest.................... (1,240) (1,336) 2,482 5,787 1,359 3,334 4,651
Income from Management Company(1)......... -- 500 449 449 361 97 97
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before distributions to
preferred stockholders, extraordinary
item and minority interest............... (1,240) (836) 2,931 6,236 1,720 3,431 4,748
Extraordinary item........................ 2,665 2,251 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income before minority interest and
distributions to preferred
stockholders............................. 1,425 1,415 2,931 6,236 1,720 3,431 4,748
(Income) loss allocated to minority
interest................................. -- (1,101) (602) (977) (87) (486) (746)
Distributions to preferred stockholders... -- (1,811) (5,117) (5,641) (3,728) (4,231) (4,231)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) allocated to common
stockholders............................. $ 1,425 $ (1,497) $ (2,788) $ (382) $ (2,095) $ (1,286) $ (229)
========= ========= ========= ========= ========= ========= =========
Net income (loss) per Common
Share(2)........................... $ (0.95) $ (1.19) $ (0.08) $ (1.01) $ (0.40) $ (0.05)
========= ========= ========= ========= ========= =========
Shares of Common Stock, in thousands...... 1,574 2,351 4,701 2,081 3,227 4,727
========= ========= ========= ========= ========= =========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------ -------------------------
PRO FORMA
1993 1994 1995 1996 1996
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT RETAIL PROPERTY INFORMATION)
BALANCE SHEET INFORMATION:
<S> <C> <C> <C> <C> <C>
Rental properties, gross.............................. $ 87,749 $ 175,213 $ 228,092 $ 285,774 $ 341,478
Total assets.......................................... 81,056 172,487 227,405 274,969 333,677
Mortgage and other notes payable...................... 92,382 89,858 116,182 162,346 186,976
Exchangeable Debentures............................... -- 25,000 25,000 25,000 25,000
Total liabilities..................................... 96,216 117,925 145,241 192,561 217,191
Minority interest(3).................................. -- 8,580 11,088 12,573 18,948
Stockholders' equity (deficit)........................ (15,160) 45,982 71,076 69,835 97,538
RETAIL PROPERTY
INFORMATION:
Retail Occupancy...................................... 95.4% 94.4% 96.0% 96.1% 95.6%
Number of Retail Properties........................... 14 20 27 33 39
Retail Properties GLA (thousands of sq. ft.).......... 1,186 2,014 2,646 3,284 3,910
Average rent(4):
Retail Properties (per sq. ft.)..................... $ 9.16 $ 10.08 $ 10.28 $ 10.54 $ 10.43
OTHER DATA:(5)
Funds From Operations(6).............................. -- -- $ 10,539 $ 10,264 $ 12,873
Cash flow from operating activities................... $ 831 $ 3,164 10,003 9,466
Cash flow (used in) investing activities.............. (450) (56,236) (29,884) (42,260)
Cash flow provided by (used in) financing activities.. (529) 53,615 26,574 26,858
- ----------
<FN>
(1) Subsequent to June 27, 1994, activity of the Management Company is being
reflected using the equity method of accounting.
(2) Because the Company's income is based on its percentage interest in the
Operating Partnership's income, the net loss per share would be unchanged
for the periods presented even if Common Units were exchanged for Common
Stock of the Company.
(3) Reflects the Exchangeable Preferred Units and Common Units of the Operating
Partnership not owned by the Company.
(4) Represents base rent divided by square feet leased, for the annualized
12-month period.
(5) For the year or nine months ending as of the date indicated
(6) The Company considers Funds From Operations to be an appropriate measure of
the performance of an equity REIT. On March 3, 1995, NAREIT adopted the
NAREIT White Paper on Funds From Operations (the 'NAREIT White Paper')
which provided additional guidance on the calculation of Funds From
Operations. Funds From Operations is defined by NAREIT as net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect Funds From
Operations on the same basis. Funds From Operations does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available
to fund cash needs and should not be considered an alternative to net
income as an indicator of the Company's operating performance or as an
alternative to cash flow as a measure of liquidity or of ability to make
distributions.
</FN>
</TABLE>
Information contained in this Prospectus contains Forward-looking
Statements relating to, without limitation, future economic performance, plans
and objectives of management for future operations and projections of revenue
and other financial items, which can be identified by the use of forward-looking
terminology such as may, will, should, expect, anticipate, estimate or continue
or the negative thereof or other variations thereon or comparable terminology.
The cautionary statements set forth under the caption Risk Factors and elsewhere
in the Prospectus identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements.
7
<PAGE>
RISK FACTORS
In addition to other information in this Prospectus, the following factors
should be considered carefully in evaluating an investment in the shares of
Common Stock offered by this Prospectus.
RISKS ASSOCIATED WITH INDEBTEDNESS
Leverage. As of September 30, 1996, the Company had outstanding
approximately $162.3 million of long-term mortgage indebtedness and $25.0
million of Exchangeable Debentures. Upon completion of the Offering and use of
the proceeds contemplated thereby, and upon consummation of the acquisition of
the New Retail Properties, the ratio of the Company's debt (including the
Exchangeable Debentures) to total market capitalization will be approximately
51.5%, and the ratio of the Company's debt (excluding the Exchangeable
Debentures) to total market capitalization will be approximately 45.2%.
Near Term Maturity of Indebtedness. The Company is subject to the risks
normally associated with debt financing, including the risk that the Company's
cash flow will be insufficient to meet required payments of principal and
interest, the risk that existing indebtedness on the Properties (which in most
cases will not have been fully amortized at maturity) will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of the existing indebtedness. A large portion of the Company's mortgage
indebtedness will become due by 1999, requiring payments of, $3.2 million in
1997, $13.6 million in 1998 and $86.2 million (including $25.0 million of
Exchangeable Debentures) in 1999. From 1997 through 2020, the Company will have
to refinance an aggregate of approximately $212.9 million.
Because the Company anticipates that only a small portion of the principal
of the Company's mortgage indebtedness will be repaid prior to maturity and does
not plan to retain cash sufficient to repay such indebtedness at maturity, it
will be necessary for the Company to refinance debt through additional debt
financing or equity offerings. If the Company is unable to refinance this
indebtedness on acceptable terms, the Company may be forced to dispose of
properties upon disadvantageous terms, which might result in losses to the
Company and might adversely affect cash available for distributions to
stockholders. If prevailing interest rates or other factors at the time of
refinancing result in higher interest rates on refinancings, the Company's
interest expense would increase, which would adversely affect the Company's
ability to pay expected distributions to stockholders. Further, if a property or
properties are mortgaged to collateralize payment of indebtedness and the
Company is unable to meet mortgage payments, the property or properties could be
foreclosed upon by or otherwise transferred to the mortgagee with a consequent
loss of income and asset value to the Company. Even with respect to nonrecourse
indebtedness, the lender may have the right to recover deficiencies from the
Company in certain circumstances, including environmental liabilities. See
'Properties--Indebtedness.'
Risk of Rising Interest Rates. Of the Company's mortgage indebtedness
(including indebtedness to be incurred in connection with the acquisition of the
New Retail Properties, but excluding the Exchangeable Debentures), $22.7 million
(10.6%) is variable rate indebtedness. Future indebtedness may bear interest at
a variable rate. Accordingly, increases in prevailing interest rates could
increase the Company's interest expense, which would adversely affect the
Company's cash available for distribution and its ability to pay expected
distributions to stockholders. A one-half of one percent increase in interest
rates would increase the Company's interest expense by $0.1 million ($0.01 per
share) (assuming the exchange of all Common Units and Exchangeable Preferred
Units and the conversion of all Convertible Preferred Stock into Common Stock)
in 1997.
No Limitation on Debt. The Company currently has a policy of maintaining a
ratio of debt (excluding the Exchangeable Debentures) to total market
capitalization of 50% or less, but the organizational documents of the Company
do not contain any limitation on the amount of indebtedness the Company may
incur. Accordingly, the Board of Directors could alter or eliminate
8
<PAGE>
this policy. If this policy were changed, the Company could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
the Company.
Cross-Collateralization. A total of 15 Properties are cross-collateralized
with one or more other Properties. A default in a single loan which is
cross-collateralized by other properties may result in the foreclosure on all of
such properties by the mortgagee with a consequent loss of income and asset
value to the Company. See 'Properties--Indebtedness.'
HISTORICAL OPERATING LOSSES AND NET DEFICIT
The Company historically has experienced losses allocated to common
stockholders (as measured by generally accepted accounting principles) before
extraordinary items. These net losses reflect substantial non-cash charges such
as depreciation and amortization and the effect of distributions to holders of
the Convertible Preferred Stock. There can be no assurance that the Company will
operate profitably in the future. If some or all of the Properties continue to
operate at a loss, the Company's ability to make distributions to its
stockholders could be adversely affected. See '--Risks Associated With
Indebtedness' and '--General Real Estate Investment Risks; Adverse Impact on
Ability to Make Distributions.'
LIMITATION ON THE LEVEL OF DISTRIBUTIONS PAYABLE TO COMMON STOCK;
SUBORDINATION OF DISTRIBUTIONS WITH RESPECT TO COMMON STOCK
The Company's charter provides that when distributions are declared by the
Board of Directors, each share of Convertible Preferred Stock is entitled to
receive distributions equal to $0.6094 per quarter, plus a participating
distribution equal to the amount, if any, of distributions in excess of $0.4875
per quarter payable to the Common Stock with respect to the number of shares of
Common Stock into which the Convertible Preferred Stock is then convertible. See
'Description of Capital Stock--Convertible Preferred Stock--Distributions.' The
payment of distributions with respect to the Convertible Preferred Stock reduces
the income allocable to the holders of Common Stock and therefore causes a
decrease in such common stockholders' equity. The fact that the Convertible
Preferred Stock is entitled to receive participating distributions also limits
the level of distributions that the Company can pay on the outstanding shares of
Common Stock.
DISTRIBUTIONS REPRESENTING RETURN OF CAPITAL
Approximately 22% and 100% (or $.54 per share and $1.95 per share) of the
distributions made through December 31, 1995 on the Convertible Preferred Stock
and the Common Stock, respectively, represented a return of capital for federal
income tax purposes. Based on the level of distributions on the Common Stock
constituting a return of capital, the Company would not have been required to
make any distributions on the Common Stock in 1995 to satisfy its obligation
under federal income tax law to distribute annually at least 95% of its REIT
taxable income. The major difference between the Company's net income and cash
flow is the allowance for depreciation. By making distributions out of cash flow
instead of net income, the Company is not taking into account the allowance for
depreciation, a non-cash item. There is a risk that because the Company is
distributing a return of capital that there will be insufficient funds in the
future to pay for major repairs or replacements to the Properties.
LIMITED GEOGRAPHIC DIVERSIFICATION; DEPENDENCE ON THE MID-ATLANTIC REGION
The Properties consist exclusively of retail and multifamily properties
located in the Mid-Atlantic region. Approximately 59% of the Retail Properties
(based on GLA) are located in the Washington-Baltimore corridor. The Company's
performance may therefore be linked to economic conditions and the market for
neighborhood shopping centers in this region. A decline in the economy in this
market may adversely affect the ability of the Company to make distributions to
stockholders.
9
<PAGE>
EFFECT OF EXCHANGE OF EXCHANGEABLE INDEBTEDNESS
As part of the Company's formation, the Operating Partnership issued $25.0
million of Exchangeable Debentures, which are exchangeable for 1,000,000 shares
of Convertible Preferred Stock. If the Exchangeable Debentures, which bear
interest at the rate of 8.25% per annum, are exchanged for Convertible Preferred
Stock, the annual amount of preferential distribution payments that the Company
will be required to make on the Convertible Preferred Stock (net of reductions
in interest payments) would be increased by approximately $0.4 million. Such
increase in distributions on the Convertible Preferred Stock would reduce the
annual cash available for distribution payable on outstanding shares of Common
Stock by $0.09 per share.
ENVIRONMENTAL MATTERS
General. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real estate may be required to investigate
and clean up hazardous or toxic substances or petroleum product releases at such
property and may be held liable to a governmental entity or to third parties for
property damage and for investigation and clean-up costs incurred by such
parties in connection with contamination. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate such substances, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. In connection with the ownership (direct or indirect),
operation, management and development of real properties, the Company, the
Operating Partnership or the Management Company, as the case may be, may be
considered an owner or operator of such properties or as having arranged for the
disposal or treatment of hazardous or toxic substances and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental fines and injuries to persons and
property. For a more complete discussion of environmental regulation affecting
the Properties, see 'Properties--Environmental Matters.' All of the Properties
(including the New Retail Properties) have been subject to a Phase I or similar
environmental audit (which involves general inspections without soil sampling or
groundwater analysis) completed by independent environmental consultants. These
environmental audits revealed the following potential environmental liabilities:
Penn Station Shopping Center. Contamination caused by dry cleaning solvents
has been detected in ground water below the Penn Station Shopping Center. The
source of the contamination has not been determined. Potential sources include a
dry cleaner tenant at the Penn Station Shopping Center and a dry cleaner located
in an adjacent property. Sampling conducted at the site indicates that the
contamination is limited and is unlikely to have any effect on human health.
Fox Mill Shopping Center. Petroleum has been detected in the soil of a
parcel adjacent to Fox Mill Shopping Center on property occupied by Exxon
Corporation ('Exxon') for use as a gas station (the 'Exxon Station'). Exxon has
taken steps to remediate the petroleum in and around the Exxon Station, which is
located downgradient from the Fox Mill Shopping Center. Exxon has agreed to take
full responsibility for the remediation of such petroleum. In addition, a dry
cleaning solvent has been detected in the groundwater below the Fox Mill
Shopping Center. A groundwater pump and treatment system, approved by the
Virginia Water Control Board, was installed in July 1992, and was operating
until recently when the Water Control Board ordered semi-annual sampling to
determine if further remediation is necessary. The previous owner of the Fox
Mill Shopping Center has agreed to fully remediate the groundwater
contamination. See 'Properties--Environmental Matters.'
Four Mile Fork Shopping Center. A drycleaning solvent has been detected in
the soil below the Four Mile Fork Shopping Center. The Company intends to
conduct additional testing to determine the extent of contamination and the
appropriate remediation measures, if any. In any event, the Company does not
intend to close the acquisition of Four Mile Fork Shopping Center without a
closure letter from the responsible regulatory authority or adequate
indemnification from the seller of the center.
10
<PAGE>
The Management believes that environmental studies have not revealed
significant environmental liabilities that would have a material adverse effect
on the Company's business, results of operations and liquidity, however, no
assurances can be given that existing environmental studies with respect to any
of Properties reveal all environmental liabilities, that any prior owner of a
Property did not create any material environmental condition not known to the
Company, or that a material environmental condition does not otherwise exist (or
may exist in the future) as to any one or more Properties. If such a material
environmental condition does in fact exist (or exists in the future), it could
have a significant adverse impact upon the Company's financial condition,
results of operations and liquidity.
RISKS OF THIRD-PARTY MANAGEMENT, LEASING AND RELATED SERVICE BUSINESS
Possible Termination of Management Contracts. The Company intends to pursue
actively the management, including contracts to lease space, of properties owned
by third parties. Risks associated with the management of properties owned by
third parties include: (i) the risk that the management and leasing contracts
(which are generally cancelable upon 30 days' notice or upon certain events,
including sale of the property) will be terminated by the property owner or will
be lost in connection with a sale of such property, (ii) that contracts may not
be renewed upon expiration or may not be renewed on terms consistent with
current terms and (iii) that the rental revenues upon which management fees are
based will decline as a result of general real estate market conditions or
specific market factors affecting properties managed by the Company, resulting
in decreased management fee income. See 'The Company--Property Management,
Leasing and Related Service Business.'
Possible Adverse Consequences of Lack of Control Over the Business of the
Management Company. Certain members of management, as holders of 100% of the
voting common stock of the Management Company, have the ability to elect the
board of directors of the Management Company. The Company is not able to elect
directors of the Management Company and, consequently, the Company has no
ability to influence the decisions of such entity. As a result, the board of
directors and management of the Management Company may implement business
policies or decisions that would not have been implemented by persons controlled
by the Company and that are adverse to the interests of the Company or that lead
to adverse financial results, which would adversely affect the Company's ability
to pay expected distributions to stockholders. The voting common stock of the
Management Company is subject to an assignable right of first refusal held by
Stuart D. Halpert and William J. Wolfe.
Possible Adverse Consequences of REIT Status on the Business of the
Management Company. Certain requirements for REIT qualification may limit the
Company's ability to increase third-party management, leasing and related
services offered by the Management Company without jeopardizing the Company's
qualification as a REIT. See '--Adverse Consequences of Failure to Qualify as a
REIT.'
CONFLICTS OF INTEREST
Policies with Respect to Conflicts of Interests. Although the Company has
adopted certain policies designed to eliminate or minimize conflicts of
interest, there can be no assurance that these policies will be successful in
eliminating the influence of such conflicts, and if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
stockholders. See 'Policies with Respect to Certain Activities--Conflicts of
Interest Policies.'
Tax Consequences Upon Sale of Properties. Prior to the exchange of Common
Units for shares of Common Stock, certain members of management will have tax
consequences different from those of the Company and its stockholders upon the
possible future sale or refinancing of any of the FWM Properties or the
repayment of certain debt collateralized by the FWM Properties and, therefore,
such persons and the Company may have different objectives regarding the pricing
and timing of any sale of FWM Properties. Consequently, such persons may
influence the Company not to sell or refinance
11
<PAGE>
FWM Properties (or repay debt collateralized by such properties) even though
such sale or refinancing might otherwise be financially advantageous to the
Company. There can be no assurance that policies adopted by the Board to
minimize the impact of this conflict will be successful in eliminating the
influence of such conflicts. If these policies are not successful, decisions
could be made that might fail to reflect fully the interests of all
stockholders. See 'Federal Income Tax Considerations--Tax Aspects of the
Operating Partnership--Tax Allocations with Respect to the Properties.'
Conflict of Interest with Respect to Mid-Atlantic Centers Limited
Partnership. Certain members of management are the sole owners of FW
Corporation, the sole general partner of FW Realty Limited Partnership, a
general partner of Mid-Atlantic Centers Limited Partnership (the 'MAC
Partnership'), which owns nine shopping centers currently managed by the Company
(the 'MAC Properties'). Such persons may have different objectives than the
Company regarding the determination of the management fee charged with respect
to the MAC Properties, or regarding any other transaction between the Company
and the MAC Partnership.
CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT STOCKHOLDER APPROVAL
The investment and financing policies of the Company, and its policies with
respect to certain other activities, including its growth, debt, capitalization,
distributions, REIT status and operating policies, are determined by the Board
of Directors. Although the Board of Directors has no present intention to do so,
these policies may be amended or revised from time to time at the discretion of
the Board of Directors without notice to or a vote of the stockholders of the
Company. See 'Policies with Respect to Certain Activities.' Accordingly,
stockholders may not have control over changes in policies of the Company and
changes in the Company's policies may not fully serve the interests of all
stockholders. A change in these policies could adversely affect the Company's
distributions, financial condition, results of operations or the market price of
shares of Common Stock.
INFLUENCE OF EXECUTIVE OFFICERS
As of September 30, 1996, and after giving effect to the Offering, the
Company's officers as a group beneficially owned approximately 11.0% of the
total issued and outstanding shares of Common Stock (assuming exchange of Common
Units) and 5.0% of the outstanding shares of Common Stock (assuming the exchange
and/or conversion of all Common Units, Convertible Preferred Stock, Exchangeable
Preferred Units, Exchangeable Debentures, and the FS Note). Such persons have
substantial influence on the Company, which influence might not be consistent
with the interests of other stockholders, and may in the future have a
substantial influence on the outcome of any matters submitted to the Company's
stockholders for approval. See 'Principal Stockholders.'
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly Messrs. Halpert and Wolfe. While the Company believes that it could
find replacements for these key personnel, the loss of their services could have
an adverse effect on the operations of the Company. Messrs. Halpert and Wolfe
have entered into employment and non-compete agreements with the Company. See
'Management--Employment Agreements.'
GENERAL REAL ESTATE INVESTMENT RISKS; ADVERSE IMPACT ON ABILITY TO MAKE
DISTRIBUTIONS
General. Income from real property investments, and the Company's resulting
ability to make expected distributions to stockholders, may be adversely
affected by the general economic climate (particularly the economic climate of
the Mid-Atlantic region, where the Properties are located), the attractiveness
of the Properties to tenants, zoning or other regulatory restrictions,
competition from other available retail and multifamily properties, the ability
of the Company to provide adequate maintenance and insurance, and increased
operating costs (including insurance premiums and real estate taxes).
12
<PAGE>
The economic performance and values of real estate may be affected by
changes in the national, regional and local economic climate, local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, changes in market rental rates, the ability of the owner to
provide adequate maintenance and insurance, the need to periodically renovate
and repair space and the cost thereof and increased operating costs. In
addition, real estate values may be affected by such factors as government
regulations and changes in real estate, changes in traffic patterns, zoning or
tax laws, interest rate levels, availability of financing, and potential
liability under environmental and other laws.
Risks of Acquisition, Renovation and Development Business. The Company
intends to continue actively with the acquisition of principally
supermarket-anchored neighborhood shopping centers. See 'The Company' and
'Properties.' Acquisition of neighborhood shopping centers entails risks that
investments will fail to perform in accordance with expectations. In addition,
there are general investments risks associated with any new real estate
investment. The Company intends to expand and/or renovate its properties or
develop new properties from time to time. See 'The Company--Growth Strategies.'
Expansion, renovation and development projects generally require expenditure of
capital as well as various government and other approvals, which cannot be
assured. While policies with respect to expansion, renovation and development
activities are intended to limit some of the risks otherwise associated with
such activities, such as initiating construction after securing commitments from
anchor tenants, the Company will nevertheless incur certain risks, including
expenditures of funds on, and devotion of management's time to, projects which
may not be completed. Any of the foregoing could have a material adverse effect
on the Company's ability to make anticipated distributions. See 'Price Range of
the Common Stock and Distributions.'
Dependence on Rental Income from Real Property; Tenants Involved in
Bankruptcy Proceedings. As a significant amount of the Company's income is
derived from rental income from real property, the Company's income and ability
to make distributions would be adversely affected if a significant number of the
Company's lessees were unable to meet their obligations to the Company or if the
Company were unable to lease a significant amount of space in its Properties on
economically favorable lease terms. Leases on 2.8% and 8.8% of the GLA in the
Retail Properties will be expiring in 1996 and 1997, respectively. In the event
of default by a lessee, the Company may experience delays in enforcing its
rights as lessor and may incur substantial costs in protecting its investment.
The bankruptcy or insolvency of a major tenant may have an adverse effect on the
Properties affected and the income produced by such Properties.
As of September 30, 1996, six tenants were involved in bankruptcy
proceedings. All of these tenants are currently paying rent. These tenants
represent approximately 1.3% of the total annual minimum rents of the
Properties. One tenant, Brendles, Inc., occupies 54,000 square feet at Shoppes
of Kildaire Shopping Center. The tenant filed for bankruptcy under Chapter 11.
The tenant vacated the premises in August 1996 but is obligated to pay rent
through February 1997. There can be no assurance that such tenants will continue
to pay rent or that additional tenants will not become bankrupt or insolvent.
Small Size of Certain Properties. Nine of the Properties are relatively
small in size, having less than 50,000 square feet of GLA and are not anchored
by a supermarket or drug store tenant. Such properties may be subject to greater
variability in consumer traffic.
Market Illiquidity. Equity real estate investments are relatively illiquid
and therefore tend to limit the ability of the Company to vary its portfolio
promptly in response to changes in economic or other conditions. The Company's
Properties primarily are neighborhood shopping centers, and the Company has no
present intention of varying the types of real estate in its portfolio. In
addition, certain significant expenditures associated with each equity
investment (such as mortgage payments, real estate taxes and maintenance costs)
are generally not reduced when circumstances cause a reduction in income from
the investment. Should such events occur, such events would adversely affect the
Company's ability to pay expected distributions to stockholders.
13
<PAGE>
Uninsured Loss. The Company carries comprehensive liability, fire, flood,
extended coverage and rental loss insurance with respect to its Properties with
policy specifications and insured limits that it believes are customary for
similar properties. There are, however, certain types of losses (generally of a
catastrophic nature, such as wars or earthquakes) which may be either
uninsurable or not economically insurable. Should an uninsured loss occur, the
Company could lose both its invested capital in and anticipated profits from the
Property, and would continue to be obligated to repay any mortgage indebtedness
on the Property.
Competition. Numerous companies compete with the Company in seeking
properties for acquisition and tenants who will lease space in these properties,
or provide alternate arrangements for businesses seeking rental space. There can
be no assurance that the Company will be able to acquire suitable leased
properties and tenants for such properties in the future.
Investments in Mortgages. Although the Company currently has no plans to
invest in mortgages, the Company may invest in mortgages in the future. See
'Policies With Respect to Certain Activities--Investment Policies.' If the
Company were to invest in mortgages, it would be subject to the risks of such
investment, which include the risk that borrowers may not be able to make debt
service payments or pay principal when due, the risk that the value of mortgaged
property may be less than the amounts owed, and the risk that interest rates
payable on the mortgages may be lower than the Company's costs of funds.
Costs of Compliance with Americans with Disabilities Act and Similar Laws.
Under the Americans with Disabilities Act of 1990 (the 'ADA'), all places of
public accommodation are required to meet certain federal requirements related
to access and use by disabled persons. Although management believes that the
Properties are substantially in compliance with present requirements of the ADA,
the Company has not conducted an audit or investigation to determine its
compliance. There can be no assurance that the Company will not incur additional
costs of complying with the ADA. A number of additional federal, state and local
laws exist which also may require modifications to the Properties, or restrict
certain further renovations thereof, with respect to access thereto by disabled
persons. The ultimate amount of the cost of compliance with the ADA or such
legislation is not currently ascertainable, and, while such costs are not
expected to have a material effect on the Company, such costs could be
substantial.
OWNERSHIP LIMIT AND LIMITS ON CHANGES IN CONTROL
Ownership Limit Necessary to Maintain REIT Qualification. For the Company
to maintain its qualification as a REIT, not more than 50% in value of the
Company's outstanding capital stock may be owned, actually or constructively,
under the applicable attribution rules of the Code, by five or fewer individuals
(as defined in the Internal Revenue Code of 1986, as amended (the 'Code') to
include certain tax-exempt entities, other than, in general, qualified domestic
pension funds) at any time during the last half of any taxable year of the
Company other than the first taxable year for which the election to be taxed as
a REIT has been made (the 'five or fewer' requirement). The Company's charter
contains certain restrictions on the ownership and transfer of the Company's
capital stock, described below, which are intended to prevent concentration of
stock ownership. These restrictions, however, may not ensure that the Company
will be able to satisfy the 'five or fewer' requirement in all cases primarily,
though not exclusively, in the case of fluctuations in values among the
different classes of the Company's capital stock. If such requirement is not
satisfied, the Company's status as a REIT will terminate, and the Company will
not be able to prevent such termination.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates, and
would not be allowed a deduction in computing its taxable income for amounts
distributed to its stockholders. Moreover, unless entitled to relief under
certain statutory provisions, the Company also would be ineligible for
qualification as a REIT for the four taxable years following the year during
which qualification was lost. Such disqualification would
14
<PAGE>
reduce the net earnings of the Company available for investment or distribution
to its stockholders due to the additional tax liability of the Company for the
years involved. See 'Federal Income Tax Considerations--Failure to Qualify.'
The Company's charter prohibits ownership, either actually or under the
applicable attribution rules of the Code, of more than 9.8% of the outstanding
shares of Common Stock or the acquisition of more than 9.8% of the outstanding
shares of Convertible Preferred Stock by any holder (the 'Ownership Limit')
subject to certain important exceptions. See 'Description of Capital
Stock--Restrictions on Ownership, Transfer and Conversion.' The Company's
charter permits conversion of Convertible Preferred Stock, even if such a
conversion would result in an individual holder actually or constructively
owning more than 9.8% of the outstanding Common Stock. The Company's charter
does not, however, permit any person to acquire or own (actually or
constructively) shares of Common Stock or Convertible Preferred Stock, or
convert Convertible Preferred Stock into Common Stock, to the extent that such
person would own (actually or constructively) shares of Convertible Preferred
Stock and Common Stock which, in the aggregate, have a value greater than 9.8%
of the value of all of the capital stock of the Company. In addition, the
Company's charter does not permit any person to acquire or own (actually or
constructively) shares of Common Stock or Convertible Preferred Stock if such
ownership would cause the Company to fail to qualify as a REIT.
The Board of Directors may waive certain of these limitations with respect
to a particular stockholder if it is satisfied, based upon the advice of tax
counsel, that such ownership in excess of these limitations will not jeopardize
the Company's status as a REIT. Any attempted acquisition (actual or
constructive) of shares by a person who, as a result of such acquisition, would
violate one of these limitations will cause the shares purportedly transferred
to be automatically transferred to a trust for the benefit of a charitable
beneficiary or, under certain circumstances, the violative transfer will be
deemed void ab initio. In addition, violations of the ownership limitations
which are the result of certain other events (such as changes in the relative
values of different classes of the Company's capital stock) generally will
result in an automatic repurchase of the violative shares by the Company. See
'Description of Capital Stock--Restrictions on Ownership, Transfer and
Conversion' for additional information regarding the aforementioned limits.
The limitations on ownership of more than 9.8% of the outstanding shares of
Common Stock, Convertible Preferred Stock and capital stock may: (i) discourage
a change of control of the Company, (ii) deter tender offers for the capital
stock, which offers may be attractive to the Company's stockholders, or (iii)
limit the opportunity for stockholders to receive a premium for their capital
stock that might otherwise exist if an investor attempted to assemble a block of
capital stock in excess of 9.8% of the outstanding shares of Common Stock,
Convertible Preferred Stock or capital stock or to effect a change of control of
the Company. In addition, in certain circumstances, a holder of Convertible
Preferred Stock who is not otherwise in violation of the ownership limits could
be prevented from converting such holder's Convertible Preferred Stock into
shares of Common Stock.
Staggered Board. The Board of Directors of the Company has been divided
into three classes of directors. The staggered terms for directors may reduce
the possibility of a tender offer or an attempt to change control of the Company
even if a tender offer or a change in control were in the stockholders'
interest.
Preferred Stock. The Company's charter authorizes the Board of Directors to
issue up to 10,000,000 shares of preferred stock including the Convertible
Preferred Stock and to establish the preferences, rights and other terms
(including the right to vote and the right to convert into Common Stock) of any
shares issued. See 'Description of Capital Stock--Convertible Preferred Stock.'
The ability to issue preferred stock could have the effect of delaying or
preventing a tender offer or a change in control of the Company even if a tender
offer or a change in control were in the stockholders' interest. No shares of
preferred stock other than the Convertible Preferred Stock are currently issued
or outstanding.
15
<PAGE>
Exemptions for Certain Members of Management from the Maryland Business
Combination Law. Under the Maryland General Corporation Law, as amended
('MGCL'), certain 'business combinations' (including certain issuances of equity
securities) between a Maryland corporation and any person who owns ten percent
or more of the voting power of the corporation's shares (an 'Interested
Stockholder') or an affiliate thereof are prohibited for five years after the
most recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be approved by two
super-majority stockholder votes unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares. Pursuant
to the statute, the Company has exempted any business combination involving
Messrs. Halpert, Wolfe and Zimmerman and other officers of the Company, any of
their affiliates or associates or any person acting in concert with any of such
persons and, consequently, the five-year prohibition and the super-majority vote
requirements described above will not apply to business combinations between any
of them and the Company. As a result, Messrs. Halpert, Wolfe and Zimmerman and
other persons referred to in the preceding sentence may be able to enter into
business combinations with the Company, which may not be in the best interest of
the stockholders, without compliance by the Company with the super-majority vote
requirements and other provisions of the statute. See 'Certain Provisions of
Maryland Law and the Company's Charter and Bylaws--Business Combinations.'
Maryland Control Share Acquisition Statute. The MGCL provides that 'control
shares' of a Maryland corporation acquired in a 'control share acquisition' have
no voting rights except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter, excluding shares of stock owned by the
acquiror, by officers or by directors who are employees of the corporation. If
voting rights are not approved at a meeting of stockholders then, subject to
certain conditions and limitations, the issuer may redeem any or all of the
control shares (except those for which voting rights have previously been
approved) for fair value. If voting rights for control shares are approved at a
stockholders meeting and the acquiror becomes entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise appraisal rights.
See 'Certain Provisions of Maryland Law and the Company's Charter and
Bylaws--Control Share Acquisitions.'
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Taxation as a Corporation. The Company believes that it has operated so as
to qualify as a REIT under the Code, commencing with its taxable year ended
December 31, 1994. Although management of the Company believes that the Company
has been organized and has operated and will operate in such a manner, no
assurance can be given that the Company has qualified or will remain qualified
as a REIT. Qualification as a REIT involves the application of highly technical
and complex Code provisions for which there are only limited judicial and
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the Company's control may affect the Company's
ability to qualify as a REIT. For example, in order to qualify as a REIT, at
least 95% of the Company's gross income in any year must be derived from
qualifying sources and the Company must make distributions to shareholders
aggregating annually at least 95% of its REIT taxable income (excluding capital
gains). In addition, no assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT or the
federal income tax consequences of such qualification. The Company is relying on
the opinion of Latham & Watkins, counsel to the Company, to the effect that the
Company has been organized in conformity with the requirements under the Code
and that the Company's proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT. See 'Federal Income Tax
Considerations.' Such legal opinion is based on various assumptions and factual
representations by the Company regarding the Company's ability to meet the
various requirements for qualification as a REIT, and no assurance can be given
that actual operating results will meet these requirements. Such legal opinion
is not binding on the Internal Revenue Service.
16
<PAGE>
Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed 5% of the value of the REIT's
total assets on certain testing dates. See 'Federal Income Tax
Considerations--Taxation of the Company.' The Company believes that the value of
the securities of the Management Company held by the Company did not exceed at
any time up to and including the date of this Prospectus 5% of the value of the
Company's total assets and will not exceed such amount in the future, based on
the initial allocation of shares among participants in the Formation
Transactions and the Company's opinion regarding the maximum value that could be
assigned to the existing and expected future assets and net operating income of
the Management Company. In rendering its opinion as to the qualification of the
Company as a REIT, Latham & Watkins is relying on the conclusion of the Company
regarding the value of the Management Company. If the Company fails to satisfy
the 5% requirement or otherwise fails to qualify as a REIT, it will be subject
to federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates and would not be allowed a deduction
in computing its taxable income for amounts distributed to its stockholders. In
addition, unless entitled to relief under certain statutory provisions, the
Company will be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. The additional tax would
significantly reduce the cash flow available for distribution to stockholders.
See 'Federal Income Tax Considerations--Failure to Qualify.'
REIT Distribution Requirements and Potential Impact of Borrowings. To
obtain the favorable tax treatment associated with REITs qualifying under the
Code, the Company generally will be required each year to distribute to its
stockholders at least 95% of its net taxable income. In addition, the Company
will be subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of 85% of its ordinary income, 95% of its capital gain net income and
100% of its undistributed income from prior years.
Differences in timing between the receipt of income, the payment of
expenses and the inclusion of such income and the deduction of such expenses in
arriving at taxable income (of the Company or the Operating Partnership), or the
effect of nondeductible capital expenditures, the creation of reserves or
required debt or amortization payments, could require the Company, directly or
through the Operating Partnership, to borrow funds on a short-term basis to meet
the distribution requirements that are necessary to achieve the tax benefits
associated with qualifying as a REIT. In such instances, the Company might need
to borrow funds in order to avoid adverse tax consequences even if management
believed that then prevailing market conditions were not generally favorable for
such borrowings.
Adverse Consequences of Failure of the Operating Partnership or any of its
Subsidiary Partnerships to Qualify as a Partnership. The Company believes that
the Operating Partnership and each of its subsidiary partnerships have been
organized as partnerships and have qualified and will continue to qualify for
treatment as such under the Code. If the Operating Partnership or any of the
Lower Tier Partnerships fails to qualify for such treatment under the Code, the
Company would cease to qualify as a REIT, and the affected partnership would be
subject to federal income tax (including any alternative minimum tax) on its
income at corporate rates. See 'Federal Income Tax Considerations--Tax Aspects
of the Operating Partnership.'
Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be
subject to certain federal, state and local taxes on its income and property. In
addition, the Management Company generally is subject to federal and state
income tax at regular corporate rates on its net taxable income, which will
include the Company's management, leasing and related service business. See
'Federal Income Tax Considerations.'
EFFECT ON PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock, or the
perceptionthat such sales could occur, could adversely affect prevailing prices
for the Common Stock. The Company has reserved:
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<PAGE>
(i) 709,716 shares of Common Stock for issuance upon exchange of Common Units
issued in connection with the formation of the Company and in connection with
property acquisitions, (ii) 2,966,909 shares of Common Stock for issuance upon
conversion of outstanding Convertible Preferred Stock issued in connection with
the formation of the Company and in connection with property acquisitions (which
becomes convertible on or after May 31, 1999), (iii) 1,822,068 shares of Common
Stock for issuance upon conversion of reserved Convertible Preferred Stock
(reserved for exchange of Exchangeable Preferred Units and the Exchangeable
Debentures issued in connection with the Formation and subsequent property
acquisitions), (iv) 123,077 shares of Common Stock for issuance upon conversion
of the FS Note, and (v) 594,874 shares of Common Stock for issuance under the
Company's 1994 Stock Incentive Plan, 1994 Contingent Stock Awards and 1996
Contingent Stock Awards. The Officers are permitted to sell only one-third of
their shares of Common Stock or Common Units issued in connection with the
Formation (including a redemption of Common Units for cash) at the end of each
of the three years following the June 1994 Offering.
The Company has filed or has agreed to file registration statements covering
the issuance of shares of Common Stock and Convertible Preferred Stock upon
exchange of Common Units and Exchangeable Preferred Units and the resale of
Convertible Preferred Stock issued in connection with the formation of the
Company and subsequent property acquisitions, including the acquisition of the
New Retail Properties. The exchange of such outstanding securities for Common
Stock and Convertible Preferred Stock will increase the number of outstanding
shares of Common Stock and Convertible Preferred Stock, and will increase the
Company's percentage ownership interest in the Operating Partnership.
In addition, the officers and directors of the Company and their affiliates
have agreed with the Underwriters not to sell shares of Common Stock for the
90-day period following the Offering. The Company has also agreed with the
Underwriters not to issue new shares of Common Stock (except pursuant to the
exchange or conversion of outstanding securities, the issuance of shares of
Common Stock pursuant to employee benefit plans and in connection with future
acquisitions) for a period of 180 days following the Offering. See 'Shares
Available for Future Sale.' No prediction can be made regarding the effect that
future sales of shares of securities will have on the market price of the Common
Stock.
NEW RETAIL PROPERTIES
Although the Company has entered into contracts to acquire the New Retail
Properties, these contracts are subject to customary conditions to closing,
including completion of due diligence investigations to the Company's
satisfaction. No assurance can be given that such transactions will close. With
respect to certain environmental contamination at Four Mile Fork Shopping
Center, the Company does not intend to close the acquisition of the center
without a closure letter from the responsible regulatory authority or adequate
indemnification from the seller. See "Properties--Environmental Matters." The
Offering is not conditioned upon the closing of the purchase of any of the New
Retail Properties. If any of the purchases of the New Retail Properties do not
close, the balance of any remaining net offering proceeds will be used to reduce
indebtedness, for new acquisitions and for general working capital.
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<PAGE>
THE COMPANY
GENERAL
The Company is a fully-integrated, self-administered and self-managed real
estate company that operates as a REIT with expertise in the acquisition,
management, renovation and development of principally supermarket anchored
neighborhood shopping centers. As of September 30, 1996, the Company owned a
portfolio of 33 retail properties (the 'Existing Retail Properties'); and the
Company expects to complete the acquisition of six additional retail properties
promptly following the closing of the Offering (the 'New Retail Properties,' and
together with the Existing Retail Properties, the 'Retail Properties'). The
Retail Properties contain a total of approximately 3.9 million square feet of
GLA in the Mid-Atlantic region. The Company also owns two multifamily properties
in the Mid-Atlantic region (the 'Multifamily Properties,' and together with the
Retail Properties, the 'Properties').
The Company's business strategy is highly focused with respect to property
type and location. The Company concentrates its efforts on supermarket anchored
neighborhood shopping centers. The Company generally seeks to own properties
located in densely populated areas, that have high visibility, open-air designs
and ease of entry and exit, and that may be readily adaptable over time to
expansion, renovation and redevelopment.
The Retail Properties are strategically located neighborhood shopping
centers, principally anchored by well-known tenants such as Shoppers Food
Warehouse, Weis Markets, A&P Super Fresh, Giant Food, CVS/Pharmacy, Safeway,
Winn Dixie, Rite Aid and Acme Markets. The anchor tenants at the Retail
Properties typically offer daily necessity items rather than specialty goods.
Management believes that anchor tenants offering daily necessity items help to
generate regular consumer traffic and to provide economic stability for shopping
centers. Neighborhood shopping centers are typically open-air centers ranging in
size from 50,000 to 150,000 square feet of GLA and are anchored by supermarkets
and/or drug stores. The Retail Properties average approximately 100,000 square
feet of GLA.
The Company's operations are conducted through the Operating Partnership.
The Company is the general partner of the Operating Partnership and as of
September 30, 1996, the Company owned approximately 83.4% of the partnership
interests in the Operating Partnership. The Operating Partnership owns 100% of
the non-voting Preferred Stock of the Management Company, and is entitled to 99%
of the cash flow from the Management Company.
The Company was formed in April 1994 to continue and expand the
neighborhood shopping center acquisition, management and renovation strategies
of the First Washington Management, Inc. ('FWM'), which has been engaged in the
business since 1983. FWM was founded by Stuart D. Halpert, the Company's
Chairman, William J. Wolfe, President and Chief Executive Officer, and Lester
Zimmerman, an Executive Vice President.
The Company has approximately 70 employees, including a team of asset and
property managers and leasing agents and in-house legal, architectural,
engineering, accounting, marketing and computer specialists. The Company's
executive and principal property management office is located at 4350 East-West
Highway, Suite 400, Bethesda, Maryland 20814 and its telephone number is (301)
907-7800. The Company has regional property management offices located in North
Carolina, Pennsylvania and Virginia.
GROWTH STRATEGIES
The Company seeks to increase cash flow and distributions, as well as the
value of its portfolio, through intensive property management and strategic
renovation and expansion of its properties and acquisition of additional
neighborhood shopping centers.
Intensive Management. The Company seeks to increase operating margins
through a combination of increasing revenues (through increased occupancy and/or
rental rates), maintaining high tenant retention rates (i.e., the percentage of
tenants who renew their leases upon expiration), and aggressively managing
operating expenses.
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Management believes that, as a fully integrated real estate organization
with both owned and third-party managed properties, it enjoys significant
operating efficiencies relative to many of its competitors that operate smaller,
fragmented portfolios. These operating efficiencies are the result of economies
of scale in operating expenses, more effective leasing and marketing efforts,
and enhanced tenant retention levels. Management believes that the scope of the
Company's portfolio, combined with management's professional and community ties
to the Mid-Atlantic region, has enabled the Company to develop long-term
relationships with national and regional tenants which occupy multiple
properties in its portfolio. Management believes that such tenant relationships
result in high occupancy rates and tenant retention levels.
Strategic Renovation and Expansion. The Company seeks to increase operating
results through the strategic renovation and expansion of certain of the
Properties. The Retail Properties are typically adaptable for varied tenant
layouts and can be reconfigured to accommodate new tenants or the changing space
needs of existing tenants. The Company believes that the Retail Properties will
provide opportunities for renovation and expansion.
Acquisitions. The Company seeks to acquire properties that are located in
densely populated areas, that have high visibility, open-air designs and ease of
entry and exit, and that may be readily adaptable over time to expansion,
renovation and redevelopment. When evaluating potential acquisitions and
development projects, the Company will consider such factors as: (i) economic,
demographic, and regulatory and zoning conditions in the property's local and
regional market; (ii) the location, construction quality, and design of the
property; (iii) the current and projected cash flow of the property and the
potential to increase cash flow; (iv) the potential for capital appreciation of
the property; (v) the terms of tenant leases, including the relationship between
the property's current rents and market rents and the ability to increase rents
upon lease rollover; (vi) the occupancy and demand by tenants for properties of
a similar type in the market area; (vii) the potential to complete a strategic
renovation, expansion, or retenanting of the property; (viii) the property's
current expense structure and the potential to increase operating margins; (ix)
the ability of the Company to subsequently sell or refinance the property; and
(x) competition from comparable retail properties in the market area.
Through the Management Company's third-party management, leasing and
related service business and network of regional management and leasing offices,
the Company is familiar with local conditions and acquisition opportunities in
its given markets. Management believes that opportunities for neighborhood
shopping center acquisitions remain attractive at this time because of the
fragmentation in ownership of such properties, including owners that can benefit
from exchanging their properties for Common Units, the limited amount of real
estate capital for smaller, privately held retail property development and
acquisition, and the limited construction of new retail properties.
PROPERTY MANAGEMENT, LEASING AND RELATED SERVICE BUSINESS
Through its interest in the Management Company, the Company has continued
the property management, leasing and related service business of FWM. The
Operating Partnership owns all of the non-voting preferred stock of the
Management Company, entitled to 99% of the cash flow of the Management Company.
The outstanding common stock of the Management Company, entitled to 1% of the
cash flow of the Management Company, is owned by certain members of management.
In addition to the Properties, as of September 30, 1996, the Management Company
provided management, leasing and related services to 33 properties comprising
approximately 3.5 million square feet of GLA for 16 third-party clients. In
addition to providing another source of growth for funds from operations,
management believes that the third-party management business allows the Company
to: (i) achieve operating efficiencies in managing its owned properties through
the bulk purchase of goods and services; (ii) develop more extensive, long-term
relationships with tenants in multiple properties; and (iii) identify additional
acquisition opportunities from third-party clients interested in the eventual
sale of their properties.
Services are provided to third-party owners pursuant to contracts that are
of varying lengths of time and which generally provide for management fees of up
to 5.0% of monthly gross property
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receipts. The management contracts are typically cancelable upon 30 days' notice
or upon certain events, including the sale of the property. Leasing fees
typically range from 3.0% to 6.0% of the minimum base rents payable during the
initial term of the lease. Management believes that the Management Company has
an excellent reputation with respect to lease renewals, increases in net
operating income for managed properties, and its timely and accurate reporting
to clients. In addition to its third-party management and leasing business, the
Management Company provides related services including consulting and brokerage
services for which it receives customary fees.
PROPERTIES
The Company engages in the acquisition, management and renovation of
neighborhood shopping centers. The Company owns a portfolio of 33 retail
properties containing a total of approximately 3.3 million square feet and two
multifamily properties. The Company expects to complete the acquisition of the
six New Retail Properties containing a total of approximately 626,000 square
feet promptly following consummation of the Offering. All references to net rent
per square foot are calculated without giving effect to vacant space, unless
otherwise specified.
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The following table sets forth certain information relating to the
Properties as of September 30, 1996:
FIRST WASHINGTON REALTY TRUST, INC.
PROPERTY SUMMARY TABLE
<TABLE>
<CAPTION>
YEAR GLA NUMBER
YEAR DEVELOPED OR LAND AREA (SQ. FT. OR OF
LOCATION OF PROPERTY BUILT ACQUIRED (ACRES) UNITS) TENANTS
-------------------- ----- ------------ --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
MARYLAND
Bryans Road Shopping Center............... Bryans Road, MD 1972 1990 11.8 118,676 19
Capital Corner Shopping Center............ Landover, MD 1987 1987 4.1 42,625 16
Clinton Square Shopping Center............ Clinton, MD 1979 1984 2.0 18,961 11
Clopper's Mill Village Shopping Center.... Germantown, MD 1995 1996 14.2 137,952 21
Festival At Woodholme..................... Baltimore, MD 1986 1995 7.1 81,027 29
Firstfield Shopping Center................ Gaithersburg, MD 1978 1995 2.4 22,504 9
Penn Station Shopping Center(1)........... District Heights, MD 1989 1987 22.5 334,970 48
P.G. County Commercial Park............... Beltsville, MD 1988 1985 9.7 146,438 28
Rosecroft Shopping Center................. Temple Hills, MD 1963 1985 8.3 119,010 22
Southside Marketplace..................... Baltimore, MD 1990 1996 9.1 125,146 25
Takoma Park Shopping Center............... Takoma Park, MD 1960 1996 9.8 103,581 16
Valley Centre............................. Owings Mills, MD 1987 1994 33.0 229,449 25
VIRGINIA
Brafferton Center......................... Garrisonville, VA 1974 1994 9.4 94,731 20
Centre Ridge Marketplace.................. Centreville, VA 1996 1996 10.9 69,854 6
Chesapeake Bagel Building................. Alexandria, VA 1800's 1983 0.1 11,288 16
Davis Ford Crossing....................... Manassas, VA 1988 1994 20.8 147,622 31
Fox Mill Shopping Center.................. Reston, VA 1977 1994 14.0 97,119 24
Glen Lea Shopping Center.................. Richmond, VA 1969 1995 9.2 78,823 11
Hanover Village Shopping Center........... Mechanicsville, VA 1971 1995 9.5 95,556 17
Laburnum Park Shopping Center............. Richmond, VA 1988 1995 9.3 113,992 27
Laburnum Square Shopping Center(2)........ Richmond, VA 1975 1995 11.4 109,405 21
Potomac Plaza............................. Woodbridge, VA 1963 1986 5.4 85,400 15
Thieves Market............................ Alexandria, VA 1946 1986 2.3 15,835 10
NORTH CAROLINA
Shoppes of Kildaire....................... Cary, NC 1986 1986 14.0 148,205 28
PENNSYLVANIA
Colonial Square Shopping Center........... York, PA 1955 1990 2.9 27,488 15
Fifteenth & Allen Shopping Center......... Allentown, PA 1958 1995 4.1 46,503 13
Kenhorst Plaza Shopping Center............ Reading, PA 1990 1995 19.2 138,034 26
Mayfair Shopping Center................... Philadelphia, PA 1988 1994 5.7 112,275 27
Stefko Boulevard Shopping Center.......... Bethlehem, PA 1958-60-75 1995 10.3 135,864 18
DELAWARE
First State Plaza......................... New Castle County, DE 1988 1994 21.0 162,404 20
SOUTH CAROLINA
Branchwood Apartments..................... Charleston, SC 1986 1989 5.4 96 N/A
Broadmoor Apartments...................... Charleston, SC 1973 1990 21.2 305 N/A
James Island Shopping Center.............. Charleston, SC 1967 1990 6.5 88,557 21
WASHINGTON, D.C.
Connecticut Avenue Shops.................. Washington, DC 1954 1986 0.1 3,000 3
The Georgetown Shops...................... Washington, DC(3) 1800s 1981-1989 0.3 22,052 11
----- --------- ---
Subtotal/Average....................... 346.8 3,284,346(4) 649
----- --------- ---
NEW RETAIL PROPERTIES
MARYLAND
Northway Shopping Center.................. Millersville, MD 1987 1996 9.6 91,276 20
VIRGINIA
Four Mile Fork Shopping Center............ Fredericksburg, VA 1975 1996 10.3 101,262 18
Kings Park Shopping Center................ Burke, VA 1966 1996 8.6 76,212 18
PENNSYLVANIA
City Line Shopping Center(5).............. Philadelphia, PA 1950's-60's 1996 12.2 153,899 37
Newtown Square Shopping Center............ Newtown Square, PA 1960's-70's 1996 14.4 137,569 37
DELAWARE
Shoppes of Graylyn........................ Wilmington, DE 1971 1996 5.0 65,746 15
----- --------- ---
Subtotal/Average....................... 60.1 625,964 145
----- --------- ---
Total/Average.......................... 406.9 3,910,310(4) 794
===== ========= ===
- ----------
<FN>
(1) Safeway (50,000 square feet) and bowling alley (40,000 square feet) are
located in this shopping center on pad sites not owned by the Company, and they
are not tenants of the Company at the center. GLA (sq. ft. or units) includes
Safeway and bowling alley.
(2) Ukrops Supermarket (43,500 square feet) is located on a pad site not
owned by the Company, and it is not a tenant of the Company at this center. GLA
(sq. ft. or units) includes Ukrops supermarket.
(3) Represents five historic retail shops all clustered in close proximity
in the central shopping district in the Georgetown area of Washington, DC.
(4) Total does not include the Multifamily Properties.
(5) The Company will own an 89% interest in this property. The seller of
City Line will retain an 11% interest which it is obligated to transfer to the
Company and which the Company is obligated to acquire approximately three years
after the initial closing in exchange for Common Units.
</FN>
</TABLE>
22
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
PROPERTY SUMMARY TABLE--Continued
<TABLE>
<CAPTION>
TOTAL
ANNUALIZED AVERAGE MINIMUM RENT
MINIMUM RENT PER SQ. FT. PERCENT LEASED SIGNIFICANT TENANTS (LEASE EXPIRATION DATE)
- ---------- ----------------- -------------- -------------------------------------------
<S> <C> <C> <C>
$964,650 $ 8.13 100.0% Safeway (2014), CVS/Pharmacy (1998)
608,929 14.29 100.0 Burger King (2007), Dollar Bills (2001), Gallo Clothing (2001)
271,647 14.33 100.0 Mattress Discounters (1997)
2,114,173 16.05 98.9 Shoppers Food Warehouse (2015), CVS/Pharmacy (2006)
1,740,347 21.48 100.0 Pier One Imports (1999), Sutton Place Gourmet (2006)
309,840 13.77 93.3 Jerry's Sub (2010)
2,891,643 12.09 98.2 Safeway, Service Merchandise (2006), Kid City Clothing (2003)
895,632 6.69 97.5 Atlantic Telco (month-to-month), Montgomery Automotive (2006)
736,932 7.28 85.1 Food Lion (2015), Rite Aid (1998)
1,364,911 12.31 95.1 Metro Foods (2016), Rite Aid (2001)
695,020 7.79 87.9 Shoppers Food Warehouse (2011)
2,500,896 11.07 94.4 Weis Markets (2002), T.J. Maxx (2007), Ross (1998), Sony Theater (2005)
734,908 8.29 96.7 Giant Food (2009)
958,153 13.95 98.3 A&P Superfresh (2016)
239,756 21.24 100.0 Chesapeake Bagel Bakery (1998)
1,659,378 12.70 88.5 Weis Markets (2010), CVS/Pharmacy (2000)
1,390,424 14.53 97.0 Giant Food (2018), Blockbuster (2001)
464,730 6.10 100.0 Winn Dixie (2005), Revco (2000)
686,434 7.74 96.9 Rack 'n Sack (2008), Rite Aid (1998)
782,195 7.10 100.0 Ukrops Supermarket, Rite Aid (2007)
774,814 7.64 97.3 Hannaford Bros. (2013), CVS/Pharmacy (1999)
410,922 5.33 90.3 Western Sizzlin (2000), Aaron Rents (2001)
214,777 15.72 72.9
1,289,204 8.80 98.9 Winn Dixie (2006)
333,450 12.28 98.8 Minich Pharmacy (1999), York Nat'l Bk (1999)
553,761 12.65 98.1 Laneco Supermarket (2003), Thrift Drug (2004)
1,325,695 9.87 96.4 Redner's Supermarket (2009), Rite Aid (2000)
1,354,130 13.00 100.0 Shop 'N Bag Supermarket (2013), Thrift Drug (2006)
619,535 4.81 92.1 Laneco Supermarket (2003), McCrory (1998)
1,605,604 9.89 100.0 Shop Rite Supermarket (2009), Cinemark USA (2011)
544,046
1,340,650
584,638 6.60 100.0 Piggly Wiggly Supermarket (2010), Rite Aid (1997)
168,769 56.26 100.0 Mill End Shop (1997)
407,040 18.46 100.0 Radio Shack (1999)
- ----------- -------- -----
$33,537,633 $ 10.54 96.1%(4)
- ----------- -------- -----
$993,604 $ 11.13 97.8% Metro Foods (2007), Rite Aid (1997)
650,325 7.00 91.8 Safeway (2000), CVS/Pharmacy (2001)
604,049 7.93 100.0 Giant Food (2013), CVS/Pharmacy (1998)
1,492,644 10.88 89.1 Acme Supermarkets (1999), Thrift Drug (1999), T J Maxx (2001)
1,335,751 10.50 92.5 Acme Supermarkets (1999), Thrift Drug (1999)
673,698 11.89 86.2 Rite Aid (2016)
- ----------- -------- -----
$5,750,071 $ 9.89 92.8%
- ----------- -------- -----
$39,287,704 $ 10.43 95.6%
=========== ======== =====
</TABLE>
23
<PAGE>
The following table sets forth the square footage and percentage of leased
GLA of the Retail Properties leased to anchor and other tenants, and national,
regional and local tenants as of September 30, 1996. The Company believes that
anchor tenants are those that, due to size, reputation or other factors, in the
view of the Company's management, are particularly responsible for drawing other
tenants and shoppers to the shopping center. The Company has considered tenants
located primarily in two or three states to be regional tenants; tenants with
wider distribution of stores have been treated as national tenants; and tenants
located entirely within a local area have been treated as local tenants:
<TABLE>
<CAPTION>
ANCHOR OTHER NATIONAL REGIONAL LOCAL
TENANTS TENANTS TOTAL TENANTS TENANTS TENANTS TOTAL
------- ------- ----- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Existing Retail Properties (sq. ft.).. 1,356,178 1,783,192 3,139,370 983,987 1,307,826 847,557 3,139,370
New Retail Properties.(sq. ft.)....... 334,697 246,429 581,126 266,410 164,854 149,862 581,126
--------- --------- --------- --------- --------- ------- ---------
Total Leased GLA.(sq. ft.)............ 1,690,875 2,029,621 3,720,496 1,250,397 1,472,680 997,419 3,720,496
========= ========= ========= ========= ========= ======= =========
Percentage of Total Leased GLA........ 45.5% 54.5% 100.0% 33.6% 39.6% 26.8% 100.0%
</TABLE>
TENANT DIVERSIFICATION
The following table sets forth information regarding the Company's leases
with its 20 largest tenants based upon annualized minimum rents as of September
30, 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER ANNUALIZED ANNUALIZED
GLA OF MINIMUM MINIMUM
TENANT (SQ. FT.) PROPERTIES RENT RENTS
- ------ --------- ---------- ---- -----
<S> <C> <C> <C> <C>
Shoppers Food Warehouse...... 129,113 2 $1,075,280 2.7%
Metro Foods.................. 93,292 2 847,121 2.2
Weis Markets................. 86,890 2 786,200 2.0
Rite Aid..................... 92,168 8 692,653 1.8
A&P Superfresh............... 55,138 1 661,656 1.7
Giant Food................... 121,518 3 606,740 1.5
CVS/Pharmacy................. 77,350 7 527,929 1.3
Safeway...................... 74,851 2 485,025 1.2
Winn Dixie................... 79,000 2 481,500 1.2
Hollywood Video.............. 22,366 3 424,520 1.1
Redner's Supermarket......... 52,570 1 416,560 1.1
Shop Rite Supermarket........ 55,244 1 386,708 1.0
Sony Theaters................ 32,058 1 384,696 1.0
Thrift Drug.................. 36,662 4 380,014 1.0
T.J. Maxx.................... 46,686 2 359,804 0.9
Laneco Supermarket........... 95,075 2 329,237 0.8
Blockbuster Video............ 17,715 3 330,161 0.8
Service Merchandise.......... 50,000 1 325,000 0.8
Cinemark USA................. 29,452 1 301,883 0.8
Sutton Place Gourmet......... 14,207 1 298,347 0.8
--------- ---------- ----
Total................. 1,261,355 $10,101,034 25.7%
========= ========== ====
</TABLE>
24
<PAGE>
The following table sets forth gross leasable area, occupancy, and
effective net rent per leased square foot as of the end of each of the last five
years for the Existing Retail Properties during the respective periods each such
property was owned by the Company:
<TABLE>
<CAPTION>
GLA PERCENT AVERAGE EFFECTIVE NET RENT
PERIOD-END (SQ. FT.) LEASED PER LEASED SQ. FT.(1)
- ---------- --------- ------- --------------------------
<S> <C> <C> <C>
December 31, 1991.......... 1,185,977 90.8% $ 8.89
December 31, 1992.......... 1,185,977 94.6 9.07
December 31, 1993.......... 1,185,977 95.4 9.16
December 31, 1994.......... 2,014,180 96.4 10.08
December 31, 1995.......... 2,668,171 96.0 10.28
September 30, 1996......... 3,284,346 96.1 10.57
- ----------
<FN>
(1) Average effective net rent per leased square foot is calculated using
weighted average rents and occupancy during the respective periods, without
giving effect to vacant space. If vacant space were included, the effective net
rent per square foot would be $10.08 (September 30, 1996), $9.87 (December 31,
1995), $9.72 (December 31, 1994), $8.74 (December 31, 1993), $8.58 (December 31,
1992), and $8.07 (December 31, 1991).
</FN>
</TABLE>
Lease Expirations. The following table shows lease expirations (excluding
renewal options) from October 1, 1996 through 2004 and thereafter:
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AVERAGE ANNUAL
NUMBER OF GLA PERCENT OF ANNUALIZED ANNUALIZED MINIMUM RENT
YEAR LEASES (SQ. FT.) TOTAL GLA MINIMUM RENT MINIMUM RENT PER SQ. FT.
- ---- ------ --------- ---------- ------------ ------------ -----------
<C> <C> <C> <C> <C> <C> <C>
1996............................. 53 100,277 2.8% $1,289,772 3.4% $ 12.86
1997............................. 142 316,794 8.8 3,448,779 9.1 10.89
1998............................. 132 426,366 11.9 4,021,023 10.6 9.43
1999............................. 126 395,068 11.0 4,457,211 11.8 11.28
2000............................. 90 304,564 8.5 3,525,052 9.3 11.57
2001............................. 89 301,767 8.4 3,734,458 9.9 12.38
2002............................. 25 124,147 3.5 1,607,710 4.3 12.95
2003............................. 24 183,439 5.1 1,724,762 4.6 9.40
2004............................. 15 58,591 1.6 783,321 2.1 13.37
Thereafter....................... 98 1,373,631 38.3 13,181,943 34.9 9.60
--- --------- ----- ---------- ----- ---------
Total/Average.................... 794 3,584,644 100.0% $37,774,031 100.0% $ 10.54
=== ========= ===== ========== ===== =========
</TABLE>
Certain Tenants in Bankruptcy. As of September 30, 1996, six tenants were
involved in bankruptcy proceedings. All of these tenants are currently paying
rent. One tenant, Brendles, Inc., occupying 54,000 square feet at Shoppes of
Kildaire Shopping Center, filed for bankruptcy under Chapter 11 in April 1996.
The tenant vacated the premises in August 1996 but is obligated to pay rent
through February 1997.
ADDITIONAL INFORMATION CONCERNING CERTAIN OF THE PROPERTIES
As of December 31, 1995, two of the Properties, Penn Station Shopping
Center and Valley Centre, either had a book value equal to or greater than 10%
of the total assets of the Company or gross revenues which accounted for more
than 10% of the Company's aggregate gross revenues. Set forth below is
additional information with respect to such Properties.
Penn Station Shopping Center. Penn Station is a 334,970 square foot
shopping center occupied by 48 tenants and located at the intersection of
Pennsylvania Avenue and Silver Hill Road in Prince George's County, Maryland,
two miles outside of Washington, D.C. and one and one-half miles inside of the
Capital Beltway. Prince George's county is the home of the U.S. Census Bureau,
Andrews Air Force Base, the Goddard Space Center, and the University of
Maryland. Penn Station was built by the Company during 1989 and 1990, and was
commended with the 'Pride of Prince George's County' award for the finest new
shopping center in the county. The center is fully-integrated with a Safeway
Supermarket (50,000 square feet) and a bowling alley (40,000 square feet), both
of which are owned by third parties. Because of its strategic location as the
first shopping center on Pennsylvania Avenue outside of the District of
Columbia, with approximately 68,000 cars travelling by the property each day and
approximately 375,000 people residing within 5 miles, the center has attracted
a full range of national and regional chain store tenants including Service
25
<PAGE>
Merchandise, Blockbuster Video, Pic 'N Pay Shoes, Kid City Clothing, Pizza Hut,
Gallo Clothing, Cato Fashions, Rent-A-Center, Dollar Bills, Linen World, Little
Caesar's, Fleet Finance, Casual Male Big & Tall, Subway and Household Finance
Corporation. Pad sites are occupied by First Union Bank, Hardees and Black-Eyed
Pea Restaurant. Penn Station was approximately 98.2% leased as of September 30,
1996. Although Penn Station is a single property, it has been divided for loan
collateralization purposes into Phase I and Phase II portions.
Service Merchandise, the only tenant which occupies more than ten percent
of the GLA at Penn Station, occupies 50,000 square feet of GLA under a lease
which expires in February 2006 and has five renewal options of five years each.
The annual minimum rent of the Service Merchandise lease is $325,000.
The following table sets forth a schedule of lease expirations, assuming
none of the tenants exercise renewal options:
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AVERAGE ANNUALIZED
NUMBER OF GLA PERCENT OF ANNUALIZED ANNUALIZED MINIMUM RENT
YEAR LEASES (SQ. FT.) TOTAL GLA MINIMUM RENT MINIMUM RENT PER SQ. FT.
- ---- ------ --------- --------- ------------ ------------ -----------
<C> <C> <C> <C> <C> <C> <C>
1996............................. 0 0 0.0% $ 0 0.0% $ 0.00
1997............................. 5 13,896 5.9 223,429 7.7 16.08
1998............................. 8 18,695 7.9 275,365 9.5 14.73
1999............................. 15 44,412 18.7 688,339 23.8 15.50
2000............................. 6 27,312 11.5 350,755 12.1 12.84
2001............................. 4 14,912 6.3 219,802 7.6 14.74
2002............................. 2 6,055 2.6 97,034 3.4 16.03
2003............................. 2 19,548 8.2 244,953 8.5 12.53
2004............................. 2 20,546 8.7 186,000 6.4 9.05
Thereafter....................... 4 71,872 30.2 608,447 21.0 8.47
-- ------- ----- --------- ----- ---------
Total/Average.................... 48 237,248 100.0% 2,894,124 100.0% $ 12.20
== ======= ===== ========= ===== =========
</TABLE>
The following table sets forth the average annual rental income per square
foot of GLA at Penn Station:
Year ended December 31, 1990................ $11.84(1)
Year ended December 31, 1991................ $11.22
Year ended December 31, 1992................ $11.64
Year ended December 31, 1993................ $11.68
Year ended December 31, 1994................ $11.64
Year ended December 31, 1995................ $11.96
Nine months ended September 30, 1996........ $12.09
- ----------
(1) Refers only to Phase I of the Penn Station property.
The following table sets forth the percentage of Penn Station that was
leased as of the dates shown:
December 31, 1990........................... 97.7%(1)
December 31, 1991........................... 96.7%
December 31, 1992........................... 90.0%
December 31, 1993........................... 94.7%
December 31, 1994........................... 97.8%
December 31, 1995........................... 98.3%
September 30, 1996.......................... 98.2%
- ----------
(1) Refers only to Phase I of the Penn Station property.
Depreciation (for book and tax purposes) on the Penn Station Property is
taken on a straight line basis over 311/2 years, resulting in a rate of
approximately 3.17% per year. At December 31, 1995, the federal tax basis of the
Penn Station Shopping Center was approximately $20.8 million. The realty tax
rate on the Penn Station property is approximately $3.453 per $100 of assessed
value, resulting in a 1995 realty tax of approximately $268,861.
26
<PAGE>
Valley Centre. Valley Centre is a 229,449 square foot shopping center
occupied by 25 tenants and located on Maryland State Route 140, approximately
two miles from the Baltimore Beltway (I-695) in Owings Mills, Maryland. In
addition to serving Owings Mills, a bedroom community of Baltimore, Maryland,
Valley Centre serves the neighborhoods of Pikesville, Stevenson and Greenspring
Valley, Maryland. Valley Centre, with approximately 45,000 automobiles
travelling by the property each day and approximately 170,000 people residing
within five miles of the center, is occupied by national and regional tenants
including Weis Supermarket, T.J. Maxx, Ross Stores, Annie Sez, Cosmetic Center,
Hair Cuttery, Payless Shoes and Sony Theatre. Valley Centre was 94.4% leased as
of September 30, 1996.
Four tenants, Weiss Markets, T.J. Maxx, Ross Stores and Sony Theaters, each
occupy in excess of 10% of the GLA at Valley Centre. Weiss Markets occupies
41,350 square feet of GLA under a lease which expires in May 2002 and has three
renewal options of five years each. The annual minimum rent is $330,800, which
is subject to a $1.00 per square foot increase for each option. T.J. Maxx
occupies 24,148 square feet of GLA under a lease which expires in 2007 and has
two renewal options of five years each. The annual minimum rent of the T.J. Maxx
lease is $156,962, plus percentage rent equal to 2% of gross sales over $6.5
million. The rent increases $0.50 per square foot for each option. The tenant is
currently expanding by 8,000 square feet. Upon completion of the expansion, the
annual rent will increase to $297,369 and the percentage rent break-point will
increase to $7.5 million. Ross Stores occupies 27,618 square feet of GLA under a
lease which expires January 1998 and has two renewal options of five years each.
The annual minimum rent of the Ross Stores lease is $220,944, plus percentage
rent equal to 2% of gross sales over approximately $11 million. The rental
amounts for the renewal options are set at fixed amounts which average
approximately 9.25% increase per option period. Sony Theaters occupies 32,058
square feet of GLA under a lease which expires February 2005 and has three
renewal options of five years each. The annual minimum rent of the Sony Theaters
lease is $384,696 with an increase of $1.00 per square foot in the year 2000.
Under the terms of the lease, the tenant pays percentage rent equal to 8% of
gross sales over $4.8 million. The lease provides that the rent increases $0.50
per square foot for each option.
The following table sets forth a schedule of lease expirations for the next
ten years, assuming none of the tenants exercise renewal options:
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AVERAGE ANNUALIZED
NUMBER OF GLA PERCENT OF ANNUALIZED ANNUALIZED MINIMUM RENT
YEAR LEASES (SQ. FT.) TOTAL GLA MINIMUM RENT MINIMUM RENT PER SQ. FT.
- ---- ------ --------- --------- ------------ ------------ -----------
<C> <C> <C> <C> <C> <C> <C>
1996............................. 1 3,042 1.4% $ 59,161 2.4% $ 19.45
1997............................. 4 10,028 4.6 155,029 6.2 15.45
1998............................. 3 39,097 18.1 366,789 14.6 9.38
1999............................. 1 3,704 1.7 63,744 2.5 17.21
2000............................. 5 18,495 8.6 344,258 13.7 18.61
2001............................. 2 17,566 8.1 197,892 7.9 11.27
2002............................. 5 60,902 28.2 626,724 24.9 10.29
2003............................. 1 2,060 1.0 35,823 1.4 17.39
2004............................. - -- -- -- -- --
Thereafter....................... 2 61,206 28.3 666,266 26.4 10.89
-- ------- ----- --------- ----- ---------
Total/Average.................... 25 216,100 100.0% $2,515,687 100.0% $ 11.64
== ======= ===== ========= ===== =========
</TABLE>
The following table sets forth the average net effective rent per square
foot of GLA at Valley Centre:
Year ended December 31, 1990.................... $ 9.92
Year ended December 31, 1991.................... $10.18
Year ended December 31, 1992.................... $10.55
Year ended December 31, 1993.................... $10.86
Year ended December 31, 1994.................... $11.10
Year ended December 31, 1995.................... $11.54
Nine months ended September 30, 1996............ $11.07
27
<PAGE>
The following table sets forth the percentage of Valley Centre that was
leased as of the dates shown:
December 31, 1990............................... 95.0%
December 31, 1991............................... 93.0%
December 31, 1992............................... 98.0%
December 31, 1993............................... 100.0%
December 31, 1994............................... 99.4%
December 31, 1995............................... 100.0%
September 30, 1996.............................. 94.4%
Depreciation (for tax purposes) on Valley Centre is taken as follows: (i)
approximately $15.3 million of the basis uses a 19-year Accelerated Cost
Recovery System ('ACRS') depreciation, and (ii) $3.1 million of basis is
depreciated on a straight-line basis over 311/2 years, resulting in a combined
rate of approximately 4.94% per year. Depreciation for book purposes is
calculated on a straight-line basis over 311/2 years. At December 31, 1995, the
federal tax basis of Valley Centre was approximately $23.0 million. The realty
tax rate on Valley Centre is approximately $3.07 per $100 of assessed value,
resulting in a 1995 realty tax of approximately $261,000.
28
<PAGE>
INDEBTEDNESS
The following table sets forth certain information regarding the
indebtedness of the Company (excluding the Exchangeable Debentures) as of
September 30, 1996:
<TABLE>
<CAPTION>
BALANCE
INTEREST FACE PROJECTED ANNUAL MATURITY DUE AT
RATE AMOUNT INTEREST PAYMENTS DATE(1) MATURITY(2)
-------- ------ ----------------- -------- -----------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MORTGAGE LOANS
Branchwood Apartments............................. 6.50% $ 2,121 $ 138 01/01/97 $ 2,121
Broadmoor Apartments.............................. 6.50 3,826 249 06/30/99 3,826
Bryans Road Shopping Center....................... 8.00 150 12 01/29/97 150
Capital Corner Shopping Center.................... 6.50 3,587 233 07/01/99 3,587
Centre Ridge Marketplace(3)....................... 7.75 7,060 547 03/28/02 7,060
Chesapeake Bagel Building......................... 6.50 735 48 06/01/01 735
Clinton Square Shopping Center.................... 6.50 1,312 85 07/01/99 1,312
Clopper's Mill Village Shopping Center............ 7.18 14,412 1,035 03/21/06 11,492
Colonial Shopping Center(4)....................... 9.50 1,530 145 02/20/20 1,530
Connecticut Avenue Shops.......................... 6.50 626 41 07/01/99 626
Davis Ford; First State Plaza; James Island;
Valley Centre and Bryans Road(5)................ 7.09 38,500 2,730 07/01/99 38,500
Festival at Woodholme............................. 9.60 11,613 1,115 04/30/00 11,245
Firstfield Shopping Center........................ 7.50 2,503 188 12/01/05 2,233
Fifteenth & Allen and Stefko Blvd(6).............. 7.75 6,024 467 01/31/21 --
Glen Lea, Hanover Village, Laburnum Park and
Laburnum Square(7).............................. 8.57 14,011 1,201 10/31/05 11,159
Mayfair Shopping Center(8)........................ 5.60 7,265 407 06/24/98 3,235
Penn Station (Phase II)........................... 7.00 3,500 245 07/01/99 3,500
P.G. County....................................... 6.50 4,150 270 06/06/98 4,150
Potomac Plaza Shopping Center..................... 7.00 3,656 256 06/01/99 3,656
Rosecroft Shopping Center......................... 6.50 2,000 130 07/01/99 2,000
Shoppes of Kildaire(9)............................ 6.50 7,949 517 04/05/06 4,491
Southside Marketplace............................. 8.75 8,081 707 07/01/05 7,332
Takoma Park Shopping Center(10)................... 8.50 2,587 220 04/01/99 2,587
The Georgetown Shops.............................. 6.50 1,653 107 07/01/99 1,655
Thieves Market.................................... 6.50 734 48 04/30/99 734
First Union Line of Credit(11).................... 7.50 1,500 113 06/01/98 1,500
FS Note(12)....................................... 5.00 4,800 240 07/01/00 4,800
Mellon Line of Credit(11)......................... 7.50 6,848 514 03/29/98 6,848
-------- ------- -------
Subtotal.................................... 162,733 12,008 142,064
-------- ------- -------
NEW MORTGAGE LOANS
City Line Shopping Center (13).................... 8.00 8,979 718 10/19/05 8,238
Kings Park Shopping Center(14).................... 9.00 4,320 389 11/30/14 --
Newtown Square Shopping Center(15)................ 8.25 8,244 680 12/31/06 7,269
Northway Shopping Center(14)...................... 8.90 6,000 534 12/30/06 4,943
Northway Shopping Center(14)...................... 10.25 1,777 182 08/01/99 1,736
------- ------- -------
Total....................................... $192,053 $14,511 $164,250
======== ======= ========
- ----------
<FN>
(1) Except for Centre Ridge Marketplace, Colonial Shopping Center, Penn Station
(Phase II), Potomac Plaza Shopping Center, Takoma Park Shopping Center, the
FS Note and the Lines of Credit, all the properties are subject to
mortgages which contain prepayment penalties, typically calculated using a
yield maintenance formula.
(2) Branchwood Apartments, P.G. County Commercial Park, Shoppes of Kildaire and
Thieves Market, amounts reflect a reduction of the outstanding balances of
the mortgages due to amortization which was escrowed at the formation of
the Company for the remaining loan term in the amounts of $36,000,
$507,000, $259,000 and $66,000, respectively.
(3) The interest rate on this mortgage floats at 2.25% above the 30 day LIBOR
rate.
(4) The interest rate on this mortgage loan floats at 2.75% above the
applicable one-year treasury bill rate.
(5) This debt (the Nomura Mortgage Loan) is collateralized by these five
properties. The Company has entered into an interest rate swap agreement
which fixes the rate at 7.09% for the period July 1, 1996 through June 30,
1999.
(6) This debt is collateralized by these two properties.
(7) This debt is collateralized by these four properties.
(8) The debt service on this mortgage loan is determined based upon a variable
rate of interest, plus a credit enhancement fee of 2.0%. The variable
interest rate is determined weekly at the rate necessary to produce a bid
in the process of remarketing the Bond Obligations equal to par plus
accrued interest, based on comparable issues in the market.
(9) The interest rate adjusts to 7.75% effective July 1, 1997.
(10) The interest rate on this mortgage floats at 0.25% above the prime rate.
(11) The interest rate on the Lines of Credit floats at 2.00% above the 30 day
LIBOR rate. The First Union Line of Credit is collateralized by Brafferton
Center. The Mellon Line of Credit is collateralized by Kenhorst Plaza
Shopping Center.
(12) Excludes a $387,000 discount recorded on the FS Note due to its below
market interest rate. Such discount is being amortized over the life of the
loan using the effective interest method.
(13) Represents 89% of the mortgage on this property. The Company is acquiring
an 89% interest in this property. The seller will retain an 11% interest
which it is obligated to transfer to the Company and which the Company is
obligated to acquire approximately three years after the initial closing.
(14) The effects of the difference between the coupon rates and the market rates
on these loans is immaterial.
(15) The Company expects to refinance this property with a new mortgage
substantially on these terms.
</FN>
</TABLE>
29
<PAGE>
The $25.0 million aggregate principal amount of Exchangeable Debentures
issued in June 1994 are exchangeable in the aggregate for 1,000,000 shares of
Preferred Stock of the Company, subject to adjustment. Interest on the
Debentures is payable quarterly, in arrears. The Debentures mature on June 27,
1999. The Debentures are redeemable by the Operating Partnership at any time on
or after July 15, 1999, or at any time for certain reasons intended to protect
the Company's status as a REIT, at the option of the Company, at 100% of the
principal amount thereof, together with accrued interest. The rights of holders
of Common Stock and Preferred Stock are effectively subordinated to the rights
of holders of Debentures. The Exchangeable Debentures are secured by First
Mortgages on Penn Station Shopping Center (Phase I) and Fox Mill Shopping
Center.
COMPETITION
All of the Properties are located in developed areas that include other
neighborhood shopping center properties. The number of retail properties in a
particular area could have a material effect on the Company's ability to lease
space and on rents charged at the Properties or at any newly acquired
properties. The Company may be competing with others that have greater resources
than the Company and whose officers and directors have more experience than the
Company's officers and directors. In addition, other types of retail shopping
centers, such as regional malls and 'power centers,' provide leasing
alternatives to potential tenants of neighborhood shopping centers like the
Retail Properties.
The third-party management, leasing and related service business is highly
competitive and fragmented. The Company has competitors that include a variety
of local, regional and national firms with no one firm controlling a significant
market share in the regions where the Company engages in its third-party
business. The Company believes, however, that it has a competitive advantage in
these businesses based on the quality and experience of its employees, the
services provided by the Company and the market presence that the Company has
developed over the past ten years.
REGULATIONS AND INSURANCE
General. Retail and multifamily properties are subject to various laws,
ordinances and regulations. The Company believes that each of its Properties has
the necessary operating permits and approvals to operate its respective
business.
Americans with Disabilities Act and Similar Laws. Under the Americans with
Disabilities Act of 1990 (the 'ADA'), all places of public accommodation are
required to meet certain Federal requirements related to access and use by
disabled persons. These requirements became effective in 1992. Although
management of the Company believes that the Properties are substantially in
compliance with present requirements of the ADA, the Company has not conducted
and does not presently intend to conduct an audit or an investigation to
determine its compliance. There can be no assurance that the Company will not
incur additional costs of complying with the ADA. A number of additional
federal, state and local laws exist which also may require modifications to the
Properties, or restrict certain further renovations thereof, with respect to
access thereto by disabled persons.
Additional legislation may place further burdens or restrictions on owners
with respect to access by disabled persons. The ultimate amount of the cost of
compliance with the ADA or such legislation is not currently ascertainable, and,
while such costs are not expected to have a material effect on the Company, such
costs could be substantial. Limitations or restrictions on the completion of
certain renovations may limit application of the Company's investment strategy
in certain instances or reduce overall returns on the Company's investments.
Insurance. Under their leases, the Company's tenants are generally
responsible for providing adequate insurance on the Properties they lease. The
Company believes the Properties are covered by adequate fire, flood and property
insurance provided by reputable companies. However, some of the Properties are
not covered by disaster insurance with respect to certain hazards (such as
30
<PAGE>
earthquakes) for which coverage is not available or available only at rates
which, in the opinion of the Company, are prohibitive.
Fair Housing Amendments Act of 1988. The Fair Housing Amendments Act of
1988 ('FHA') requires apartment properties first occupied after March 13, 1990
to be accessible to the handicapped. Noncompliance with the FHA could result in
the imposition of fines or an award of damages to private litigants. The Company
believes that its Multifamily Properties that are subject to the FHA are in
compliance with such law.
Rent Control Legislation. Although not currently applicable to any of the
Properties, state and local rent control laws in certain jurisdictions may limit
a property owner's ability to increase apartment rents and to recover increases
in operating expenses and the costs of capital improvements. Enactment of such
laws has been considered from time to time in jurisdictions in which the
Multifamily Properties are located. The Company does not presently intend to
develop or acquire multifamily apartment properties in markets that are either
subject to rent control or in which rent limiting legislation exists.
ENVIRONMENTAL MATTERS
The Company seeks to protect itself from environmental liabilities in a
number of ways. As part of its internal due diligence process, the Company
obtains environmental site assessments prior to purchasing a property. In the
event these assessments reveal potential environmental liabilities, the Company
evaluates the risks and attempts to quantify the potential costs associated with
such liabilities and then makes a determination of whether to acquire the
property. If the Company chooses to acquire the property, it will typically
require the prospective seller to agree to remediate any environmental problems
and may obtain a letter of credit or other security to provide adequate
assurance to the Company that sufficient funds will be available to complete the
work.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate may be required to investigate and clean up
hazardous or toxic substances or petroleum product releases at such property and
may be held liable to a governmental entity or to third parties for property
damage and for investigation and clean-up costs incurred by such parties in
connection with contamination. Many such laws, including the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act of 1986 ('CERCLA'), typically
impose such liability without regard for whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances and the
liability under such laws has been interpreted to be joint and several unless
divisible and there is a reasonable basis for allocation of responsibility. The
cost of investigation, remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Some environmental laws create a lien on a contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. The owner of a contaminated site also may be subject to
common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from such site. Certain federal, state and
local laws, regulations and ordinances also govern the removal, encapsulation or
disturbance of asbestos-containing materials ('ACMs') when such materials are in
poor condition or in the event of construction, remodeling, renovation or
demolition of a building. Such laws may impose liability for release of ACMs and
may provide for third parties to seek recovery from owners or operators of such
properties for personal injury associated with ACMs. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Company, the Operating Partnership or the Management Company, as
the case may be, may be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic substances
and, therefore, potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property. Except for the
31
<PAGE>
following matters, the Company has not been notified by any governmental
authority of any non-compliance, liability or other claim in connection with any
of the Properties.
Penn Station Shopping Center. A dry cleaning solvent has been detected in
groundwater below the Penn Station Shopping Center. The source of the
contamination has not been determined. Potential sources include a dry cleaner
tenant at the Penn Station Shopping Center and a dry cleaner located in an
adjacent property. Sampling conducted at the site indicates that the
contamination is limited and is unlikely to have any effect on human health. The
Maryland Department of the Environment was notified as of September 1993. At
this time the Company has not received an estimate of the costs of remediating
the contamination. Based upon the information provided by the Phase I
environmental audit, the Company does not believe that the contamination
relating to the dry cleaning solvents at Penn Station Shopping Center poses a
material adverse risk to the Company's results of operations, financial
condition or liquidity.
Fox Mill Shopping Center. Petroleum has been detected in the soil at a
parcel adjacent to Fox Mill Shopping Center on property occupied by Exxon
Corporation ('Exxon') for use as a gas station (the 'Exxon Station'). Exxon has
taken steps to remediate the petroleum in and around the Exxon Station, which is
located downgradient from the Fox Mill Shopping Center. Exxon has agreed to take
full responsibility for the remediation of such petroleum. In addition, a dry
cleaning solvent has been detected in the groundwater below the Fox Mill
Shopping Center. A groundwater pump and treatment system, approved by the
Virginia Water Control Board, was installed in July 1992, and was operating
until recently when the Control Board ordered semi-annual sampling to determine
if further remediation is necessary. The previous owner of the Fox Mill Shopping
Center has agreed to fully remediate the groundwater contamination. The Company
has received preliminary estimates which indicate that the anticipated costs to
remediate the environmental contamination at the Fox Mill Shopping Center will
be approximately $75,000 over the course of the next three to four years. Based
upon the information provided by the Phase I environmental audit, the Company
does not believe that the contamination associated with either the petroleum or
the dry cleaning solvent at the Fox Mill Shopping Center poses a material
adverse risk to the Company's results of operations, financial condition or
liquidity.
Four Mile Fork Shopping Center. A drycleaning solvent has been detected in
the soil below the Four Mile Fork Shopping Center. The Company intends to
conduct additional testing to determine the extent of contamination and the
appropriate remediation measures, if any. In any event, the Company does not
intend to close the acquisition of Four Mile Fork Shopping Center without a
closure letter from the responsible regulatory authority or adequate
indemnification from the seller of the center.
All of the Properties (including the New Retail Properties) have been
subject to Phase I or similar environmental audits (which involved a general
inspection without soil sampling or groundwater analysis) by independent
environmental consultants. These environmental audits have not revealed any
significant environmental liability that would have a material adverse effect on
the Company's business. No assurance can be given that the environmental studies
that were performed at the properties would disclose all environmental
liabilities thereon, that any prior owner thereof did not create a material
environmental condition not known to the Company or that a material
environmental condition does not otherwise exist as to any of the Properties.
LEGAL PROCEEDINGS
Neither the Company nor the Properties are presently subject to any
material litigation nor, to the Company's knowledge, is any material litigation
threatened against the Company or the Properties, other than routine litigation
and administrative proceedings arising in the ordinary course of business, which
collectively are not expected to have a material adverse effect on the business,
financial condition or results of operations of the Company.
32
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, after payment of all expenses of the Offering, are estimated to be
approximately $27.9 million ($32.1 million if the Underwriters' over-allotment
option is exercised in full). The net cash proceeds of the Offering will be used
as follows: approximately $18.8 million for the purchase of the New Retail
Properties (the balance of the purchase price of the New Retail Properties will
be paid for by the issuance of Common Units and assumption of indebtedness);
approximately $4.7 million to repay existing indebtedness (with a weighted
average interest rate of 8.5% and a weighted average term to maturity of nine
years from September 30, 1996), approximately $1.9 million for property
expansions and approximately $2.5 million for working capital. The foregoing
represent estimates and the actual amounts and timing of such expenditures will
depend upon numerous factors including the timing of acquisitions, renovations
and expansions. If any of the purchases of the New Retail Properties do not
close, the balance of any remaining net offering proceeds will be used to reduce
indebtedness, for new acquisitions and for general working capital. See "Risk
Factors--New Retail Properties." Pending such uses, the Company intends to
invest such net proceeds in short-term, income-producing investments which are
consistent with the Company's intention to qualify for taxation as a REIT.
Any net proceeds from the exercise of the Underwriters' over-allotment
option will be invested as described above. These funds will be used to develop
or acquire additional properties (including expansion and redevelopment of the
Properties) consistent with the Company's investment policies and growth
strategies.
PRICE RANGE OF THE COMMON STOCK AND DISTRIBUTIONS
The Company's Common Stock began trading on the Nasdaq National Market
('NASDAQ') on June 27, 1995 and on the NYSE on August 13, 1996. The table below
sets forth for the fiscal periods indicated the high and low sales prices per
share of the Company's Common Stock, as reported on the NYSE composite tape or
NASDAQ and the distributions paid for such periods.
DISTRIBUTIONS
HIGH LOW PER SHARE
---- --- -------------
1995
Third Quarter............................... $18 $17 $.4875
Fourth Quarter.............................. 18 1/2 17 .4875
1996
First Quarter............................... 19 17 3/4 .4875
Second Quarter.............................. 20 1/2 18 1/4 .4875
Third Quarter............................... 21 1/4 19 1/4 .4875
Fourth Quarter (through November 21, 1996).. 23 20 5/8 (1)
- ----------
(1) On October 19, 1996, the Company declared a distribution of $0.4875 per
share to the holders of Common Stock of record on November 1, 1996, payable
on November 15, 1996. Purchasers of Common Stock offered hereby will not be
entitled to such distribution.
On November 21, 1996, the closing sale price of the Common Stock as
reported on the NYSE was $21 3/4 per share. As of November 21, 1996, the
approximate number of holders of record of the Common Stock was 144.
For the year ended December 31, 1995 100% (or $1.95 per share) of the
distributions made through December 31, 1995 on the Common Stock represented a
return of capital for federal income tax purposes.
In the future, the Company's ability to make distributions will be affected
by a number of factors, including the revenues received from its properties, the
operating expenses of the Company, the interest expense incurred on outstanding
indebtedness, the ability of tenants to meet their obligations under leases,
unanticipated capital expenditures and dividends received from the Management
Company. In addition, if the Exchangeable Debentures are exchanged for
Convertible Preferred Stock annual cash available for distribution will be
reduced by approximately $375,000.
33
<PAGE>
One or more of the foregoing factors could limit the Company's ability to
maintain distributions at the current level.
Management believes that the amount of cash available for distribution not
distributed will be sufficient to cover: (i) tenant allowances and other costs
associated with the renewal or replacement of current tenants as their leases
expire, (ii) recurring capital expenditures that will not be reimbursed by
tenants and (iii) unforeseen cash needs. The expected amount of distributions
will not allow the Company, using only cash from operations, to retire all of
its debt when due, and therefore the Company will be required to seek additional
debt or equity financings, and/or sell properties, to repay such debt.
Federal income tax law requires a REIT to distribute annually at least 95%
of its REIT taxable income. For the twelve-month period ended December 31, 1995,
the amount of distributions necessary to maintain the Company's REIT status for
that year would have been approximately $2.9 million or $1.26 per share of
Convertible Preferred Stock. Based on the level of distributions on the Common
Stock constituting a return of capital, the Company would not have been required
to make any distributions on the Common Stock in 1995 in order to satisfy its
obligation under Federal income tax law to distribute annually at least 95% of
its REIT taxable income.
Distributions by the Company to the extent of its current or accumulated
earnings and profits for Federal income tax purposes, other than capital gain
dividends, will be taxable to stockholders as ordinary dividend income. Capital
gain dividends generally will be treated as long-term capital gains.
Distributions in excess of earnings and profits generally will be treated as a
non-taxable reduction of the stockholder's basis in the stock to the extent
thereof, and thereafter as taxable gain. Distributions treated as non-taxable
reduction in basis will have the effect of deferring taxation until the sale of
a stockholder's capital stock. For a discussion of the tax treatment of
distributions to holders of shares of capital stock, see 'Federal Income Tax
Considerations--Taxation of Taxable U.S. Stockholders.'
34
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and the pro forma capitalization of the Company as of September 30,
1996, after giving effect to the sale of the Common Stock offered hereby,
certain acquisitions and the application of the net proceeds from the Offering
as described under the caption 'Use of Proceeds.' The information set forth in
the following table should be read in conjunction with the consolidated
financial statements and notes thereto and the pro forma financial information
and notes thereto included elsewhere in this Prospectus, as well as
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Mortgage and other notes payable.................................................. $162,346 $186,976
Exchangeable Debentures(1)........................................................ 25,000 25,000
Minority interest(2).............................................................. 12,573 18,948
Stockholders' equity:(3)
Preferred Stock, $.01 par value, 10,000,000 shares authorized;
Convertible Preferred Stock, $.01 par value, 3,750,000 shares designated;
2,314,189 shares issued and outstanding(4)....................................... 23 23
Common Stock, $.01 par value, 90,000,000 shares authorized;
3,291,245 and 4,791,245 shares issued and outstanding,
respectively..................................................................... 32 47
Additional paid-in capital........................................................ 86,538 114,226
Accumulated distributions in excess of earnings................................... (16,758) (16,758)
-------- --------
Total stockholders' equity.................................................... 69,835 97,538
-------- --------
Total capitalization...................................................... $269,754 $328,462
========= =========
<FN>
____________
(1) The $25.0 million of Exchangeable Debentures, due 1999, are exchangeable
for shares of Convertible Preferred Stock at $25.00 per share (1,000,000
shares) and are collateralized by two Properties.
(2) Reflects the 421,215 Exchangeable Preferred Units and 709,716 (Historical)
and 1,009,716 (Pro Forma) Common Units of the Operating Partnership not
owned by the Company.
(3) Does not include: (i) 709,716 (Historical) and 1,009,716 (Pro Forma) shares
of Common Stock and 421,215 shares of Convertible Preferred Stock reserved
for issuance upon exchange of issued and outstanding Common Units and
Exchangeable Preferred Units, respectively, (ii) 594,874 shares of Common
Stock reserved for issuance under the 1994 Stock Incentive Plan, 1994
Contingent Stock Awards and 1996 Contingent Stock Awards. See
'Management--Compensation of Officers.'
(4) The Convertible Preferred Stock has a stated liquidation preference of
$25.00 per share, is convertible (based on the then-applicable liquidation
preference of the Convertible Preferred Stock) on or after May 31, 1999
into shares of Common Stock at a conversion price equal to $19.50, and is
not redeemable by the Company prior to July 15, 1999.
</FN>
</TABLE>
35
<PAGE>
SELECTED PRO FORMA AND HISTORICAL FINANCIAL AND PORTFOLIO INFORMATION
The following tables set forth pro forma summary financial information for
the Company and historical summary financial information for the Company and its
predecessor, the FWM Group. The following selected financial information should
be read in conjunction with the discussion set forth in 'Management's Discussion
and Analysis of Financial Condition and Results of Operations,' and all of the
financial statements and notes thereto included elsewhere in this Prospectus.
The historical operating data of the Company and its predecessor for the years
ended December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the
historical consolidated financial statements audited by Coopers & Lybrand
L.L.P., independent accountants, whose report with respect to the information
for the years ended December 31, 1993, 1994 and 1995 is included elsewhere in
this Prospectus. The operating data for the nine months ended September 30, 1995
and 1996 has been derived from the unaudited consolidated financial statements
of the Company. In the opinion of management, the operating data for the nine
months ended September 30, 1995 and 1996 included all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
information set forth therein.
The unaudited selected pro forma information for the year ended December
31, 1995 is presented as if: (i) the June 1995 Offering had occurred and the
proceeds therefrom had been used, as of January 1, 1995, to purchase the Retail
Properties acquired in connection with the June 1995 Offering; and (ii) the
Offering had occurred and the net proceeds therefrom had been used as of January
1, 1995 as described in 'Use of Proceeds,' and the 1996 Acquisitions had
occurred as of January 1, 1995. The unaudited selected pro forma information for
the nine months ended September 30, 1996 is presented as if the Offering had
occurred and the net proceeds therefrom had been used, as of January 1, 1996, as
described in 'Use of Proceeds,' and the 1996 Acquisitions had occurred as of
January 1, 1996. The pro forma financial information is not necessarily
indicative of what the actual results of operations of the Company would have
been for the period indicated, nor does it purport to represent the results of
operations for future periods.
Per share data for periods prior to the formation of the Company are not
relevant to the historical combined financial statements of the FWM Group
because such financial statements are a combined presentation of the predecessor
entities. Historical operating results, including net income, may not be
comparable to future operating results because of the recapitalization resulting
from the formation of the Company. In addition, the Company believes that the
book value of the Properties, which reflects historical cost of such assets,
less accumulated depreciation, is not indicative of the fair value of the
Properties.
36
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------- ------------------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995 1995 1996 1996
---- ---- ---- ---- ---- --------- ---- ---- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL INFORMATION:
Revenues:
Minimum rent................ $10,362 $10,242 $10,594 $14,701 $23,276 $35,874 $16,597 $23,408 $28,724
Percentage rent............. 134 114 68 255 495 1,063 302 501 763
Tenant reimbursements....... 1,802 1,642 1,889 2,823 4,362 6,762 3,106 5,015 6,272
Third-party fees............ 1,400 3,095 4,396 1,912 -- -- -- -- --
Other income................ 520 310 245 508 1,447 1,505 787 1,189 1,204
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues............. 14,218 15,403 17,192 20,199 29,580 45,204 20,792 30,113 36,963
Expenses:
Property operating and
maintenance................ 4,475 4,726 5,137 6,299 7,229 10,555 5,024 7,623 9,422
General and administrative.. 1,162 2,115 2,665 1,356 2,831 2,831 2,152 2,348 2,348
Interest.................... 8,947 8,144 7,909 9,301 11,230 17,088 8,095 11,025 13,467
Depreciation and
amortization............... 2,441 2,514 2,721 4,579 5,808 8,943 4,162 5,783 7,075
------- ------- ------- ------- ------- ------- ------- ------- -------
Total expenses............. 17,025 17,499 18,432 21,535 27,098 39,417 19,433 26,779 32,312
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
from Management Company,
extraordinary item and
minority interest............. (2,807) (2,096) (1,240) (1,336) 2,482 5,787 1,359 3,334 4,651
Income from Management
Company(1)................... -- -- -- 500 449 449 361 97 97
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
distributions to preferred
stockholders, extraordinary
item and minority interest... (2,807) (2,096) (1,240) (836) 2,931 6,236 1,720 3,431 4,748
Extraordinary item............ -- -- 2,665 2,251 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $(2,807)$(2,096) $1,425
======= ======= ======
Income before minority
interest and distributions to
preferred stockholders....... 1,415 2,931 6,236 1,720 3,431 4,748
(Income) loss allocated to
minority interest............ (1,101) (602) (977) (87) (486) (746)
------- ------- ------- ------- ------- -------
Income before distributions to
preferred stockholders....... 314 2,329 5,259 1,633 2,945 4,002
Distributions to preferred
stockholders................. (1,811) (5,117) (5,641) (3,728) (4,231) (4,231)
------- ------- ------- ------- ------- -------
Loss allocated to common
stockholders................. $(1,497)$(2,788) $ (382) $(2,095) $(1,286) $(229)
======= ======= ======= ======= ======= =======
Net loss per Common
Share(2)................... $(0.95)$ (1.19) $(0.08) $(1.01) $(0.40) $(0.05)
======= ======= ======= ======= ======= =======
Shares of Common Stock, in
thousands.................... 1,574 2,351 4,701 2,081 3,227 4,727
======= ======= ======= ======= ======= =======
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------- -------------------------
PRO FORMA
1991 1992 1993 1994 1995 1995 1995 1996
---- ---- ---- ---- ---- --------- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT RETAIL PROPERTY INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Rental properties, gross........ $ 85,663 $ 87,299 $ 87,749 $ 175,213 $ 228,092 $ 211,885 $ 285,774
Total assets.................... 83,552 82,798 81,056 172,487 227,405 210,695 274,969
Mortgage and other notes
payable......................... 90,834 93,918 92,382 89,858 116,182 99,486 162,346
Exchangeable Debentures......... -- -- -- 25,000 25,000 25,000 25,000
Total liabilities............... 97,032 99,235 96,216 117,925 145,241 127,067 192,561
Minority interest(3)............ -- -- -- 8,580 11,088 11,059 12,573
Stockholders' equity
(deficit)....................... (13,480) (16,437) (15,160) 45,982 71,076 72,569 69,835
RETAIL PROPERTY INFORMATION:
Retail Occupancy................ 90.8% 94.6% 95.4% 94.7% 96.0% 95.6% 96.1%
Number of Retail Properties..... 14 14 14 20 27 39 26 33
Retail Properties GLA (thousands
of square feet)............... 1,186 1,186 1,186 2,014 2,646 3,910 2,645 3,286
Average rent(4):
Retail Properties (per square
foot)....................... $ 8.89 $ 9.07 $ 9.16 $ 10.08 $ 10.28 $ 10.54
OTHER DATA:(5)
Funds From Operations(6)........ $ 10,539 $16,979 $ 7,382 $ 10,264
Cash flow from operating
activities.................... $ 785 $ 1,037 $ 831 $ 3,164 10,003 6,788 9,466
Cash flow (used in) investing
activities.................... (3,998) (1,636) (450) (56,236) (29,884) (15,271) (42,260)
Cash flow provided by (used in)
financing activities.......... 2,846 367 (529) 53,615 26,574 14,076 26,858
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
PRO FORMA
1996
---------
(UNAUDITED)
<S> <C>
BALANCE SHEET INFORMATION:
Rental properties, gross........ $ 341,478
Total assets.................... 333,677
Mortgage and other notes
payable......................... 186,976
Exchangeable Debentures......... 25,000
Total liabilities............... 217,191
Minority interest(3)............ 18,948
Stockholders' equity
(deficit)....................... 97,538
RETAIL PROPERTY INFORMATION:
Retail Occupancy................ 95.6%
Number of Retail Properties..... 39
Retail Properties GLA (thousands
of square feet)............... 3,910
Average rent(4):
Retail Properties (per square
foot)....................... $ 10.43
OTHER DATA (FOR THE YEAR OR SIX
MONTHS ENDING AS OF THE DATE
INDICATED):
Funds From Operations(5)........ $ 12,873
Cash flow from operating
activities....................
Cash flow (used in) investing
activities....................
Cash flow provided by (used in)
financing activities..........
- ----------
<FN>
(1) Subsequent to June 27, 1994, activity of the Management Company is being
reflected using the equity method of accounting.
(2) Because the Company's income is based on its percentage interest in the
Operating Partnership's income, the net loss per share would be unchanged
for the periods presented even if Common Units were exchanged for Common
Stock of the Company.
(3) Reflects the Exchangeable Preferred Units and Common Units of the Operating
Partnership not owned by the Company.
(4) Represents base rent divided by square feet leased, for the annualized
12-month period.
(5) For the year or nine months ending as of the date indicated.
(6) The Company considers Funds From Operations to be an appropriate measure of
the performance of an equity REIT. On March 3, 1995, NAREIT adopted the
NAREIT White Paper on Funds From Operations (the 'NAREIT White Paper')
which provided additional guidance on the calculation of Funds From
Operations. Funds From Operations is defined by NAREIT as net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect Funds From
Operations on the same basis. Funds From Operations does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available
to fund cash needs and should not be considered an alternative to net
income as an indicator of the Company's operating performance or as an
alternative to cash flow as a measure of liquidity or of ability to make
distributions.
</FN>
</TABLE>
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the 'Selected
and Pro Forma and Historical Financial and Portfolio Information' and all of the
historical and pro forma financial statements and the notes thereto appearing
elsewhere in this Prospectus. The pro forma information assumes the completion
of the June 1995 Offering and the Offering (and the application of the proceeds
therefrom) at the beginning of the periods indicated.
RESULTS OF OPERATIONS
Pro forma results of operations of the Company for the nine months ended
September 30, 1996 compared to the historical results for the nine months ended
September 30, 1996.
For the nine months ended September 30, 1996, the net loss allocated to
common stockholders on a pro forma basis decreased by $1.1 million from a net
loss of $1.3 million to a net loss of $0.2 million, when compared to the nine
months ended September 30, 1996, primarily due to an increase in revenues offset
by an increase in expenses and income allocated to minority interests.
Total revenues increased by $6.9 million or 22.9%, from $30.1 million to
$37.0 million, due primarily to an increase in minimum rents of $5.3 million and
tenant reimbursements of $1.3 million. The increases are due to the effect of
the expected purchase of the New Retail Properties.
Property operating and maintenance expense increased by $1.8 million, or
23.7%, from $7.6 million to $9.4 million, primarily due to the effect of the
expected purchase of the New Retail Properties.
Interest expense increased by $2.5 million, or 22.7%, from $11.0 million,
to $13.5 million primarily due to the increased mortgage indebtedness associated
with the expected purchase of the New Retail Properties.
Depreciation and amortization expenses increased by $1.3 million, or 22.4%,
from $5.8 million to $7.1 million, primarily due to the effect of the expected
purchase of the New Retail Properties.
Income allocated to minority interest increased by $0.3 million from $0.5
million to $0.8 million due to an increase in net income.
Comparison of the nine months ended September 30, 1996 to the nine months
ended September 30, 1995.
For the nine months ended September 30, 1996, the net loss allocated to
common stockholders decreased by $0.8 million from a net loss of $2.1 million to
a net loss of $1.3 million, when compared to the nine months ended September 30,
1995, primarily due to an increase in the amount of revenues offset by an
increase in expenses, distributions to holders of Convertible Preferred Stock,
and income allocated to minority interest.
Total revenues increased by $9.3 million, or 44.7%, from $20.8 million to
$30.1 million, primarily due to an increase in minimum rents of $6.8 million and
tenant reimbursements of $1.9 million. The increases were primarily due to the
1995 and 1996 Acquisitions.
Property operating and maintenance expense increased by $2.6 million, or
52.0%, from $5.0 million to $7.6 million, primarily due to the 1995 and 1996
Acquisitions. General and administrative expenses increased by 9.1% or $0.2
million, from $2.2 million to $2.4 million, primarily due to New York Stock
Exchange filing fees of $0.2 million, bonuses of $0.2 million and other expenses
of $0.2 million offset by a decrease of $0.4 million for compensation paid or
payable in Company stock.
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Interest expense increased by $2.9 million, or 35.8%, from $8.1 million, to
$11.0 million, primarily due to the increased mortgage indebtedness associated
with the purchase of the 1995 and 1996 Acquisitions.
Depreciation and amortization expenses increased by $1.6 million, or 38.1%,
from $4.2 million to $5.8 million, primarily due to the 1995 and 1996
Acquisitions.
During the nine months ended September 30, 1996, distributions payable to
owners of the Convertible Preferred Stock increased from $3.8 million to $4.2
million due to the issuance of Preferred Stock to the former owners of Laburnum
Park Shopping Center, Laburnum Square Shopping Center, Glen Lea Shopping Center,
Hanover Village Shopping Center and Firstfield Shopping Center.
Income allocated to minority interest increased by $0.4 million from $0.1
million to $0.5 million due to an increase in net income.
Pro forma results of operations of the Company for the year ended December
31, 1995 compared to the historical results for the year ended December 31,
1995.
For the year ended December 31, 1995, the net loss allocated to common
stockholders on a pro forma basis decreased by $2.4 million from a net loss of
$2.8 million to a net loss of $0.4 million, when compared to the year ended
December 31, 1995, primarily due to an increase in revenues offset by an
increase in expenses, distributions to holders of Convertible Preferred Stock,
and income allocated to minority interests.
Total revenues increased by $15.6 million or 52.7%, from $29.6 million to
$45.2 million, due primarily to an increase in minimum rents of $12.6 million
and tenant reimbursements of $2.4 million. The increases were primarily due to
the purchase of Festival at Woodholme Shopping Center on June 1, 1995, Glen Lea,
Hanover Village, Laburnum Park and Laburnum Square on July 1, 1995, Kenhorst
Plaza on October 12, 1995 and Firstfield Shopping Center on November 15, 1995
(the '1995 Acquisitions') and the purchase of Stefko Boulevard and 15th & Allen
Shopping Centers on January 4, 1996, Clopper's Mill Village Center on March 1,
1996, Centre Ridge Marketplace on March 29, 1996, Takoma Park Shopping Center on
April 29, 1996 and Southside Marketplace on June 7, 1996 (the '1996
Acquisitions') and the expected purchase of the New Retail Properties (together
the 'Acquisitions').
Property operating and maintenance expense increased by $3.4 million, or
47.2%, from $7.2 million to $10.6 million, due primarily to the Acquisitions.
Interest expense increased by $5.9 million, or 52.7%, from $11.2 million,
to $17.1 million due primarily to the increased mortgage indebtedness associated
with the purchase of the Acquisitions.
Depreciation and amortization expenses increased by $3.1 million, or 53.4%,
from $5.8 million to $8.9 million, primarily due to the Acquisitions.
Distributions payable to owners of the Convertible Preferred Stock
increased from $5.1 million to $5.6 million due to the issuance of Preferred
Stock to the former owners of the UDR Properties during 1995.
Income allocated to minority interest increased by $0.4 million from $0.6
million to $1.0 million due to an increase in net income.
Comparison of the year ended December 31, 1995 to the year ended December
31, 1994.
For the year ended December 31, 1995, net loss allocated to common
stockholders increased by $1.3 million from a net loss of $1.5 million to a net
loss of $2.8 million, when compared to the year ended December 31, 1994,
primarily due to an increase in expenses and distributions to holders of
Convertible Preferred Stock, offset by an increases in revenues and a decrease
in income allocated to minority interest.
40
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Total revenues increased by $9.4 million or 46.5%, from $20.2 million to
$29.6 million, due primarily to an increase in minimum rents of $8.6 million and
tenant reimbursements of $1.5 million, partially offset by a decrease in
third-party fees of $1.9 million due to the change in the ownership of the
Management Company from voting to nonvoting stock and the related change in the
method of accounting for the Management Company, effective June 27, 1994. The
increases were primarily due to the purchase of Brafferton Shopping Center,
Davis Ford Crossing, First State Plaza, Fox Mill Shopping Center, Mayfair
Shopping Center and Valley Centre (the "1994 Acquisitions") on June 27, 1994
resulting in only six months revenues being included in the year ended December
31, 1994 and the the 1995 Acquisitions.
Property operating and maintenance expense increased by $0.9 million, or
14.8%, from $6.3 million to $7.2 million, due primarily to the purchase of the
1994 Acquisitions on June 27, 1994 resulting in only six months of expenses
being included in the year ended December 31, 1994 and the 1995 Acquisitions.
Property operating and maintenance expenses as a percentage of total revenues
decreased from 31% in 1994 to 24% in 1995 primarily due to savings in property
management fee expenses due to the increased size of the Company's portfolio and
a reduction in the reserve for allowance for doubtful accounts.
General and administrative expenses increased by $1.4 million, or 100.0%,
from $1.4 million to $2.8 million due primarily to compensation paid or payable
in company stock in the amount of $1.8 million to key employees offset by the
change in accounting for the Management Company on June 27, 1994, resulting from
the change in ownership from voting to non-voting stock. Prior to June 27, 1994,
the expenses of the Management Company were consolidated with the properties.
Subsequent to June 27, 1994, activity of the Management Company is being
reflected using the cost method of accounting (1994) and the equity method of
accounting (1995).
Interest expense increased by $1.9 million, or 20.4%, from $9.3 million, to
$11.2 million, due primarily to the 1995 Acquisitions.
Depreciation and amortization expenses increased by $1.2 million, or 26.1%,
from $4.6 million to $5.8 million, primarily due to an increase in depreciable
basis due to the 1995 Acquisitions and a full year of depreciation on the
1994 Acquisitions.
During 1995, distributions payable to owners of the Convertible Preferred
increased by $3.3 million from $1.8 million to $5.1 million primarily due to the
preferred stock being outstanding for only six months in 1994 and the issuance
of an additional 358,000 shares during 1995.
Income allocated to minority interest decreased by $0.5 million from $1.1
million to $0.6 million for the year ended December 31, 1995 primarily because
all pre-June 27, 1994 income was allocated to minority interests in 1994,
partially offset by increased earnings in 1995. During 1994 there was
extraordinary income of $2.3 million. There was no such item during 1995.
Potomac Plaza's occupancy rate as of December 31, 1995 was 75.3%. The
Company completed a renovation of the shopping center in April 1996 which should
increase the marketability of the property. As of September 30, 1996, the
occupancy rate had increased to 95%. Broadmoor Apartments occupancy was 71.9% as
of December 31, 1995 primarily due to the closing of the Charleston, South
Carolina Naval Base. Broadmoor has historically relied on the Navy Base as a
source of tenants. The Company completed an exterior renovation of the property
and has renamed the property Park Place. These activities should increase the
marketability of the apartments.
Net cash flow provided by operating activities increased from $3.2 million
in 1994 to $10.0 million in 1995, primarily due to the acquisition of new
properties during 1995 and realizing the full years operations from properties
purchased in 1994 and improved property performance. Net cash flows used in
investing activities decreased from $56.2 million in 1994 to $29.9 million in
1995 primarily due to a decrease in the amount of property acquisitions during
1995. Net cash flow provided by financing activities decreased from $53.6
million to $26.6 million primarily due to a decrease in the amount of equity
capital raised and a decrease in acquisitions in 1995 resulting in less
financing needs.
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<PAGE>
Comparison of the year ended December 31, 1994 for the Company to the year
ended December 31, 1993 for the FWM Group.
For the year ended December 31, 1994, total revenues increased by $3.0
million, or 17.4%, from $17.2 million to $20.2 million, due primarily to an
increase in minimum rents of $4.1 million and tenant reimbursements of $0.9
million, partially offset by a decrease in third-party fees of $2.5 million due
to the change in the ownership of the Management Company from voting to
nonvoting stock and the related change in the method of accounting for the
Management Company, effective June 27, 1994. The increases were primarily due to
the purchase of the 1994 Acquisitions on June 27, 1994 resulting in six months
revenues being included in the year ended December 31, 1994.
Property operating and maintenance expense increased by $1.2 million, or
23.5%, from $5.1 million to $6.3 million, due primarily to the purchase of the
1994 Acquisitions on June 27, 1994 resulting in six months expenses being
included in the year ended December 31, 1994.
General and administrative expenses decreased by $1.3 million, or 48.1%,
from $2.7 million to $1.4 million, due primarily to the change in accounting for
the Management Company on June 27, 1994, resulting from the change in ownership
from voting to non-voting stock. Prior to June 27, 1994, the expenses of the
Management Company were consolidated with the Properties. Subsequent to June 27,
1994 and until December 31, 1994, activity of the Management Company is being
reflected using the cost method of accounting.
Interest expense increased by $1.4 million, or 17.7%, from $7.9 million to
$9.3 million, due primarily to the amortization of loan costs associated with
the $38.5 million Nomura Mortgage Loan (including amortization of the interest
rate cap in the amount of $0.5 million), issuance of $25.0 million Exchangeable
Debentures, assumption of $14.4 million of debt related to the 1994 Acquisitions
and amortization of deferred loan costs associated with the modification of
existing debt.
Depreciation and amortization expenses increased by $1.9 million, or 70.4%,
from $2.7 million to $4.6 million, primarily due to an increase in depreciable
basis due to the purchase of the 1994 Acquisitions. During 1994, distributions
of $1.8 million were paid to owners of the Convertible Preferred Stock and
Exchangeable Preferred Units. There was no similar items during the year ended
December 31, 1993. Income of $1.1 million was allocated to the minority interest
during the year ended December 31, 1994. There were no similar item during the
year ended December 31, 1993.
Net income decreased by $2.9 million from a net income of $1.4 million to a
net loss of $1.5 million, when compared to the year ended December 31, 1993,
primarily due to a distribution to holders of Convertible Preferred Stock, and
an allocation of income to minority interests.
Net cash flow provided by operating activities increased from $0.8 million
in 1993 to $3.2 million in 1994, primarily due to improved property performance
and income from the Management Company.
Net cash flows used in investing activities increased from $0.5 million in
1993 to $56.2 million in 1994 due primarily to the purchase of the 1994
Acquisitions in the amount of $76.1 million (net of debt assumed of $14.4
million) and the issuance of Exchangeable Preferred Units of $8.8 million.
Net cash flow provided by financing activities increased from a use of $0.5
million in the 1993 to a source of $53.6 million in 1994. The increase was
primarily due to proceeds from the Exchangeable Debentures, sale of Common
Stock, sale of Convertible Preferred Stock and new mortgage borrowings, offset
by repayments of mortgage notes.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had total indebtedness of
approximately $187.3 million (including $25.0 million of debentures and
approximately $162.3 million of mortgages and lines of credit). The mortgage
indebtedness consisted of approximately $155 million in indebtedness
collateralized by 32 of the Properties and tax-exempt bond financing obligations
issued by the
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Philadelphia Authority for Industrial Development (the 'Bond Obligations') of
approximately $7.3 million collateralized by one of the properties. Of the
Company's mortgage indebtedness $26.8 million (14.3%) is variable rate
indebtedness, and $160.5 million (85.7%) is at a fixed rate. This indebtedness
has interest rates ranging from 5.0% to 9.6%, with a weighted average interest
rate (excluding the Bond Obligations) of 7.6%, and will mature between 1997 and
2021. A large portion of the Company's indebtedness will become due by 1999,
requiring payments of $3.2 million in 1997, $13.5 million in 1998 and $87.0
million in 1999. From 1997 through 2021, the Company will have to refinance an
aggregate of approximately $187.7 million. Since the Company anticipates that
only a small portion of the principal of such indebtedness will be repaid prior
to maturity and the Company will likely not have sufficient funds on hand to
repay such indebtedness, the Company will need to refinance such indebtedness
through modification or extension of existing indebtedness, additional debt
financing or through additional offering of equity securities.
On June 27, 1994, the Company borrowed $38.5 million under new mortgage
loans (collectively, the 'Nomura Mortgage Loan') collateralized by five of the
properties. These loans, which bear interest at 30-day LIBOR (5.4% at September
30, 1996) plus 2.0% and mature on July 1, 1999, are closed to prepayment until
July 1, 1998 and can be prepaid thereafter based on a 1.50% declining prepayment
penalty. To mitigate its exposure to these variable rate loans, the Company
entered into a five year interest rate protection agreement for a notional
amount of $38.5 million that is effective through the loan's maturity, and caps
the interest rate at 6.20% until June 27, 1995, 6.70% until June 27, 1996 and
7.70% from July 1, 1996 until June 27, 1999. The financing cost of the interest
rate protection agreement of approximately $3.2 million, is being amortized over
the life of the agreement using the effective interest rate method resulting in
an effective interest rate on the Nomura Mortgage Loan of approximately 8.9% per
annum. The estimated fair market value of the interest rate protection
agreement, as determined by the issuing financial institution, was approximately
$0.7 million at October 11, 1996.
In December 1995, the Company entered into two interest rate swap contracts
with a notional amount of $38.5 million. The Company intends to hold such
contracts, the first of which commenced in July 1996 and expires in June 1999
and the second of which commences in July 1999 and expires in December 2003,
until their expiration dates. The purpose of the swaps is to fix the interest
rate on the $38.5 million Normura loan through its expiration date of June 1999
at 7.09% and to mitigate any interest rate exposure upon refinancing the loan by
fixing the LIBOR rate at 6.375% for the period beginning July 1999 through
December 2003. Under the terms of the interest rate contract, the Company will
be paying a fixed rate of 5.09% to the counter party to the contract (the
'Counter Party') through June 1999 and a fixed rate of 6.375% through December
2003. The Company will be receiving variable payments from the Counter Party
based on 30-day LIBOR through December 2003. The Counter Party has as collateral
a $2.4 million restriction on the $5.8 million line of credit it provided the
Company (see below). The fair market value of each of the interest rate swaps is
determined by the amount at which they could be settled. If the Company had
settled these agreements with the Counter Party on October 11, 1996, the Company
would have been paid approximately $0.9 million.
The Company currently has two collateralized revolving lines of credit (the
'Lines of Credit'). The Company currently has a collateralized revolving line of
credit of up to $5.8 million from First Union Bank. Loans under the line of
credit bear interest at LIBOR plus 2% per annum, and will mature on June 30,
1998. Loans under this line of credit are collateralized by a first mortgage
lien on one of the Properties. The loan agreement with respect to the line of
credit calls for the amount of the facility to be curtailed at any point when it
exceeds 75% of the appraised value of the collateral. During the second quarter,
of 1996 the Company closed an additional collateralized revolving line of credit
of approximately $7.0 million with Mellon Bank and facility was recently
increased to $8.25 million. The loan matures in April 1998. Loans under this
line of credit bear interest at LIBOR plus 2% per annum. As of September 30,
1996, $8.3 million was outstanding under the Lines of Credit. Definitive
agreements with respect to the Lines of Credit contain customary
representations, warranties and covenants.
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The Company expects to meet its short-term liquidity requirements generally
through its working capital, net cash provided by operations and draws on its
Lines of Credit. The Company believes that the foregoing sources of liquidity
will be sufficient to fund liquidity needs through 1997.
The Company expects, from time-to-time, to meet certain long-term liquidity
requirements such as development, property acquisitions, scheduled debt
maturities, renovations, expansions and other non-recurring capital improvements
through long-term secured and unsecured indebtedness, including the Lines of
Credit, and the issuance of additional equity securities (including units of the
Operating Partnership and the issuance of shares in this Offering). Any
additional issuances of equity securities (including Convertible Preferred Stock
and Common Units issued or to be issued in connection with the acquisition of
the New Retail Properties) will have the effect of reducing the current
stockholders' ownership percentage in the Company. The Company also expects to
use funds available under the Lines of Credit to fund acquisitions, development
activities and capital improvements on an interim basis. Although management
believes that the combination of these sources of funds will be sufficient to
meet the Company's liquidity needs and its growth plans, there can be no
assurance that such additional financing will be available or as to the terms of
such financing.
The table below sets forth the Company's capital expenditures from 1991
through the nine months ended September 30, 1996. The capital expenditures fall
into three categories: recurring, non-recurring and tenant improvements.
Recurring capital expenditures are typical repairs and replacements to a
property which have been capitalized for financial statement purposes such as
roof replacements, mechanical equipment replacements or repaving of a parking
lot. Non-recurring capital expenditures are not repair-type items but rather a
major renovation or cosmetic facelift of a property. Examples would include a
new facade, parking lot or significant expansion. Tenant improvements represent
funds expended on a particular tenant to induce a tenant to lease space at the
property, including painting, carpeting, floor covering, drop ceiling and
mechanical equipment. Such expenditures are typically for work done to the
interior of a particular space. The following table summarizes capital
expenditures since 1991:
<TABLE>
<CAPTION>
NON-
RECURRING PER RECURRING PER PER
CAPITAL SQUARE CAPITAL SQUARE TENANT SQUARE
EXPENDITURES FOOT EXPENDITURES FOOT IMPROVEMENTS FOOT
------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1991...................... $ 819,000 $0.71 $178,000 $0.16 $136,000 $0.12
1992...................... 1,485,000 1.26 87,000 0.08 187,000 0.16
1993...................... 33,000 0.03 96,000 0.08 219,000 0.19
1994...................... 2,584,000 1.63 160,000 0.10 504,000 0.32
1995...................... 768,000 0.34 363,000 0.16 994,000 0.44
Nine months ended September
30, 1996.................. 1,540,000 0.47 429,000 0.13 1,065,000 0.32
</TABLE>
A majority of the non-recurring capital expenditures prior to 1995 was
spent on three projects: completion of Phase II of Penn Station in 1991, the
renovation and expansion of Bryans Road Shopping Center between 1992 and 1994.
Prior to 1995 a large portion of the recurring capital expenditures was for the
replacement of roof sections at two properties.
The Company is currently involved in a number of property renovations and
expansions. See 'Prospectus Summary--Recent Developments.'
The following table sets forth estimated capital expenditures (including
those financed through the Offering proceeds) for the year ending December 31,
1996:
NON-RECURRING RECURRING
CAPITAL CAPITAL TENANT
EXPENDITURES EXPENDITURES IMPROVEMENTS
------------- ------------ ------------
Year ending December 31, 1996....... $1,740,000 $500,000 $1,364,000
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INFLATION; ECONOMIC CONDITIONS
Most of the Company's leases contain provisions designed to partially
mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentagerents based on tenant's gross sales
above predetermined levels, which rents generally increase as prices rise, or
escalation clauses which are typically related to increases in the Consumer
Price Index
or similar inflation indices. Most of the Company's leases require the tenant to
pay its share of operating expenses, including common area maintenance, real
estate taxes and insurance, thereby reducing the Company's exposure to increases
in costs and operating expenses resulting from inflation. In addition, the
Company periodically evaluates its exposure to interest rate fluctuations, and
may enter into interest rate protection agreements which mitigate, but do not
eliminate, the effect of changes in interest rates on its floating rate loans.
The Company, as a general policy, endeavors to obtain long-term fixed rate
financing when obtainable.
Concurrent with its formation the Company purchased a five-year interest
rate cap for the Nomura Mortgage Loan. See '--Liquidity and Capital Resources.'
In addition, the cost of the cap of approximately $3.2 million was capitalized
and is being amortized over the 5-year term using the effective interest rate
method. This resulted in non-cash interest expense in the year ended December
31, 1995 and the nine months ended September 30, 1996 of approximately $930,000
and $529,000, respectively.
In December 1995, the Company entered into two interest rate swap contracts
with a notional amount of $38.5 million. See '--Liquidity and Capital
Resources.'
Upon acquisition of additional properties through debt financing or the
refinancing of existing debt, the Company will consider the purchase of
additional interest rate caps. The effect of these caps will be to reduce the
exposure the Company has to increases in interest rates. The purchase of
additional interest rate caps will require outlays of capital and could affect
the Company's ability to continue its current level of distributions. The costs
of any future interest rate caps are dependent upon a number of factors,
including fluctuations in interest rates, and may increase in the future.
The Company's financial results are affected by general economic conditions
in the markets in which its properties are located. An economic recession, or
other adverse changes in general or local economic conditions, could result in
the inability of some existing tenants of the Company to meet their lease
obligations and could otherwise adversely affect the Company's ability to
attract or retain tenants. The Retail Properties are typically anchored by
supermarkets, drug stores and other consumer necessity and service retailers
which typically offer day-to-day necessities rather than luxury items. These
types of tenants, in the experience of the Company, generally maintain more
consistent sales performance during periods of adverse economic conditions.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The persons who are directors and executive officers of the Company, their
ages (as of September 30, 1996) and their respective positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stuart D. Halpert...................... 53 Chairman of the Board
William J. Wolfe....................... 44 President, Chief Executive Officer and Director
James G. Blumenthal.................... 40 Executive Vice President and Chief Financial Officer
Lester Zimmerman....................... 46 Executive Vice President and Director
Jeffrey S. Distenfeld.................. 41 Senior Vice President, Secretary and General Counsel
James G. Pounds........................ 40 Senior Vice President
Stephen Mitnick........................ 35 Vice President
Stanley T. Burns(1).................... 52 Director
Matthew J. Hart(1)..................... 44 Director
William M. Russell(1).................. 60 Director
Heywood Wilansky(1).................... 48 Director
<FN>
- ----------
(1) Member of Compensation and Audit Committees.
</FN>
</TABLE>
The following is a summary of the business experience of the officers,
directors and key employees of the Company:
STUART D. HALPERT. Mr. Halpert is the Chairman of the Board of Directors of
the Company. He co-founded the Company's predecessor in 1983 and has been its
Chairman since its inception. He has been involved in the real estate industry
for over 20 years. Mr. Halpert has played an active role in the structuring of
FWM and the many real estate ventures in which its affiliates have participated.
In addition, Mr. Halpert has been actively involved with all aspects of the
Company's business, including acquisitions, asset management, financing and
third-party services. He shares overall responsibility for the Company's
day-to-day operations with Mr. Wolfe. Prior to the formation of the Company's
predecessor, Mr. Halpert was a practicing attorney specializing in real estate
transactions and banking matters. Prior to entering private practice, Mr.
Halpert served as Counsel to the House Banking Committee, U.S. Congress. Mr.
Halpert is a past member of the Board of Directors of the District of Columbia
National Bank and the National Bank of Commerce. Mr. Halpert is a member of the
International Council of Shopping Centers. He received his Bachelor's Degree
from Brown University and his Juris Doctor Degree from The George Washington
University Law School.
WILLIAM J. WOLFE. Mr. Wolfe is the President and Chief Executive Officer of
the Company. He is also the President, Chief Executive Officer and co-founder of
the Company's predecessor. Mr. Wolfe shares overall responsibility for the
Company's day-to-day operations with Mr. Halpert, and has been involved in the
acquisition, development, financing, construction, renovation, leasing and
management of over 75 retail properties. Prior to co-founding the Company's
predecessor, from 1979 to 1982, Mr. Wolfe was a principal in a real estate firm
that developed, renovated and managed office buildings and condominiums in
downtown Washington, D.C. Prior to entering the real estate business, Mr. Wolfe
served in the Executive Office of the President of the United States. Mr. Wolfe
is a member of the International Council of Shopping Centers, and is a past
member of the Board of Directors of the National Bank of Commerce. He received
his Bachelor's Degree from Clark University and his Master's Degree from Harvard
University.
JAMES G. BLUMENTHAL. Mr. Blumenthal is an Executive Vice President and the
Chief Financial Officer of the Company. Mr. Blumenthal joined the Company's
predecessor in 1986 and has served in a variety of positions including Senior
Asset Manager and Director of Acquisitions. He has responsibility for accounting
and financial reporting for the Company. Prior to joining the Company's
predecessor, Mr. Blumenthal was a practicing CPA with the firm of Grant
Thornton. He is a member of the American Institute of Certified Public
Accountants. Mr. Blumenthal received his
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Bachelor's Degree from The George Washington University and his Master's of
Science in Taxation from The American University.
LESTER ZIMMERMAN. Mr. Zimmerman is an Executive Vice President of the
Company and co-founder of the Company's predecessor and has primary
responsibility for the brokerage activities of the Company. He has over 16 years
of experience in the acquisition, management and disposition of commercial
properties. Mr. Zimmerman received his Bachelor's Degree from the College of
William and Mary. Mr. Zimmerman is a member of the National Multi-Housing
Council, the National Association of Real Estate Investment Trusts and the
National Housing and Rehabilitation Association. Prior to joining the Company's
predecessor, Mr. Zimmerman was an executive with the Xerox Corporation in
Washington, D.C and Sydney, Australia.
JEFFREY S. DISTENFELD. Mr. Distenfeld is a Senior Vice President, Secretary
and General Counsel of the Company. He joined the Company's predecessor in 1989
and is responsible for all legal matters. Prior to joining the Company's
predecessor, Mr. Distenfeld was a partner with the law firm of Lane and Edson,
P.C., where he specialized in real estate and financing transactions. He is a
member of the bar of, and qualified to practice in, Maryland, Virginia and the
District of Columbia. Mr. Distenfeld received his Bachelor's Degree from The
George Washington University and his Juris Doctor Degree from the University of
Virginia School of Law.
JAMES G. POUNDS. Mr. Pounds is a Senior Vice President of the Company and
has responsibility for its third-party management business. He joined the
Company's predecessor in 1988 and has had a variety of responsibilities,
including construction management and supervision of expansion and renovation
projects. Prior to joining the Company's predecessor, Mr. Pounds was a Vice
President of T.F. Stone, a real estate development firm, where he was
responsible for the development and construction of a variety of commercial and
multifamily projects. Prior to that, he was a project manager with HKS, Inc., an
architectural firm, where he was responsible for development and construction of
commercial office properties. Mr. Pounds received his Bachelor's Degree in
Engineering from the University of Kansas and Master's of Business
Administration and Master's of Architecture from the University of Illinois.
STEPHEN MITNICK. Mr. Mitnick is a Vice President of the Company and has
responsibility for property acquisitions and financings. Prior to joining the
Company in 1995, Mr. Mitnick had been engaged for over ten years in real estate
consulting, mortgage finance, and property acquisition and disposition. Mr.
Mitnick received his Bachelor's Degree from the University of Pennsylvania and
Master's of Business Administration degree from The Wharton School with a
concentration in finance and real estate.
STANLEY T. BURNS. Mr. Burns is principal of The Calloway Group, a
consulting firm specializing in business strategy and finance. Mr. Burns is the
former president and chief executive officer of United Savings Bank in Virginia,
and served for over 22 years with Chase Manhattan Bank, N.A. and affiliates. In
1985, Mr. Burns negotiated the acquisition of three banks in Maryland on behalf
of the Chase Manhattan Corporation, which banks were then merged to form Chase
Bank of Maryland, where he served as president and chief executive officer until
1988. He received his undergraduate degree from Duke University and a Master's
Degree from Johns Hopkins University. He is the co- author of Educating Managers
and currently serves on the faculty of Johns Hopkins University.
MATTHEW J. HART. Mr. Hart is the Executive Vice President and Chief
Financial Officer of Hilton Hotel Corporation. Mr. Hart is primarily responsible
for Hilton's corporate finance and development activities. Prior to joining
Hilton, Mr. Hart was Senior Vice President and Treasurer of the Walt Disney
Company. Prior to joining Disney, Mr. Hart was Executive Vice President and
Chief Financial Officer of Host Marriott Corporation (formerly known as Marriott
Corporation). He was responsible for the company's corporate and project
financing activities, as well as the corporate control and the corporate tax
functions. Before joining Marriott Corporation, Mr. Hart had been a lending
officer with Bankers Trust Company in New York. Mr. Hart received his
undergraduate degree from Vanderbilt University and a Master's of Business
Administration from Columbia University.
47
<PAGE>
WILLIAM M. RUSSELL. Mr. Russell is the Senior Real Estate Advisor of Aetna,
Inc. Prior to his current position, Mr. Russell was chairman of the Real Estate
and Mortgage Investment Committee of the Aetna Life & Casualty Companies. Over
the term of his association with Aetna, Mr. Russell has held senior positions in
virtually every area of its real estate operations, including supervising
Aetna's $23 billion mortgage portfolio and serving as past president of Aetna
Property Services, a subsidiary engaged in the on-site management of Aetna-owned
properties and former chairman of AE Properties, Inc., a subsidiary engaged in
real estate development. Mr. Russell is a member of the board of directors and
past president of the Connecticut Housing Investment Fund. Mr. Russell was the
Governor's appointee to the Connecticut Blue Ribbon Commission on Housing, and
he is co-chairman of the Hartford Downtown Development Task Force.
HEYWOOD WILANSKY. Mr. Wilansky is the President, Chief Executive Officer
and a Director of the Bon-Ton Stores, Inc. a retail department store. Prior to
joining Bon-Ton Stores in August, 1995 Mr. Wilansky had been the president and
chief executive officer of Foley's Department Store, a 50 store division of May
Department Stores Company since 1992. Mr. Wilansky is the former president and
chief executive officer of Filene's Department Store and the former executive
vice president for merchandising of Lord & Taylor. Prior to that, Mr. Wilansky
held various positions with Hecht's Department Store of Washington, D.C., most
recently serving as senior vice president and general merchandise manager. Mr.
Wilansky received his Bachelor's Degree from Canaan College.
BOARD OF DIRECTORS AND COMMITTEES
The Company is managed by a seven member Board of Directors, a majority of
whom are independent of the Company's management. Messrs. Burns, Hart, Russell
and Wilansky comprise the Company's current independent directors (the
'Independent Directors'). The Board of Directors is divided into three classes
serving staggered three-year terms. See 'Certain Provisions of Maryland Law and
the Company's Charter and Bylaws--Classification of the Board of Directors.' The
Board is composed of two Class I directors (Messrs. Zimmerman and Russell), two
Class II directors (Messrs. Wolfe and Hart), and three Class III directors
(Messrs. Halpert, Burns and Wilansky), whose terms will expire upon the election
of directors at the annual meeting of stockholders held following the fiscal
years ending December 31, 1998, 1999 and 1997, respectively. At each annual
meeting of stockholders, directors will be reelected or elected for a full term
of three years to succeed those Directors whose terms are expiring. Messrs.
Wolfe and Hart were reelected for a full term of three years at the Company's
1996 annual meeting.
Audit Committee. The Board of Directors has established an Audit Committee
consisting of Messrs. Burns, Hart, Russell and Wilansky. The Audit Committee
makes recommendations concerning the engagement of independent public
accountants, reviews with independent public accountants the plans and results
of the audit engagement, approves professional services provided by the
independent accountants, reviews the independence of the independent
accountants, considers the range of audit and non-audit fees, and reviews the
adequacy of the Company's internal accounting controls.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee was established in November, 1994 and consists of Messrs.
Burns, Hart, Russell, and Wilansky, none of whom is or has been an officer or
employee of the Company. For a description of the background of each of these
individuals, see '--Directors and Executive Officers.' To the Company's
knowledge, there were no interrelationships involving members of the
Compensation Committee or other directors of the Company requiring disclosures
in this Prospectus.
COMPENSATION OF DIRECTORS
The Company compensates its directors who are not officers of the Company
with fees for their services as directors. The fee paid to each of such
directors currently is $12,000 annually. The Chairmen of the Audit and
Compensation Committees also receive $1,000 per meeting of their respective
committees. Under the Stock Incentive Plan described below, non-employee
directors receive, upon initial election to the Board of Directors, an option
to purchase 2,500 shares of
48
<PAGE>
Common Stock. The exercise price per share of all these options will be equal to
the market price at the time of grant. The exercise price for the options
granted to each of the existing Independent Directors is $19.50 per share. Each
option has a term of 10 years.
COMPENSATION OF OFFICERS
Executive Officers. The Company was organized as a Maryland corporation in
April 1994. The Company did not pay any cash compensation to its executive
officers for the year ended December 31, 1993, and did not commence paying
salaries until June 1994, immediately following the consummation of the series
of transactions by which the Company was formed. The following table sets forth
the salary paid, and stock options granted, to the Chief Executive Officer and
the other four most highly compensated executive officers of the Company (the
'Named Executive Officers') for the years-ended December 31, 1994 and December
31, 1995. Messrs. Halpert and Wolfe are the only employees that have employment
agreements.
The Named Executive Officers are employed and compensated by both the
Company and the Management Company. The Company believes that the effective
allocation of such executives' compensation as among such entities reflects the
services provided by such executives with respect to each entity.
49
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
COMPENSATION OPTIONS(4) STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY(2) BONUS (3) (#) GRANTS(5) COMPENSATION
- --------------------------- ------- ----------- ----- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. Wolfe................ 1995 $ 190,000 $ 50,000(6) -- -- 22,417 --
President and Chief 1994 73,328 -- 146,475 -- --
Executive Officer
Stuart D. Halpert............... 1995 190,000 50,000(6) -- -- 22,417 --
Chairman of the 1994 73,328 -- 146,475 -- --
Board
Lester Zimmerman................ 1995 111,548 -- -- -- 14,140 $ 217,442(7)
Executive Vice 1994 57,500 -- -- -- -- 102,291(7)
President and Director
Jeffrey S. Distenfeld........... 1995 126,458 -- -- -- 2,564 --
Senior Vice 1994 57,500 -- -- 5,130 -- --
President,
General Counsel
James G. Pounds................. 1995 115,000 -- -- -- 2,564 --
Senior Vice 1994 57,500 -- -- 5,130 -- --
President
<FN>
----------
(1) The Company was founded in April, 1994 and therefore no information is
available with respect to prior fiscal years. The Company paid advisory
and management fees to FWM of $1,178,000 in 1995. Certain of the named
individuals listed in this table have certain ownership interests in FWM.
See 'Certain Relationships and Related Transactions.'
(2) Salaries paid in 1994 were based on annual salaries for Messrs. Wolfe and
Halpert of $190,000 and Messrs. Zimmerman, Distenfeld and Pounds of
$115,000. Includes compensation that was accrued and deferred pursuant to
the Company's 401(k) Plan.
(3) Consists of the annual lease value of company-owned automobiles, membership
fees to professional organizations, and certain medical and life insurance
benefits. The aggregate value of such benefits does not exceed the lesser of
$50,000 or 10% of the total annual salary for the named individual.
(4) Represents options which were granted under the Company's 1994 Stock
Incentive Plan at an exercise price equal to $19.50 per share (the per share
price of Common Stock in the June 1994 Offering). See '--1994 Stock
Incentive Plan.' Concurrently with the formation of the Company, the Company
issued options to purchase 146,475 shares of Common Stock to each of Messrs.
Halpert and Wolfe pursuant to their employment agreements. The term of each
such option is 10 years from the date of grant. Such options vest 33 1/3%
per year over three years and are exercisable at $19.50 per share. In
December 1994, the Company issued options to purchase 5,130 shares of Common
Stock to each of Messrs. Distenfeld and Pounds. The term of each such option
is 10 years from the date of grant. Such options vest 331/3% per year over
three years and are exercisable at $19.50 per share.
(5) Represents shares granted pursuant to the 1994 Contingent Stock Awards. The
table does not include 133,334 shares of Common Stock that may be awarded
to the Named Executive Officers (or their designees) during the three years
following the formation of the Company if certain performance objectives are
satisfied pursuant to the 1994 Contingent Stock Awards. Also does not
include 128,400 shares of Common Stock that may be awarded to the Named
Executive Officers pursuant to the 1996 Restricted Stock Plan, and 60,000
shares of Common Stock that may be awarded to the Named Executive Officers
during the two years following March 31, 1998 if certain performance
objectives are satisfied pursuant to the 1996 Contingent Stock Awards. See
'--Employment Agreements.'
(6) As explained below under '--Employment Agreements.'
(7) Mr. Zimmerman, in his capacity as a licensed real estate broker, received
such amount as sales commissions in connection with sales of properties for
third-party owners. Mr. Zimmerman receives a share of sales commissions
which exceed a predetermined threshold amount.
</FN>
</TABLE>
OPTION GRANTS IN 1995
The Named Executive Officers did not receive any options to purchase Common
Stock for the fiscal year ended December 31, 1995. The Company does not have any
outstanding stock appreciation rights.
50
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth information related to the number of
unexercised stock options at December 31, 1995 for each of the Named Executive
Officers listed below. No shares were acquired upon exercise of stock options
during 1995, and the 1995 fiscal year-end value of unexercised options was zero:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS AT
FY-END
-------------
EXERCISABLE/
NAME UNEXERCISABLE
- ---- -------------
<S> <C>
Stuart D. Halpert............................................ 97,650/48,825
William J. Wolfe............................................. 97,650/48,825
Jeffrey S. Distenfeld.................................... ... 3,420/1,710
James G. Pounds.............................................. 3,420/1,710
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Halpert and Wolfe have entered into amended employment agreements
with the Company effective June 30, 1996. The employment agreements will expire
in 1999 and contain non-competition provisions applicable during, and for 18
months following, such officer's employment by the Company.
The employment agreements provide that, under certain circumstances Messrs.
Halpert and Wolfe shall receive a severance benefit equal to the greater of (a)
200% of the sum of (x) employee's annual base salary at the time of such
termination plus (y) the average annual bonus or (b) the sum of (x) the annual
base salary that the employee would otherwise have been entitled to receive from
the time of such termination through the end of the term of the employment
agreement plus (y) the average annual bonus annualized from the time of such
termination through the end of the employment term. If Mr. Halpert or Mr. Wolfe
is terminated prior to the expiration of his employment agreement, he shall
continue to receive medical benefits until the date his term of employment
otherwise would have expired.
Each of the employment agreements provides for an annual base salary in the
amount of $250,000. The Compensation Committee has discretionary authority to
award bonuses to Messrs. Halpert and Wolfe of up to 100% of their base salary,
with a targeted annual bonus of 50% of annual base salary, subject to a maximum
bonus of $77,500 to each of Messrs. Halpert and Wolfe for bonus payments earned
from July 1, 1995 through December 31, 1996. The employment agreements provide
that the criteria governing the Compensation Committee's bonus decisions shall
be performance-based, based upon such measures as:(i) growth in funds from
operations, (ii) growth in total return (measured as the sum of the annual
dividend plus increases in the market price of the Company's portfolio), and
(iii) growth in portfolio based upon the original cost of such property.
In addition, each employment agreement provides for: (i) the issuance of
contingent shares pursuant to the 1994 Contingent Stock Awards and the 1996
Contingent Stock Awards as described below; (ii) the issuance of restricted
stock pursuant to the 1996 Restricted Stock Plan as described below and (iii)
the issuance of options pursuant to the 1994 Stock Incentive Plan as described
below.
1994 Contingent Stock Awards. In connection with the formation of the
Company, 200,000 shares of Common Stock (the 'Contingent Shares') were reserved
for issuance to Messrs. Halpert and Wolfe (or their designees), during the
three-year period following the formation of the Company based upon the
achievement of certain performance objectives for each of such three years (the
'1994 Contingent Stock Awards'). One-third of the Contingent Shares have been
issued to Messrs. Halpert and Wolfe (and their designees) as of the first
anniversary date of the formation of the Company. Specifically, Messrs. Halpert
and Wolfe each have received 22,417 shares of Common Stock, Lester Zimmerman has
received 14,140 shares of Common Stock and Jeffrey S. Distenfeld, James G.
Blumenthal and James G. Pounds each received 2,564 shares of Common Stock. At
the end of the third year following formation of the Company, Messrs. Halpert
and Wolfe shall be issued a
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<PAGE>
number of additional Contingent Shares such that the aggregate amount of
Contingent Shares issued (including all previously issued Contingent Shares) is
as follows: (i) one-third of the Contingent Shares if Funds From Operations
increased by 7%--14% between July 1, 1994 and June 30, 1997; (ii) two-thirds of
the Contingent Shares if Funds From Operations increased by 14%--21% between
July 1, 1994 and June 30, 1997; and (iii) all of the Contingent Shares if Funds
From Operations increased by 21% or more between July 1, 1994 and June 30, 1997.
It is anticipated that the Company will meet the performance criteria required
to issue the remaining Contingent Shares to Messrs. Halpert and Wolfe (and their
designees) in 1997.
1996 Contingent Stock Agreements. In April 1996, the stockholders of the
Company approved Contingent Stock Agreements (the '1996 Contingent Stock
Awards') between the Company and each of Messrs. Halpert and Wolfe. Messrs.
Halpert's and Wolfe's Agreements are identical. The principal features of the
1996 Contingent Stock Awards are summarized below but the description is
qualified in its entirety by reference to the 1996 Contingent Stock Agreements
themselves which are filed as Exhibits to the Registration Statement of which
this Prospectus forms a part.
As of April 1, 1996, 60,000 shares of Common Stock were reserved for grant
under the 1996 Contingent Stock Agreements (30,000 shares for each of Messrs.
Halpert and Wolfe). No shares of Common Stock have been granted under the 1996
Contingent Stock Agreements.
The 1996 Contingent Stock Agreements are administered by the Compensation
Committee of the Board of Directors (the 'Committee'). The 1996 Contingent Stock
Awards provide that each of Messrs. Halpert and Wolfe will be granted Common
Stock on the dates and in the amounts set forth in the table below if the
Committee determines that the Company has materially met certain targeted
performance criteria, set forth in the Company's annual budgeted financial
projections which shall include, but not be limited to, rental and other
revenues and net operating income during the performance periods shown in the
following table:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CONTINGENT
DATE OF GRANT PERFORMANCE PERIOD STOCK TO BE GRANTED
------------- ------------------ --------------------
<S> <C> <C>
March 31, 1998 07/01/97--12/31/97 5,000
March 31, 1999 01/01/98--12/31/98 12,500
March 31, 2000 01/01/99--12/31/99 12,500
</TABLE>
The Common Stock will not be issued until the Contingent Stock Award has vested,
and Messrs. Halpert and Wolfe will have no voting or dividend rights prior to
the time which the vesting conditions are satisfied. Ungranted Contingent Stock
may be transferred only by will or by the laws of descent and distribution.
The following table sets forth the shares of Common Stock received pursuant
to the Contingent Stock Agreements:
<TABLE>
<CAPTION>
NUMBER OF
DOLLAR SHARES OF
NAME VALUE COMMON STOCK
- ---- ------ ------------
<S> <C> <C>
Stuart D. Halpert.......................................... (1) 30,000
William J. Wolfe........................................... (1) 30,000
======
Executive Group............................................ (1) 60,000
Non-Executive Director Group............................... -- --
Non-Executive Officer Employee Group....................... -- --
<FN>
- ----------
(1) The dollar value of the shares of Contingent Stock granted depends upon the
future market price of the Common Stock and therefore is not presently
determinable.
</FN>
</TABLE>
1996 Restricted Stock Plan. The Company has established a restricted stock
plan (the '1996 Restricted Stock Plan') to further the growth, development and
financial success of the Company by providing additional incentives to certain
of its employees, and to enable the Company to obtain and
52
<PAGE>
retain the services of the type of officers considered essential to the
long-range success of the Company.
Only those officers and employees who are selected from time to time by the
Compensation Committee, acting in its absolute discretion, may participate in
the Plan. It is currently anticipated the approximately seven officers and
employees of the Company will be eligible to participate in the Plan. On June
30, 1996, Messrs. Halpert and Wolfe were each granted 39,200 shares of
Restricted Stock under the Plan pursuant to the terms of their employment
agreements. As of September 30, 1996, 50,000 shares of Common Stock were
reserved for grants of restricted stock to officers and employees of the Company
under the Plan.
Their employment agreements provide that each of Messrs. Halpert and Wolfe
will be granted shares of restricted stock under the Plan pursuant to Restricted
Stock Agreements (the 'Restricted Stock Agreements'). Under the terms of Messrs.
Halpert and Wolfe's identical Restricted Stock Agreements shares of Common Stock
were sold to Messrs. Halpert and Wolfe on June 30, 1996, at a purchase price
equal to the par value ($.01 per share) of the Common Stock, subject to the
restrictions on vesting described below. The restricted stock granted to each of
Messrs. Halpert and Wolfe shall vest, and all restrictions with respect to such
shares shall expire, in accordance with the schedule set forth below:
NUMBER OF AGGREGATE NUMBER OF
VESTING DATE VESTED SHARES VESTED SHARES
------------ ------------- -------------------
July 1, 1997 5,000 5,000
March 31, 1998 11,400 16,400
March 31, 1999 11,400 27,800
March 31, 2000 11,400 39,200
1994 Stock Incentive Plan. The Company has reserved 351,540 shares of
Common Stock for issuance under a stock incentive plan (the '1994 Stock
Incentive Plan') to enable executive officers, directors, key employees of the
Company and all employees of the Operating Partnership (if any) and the
Management Company to participate in the ownership of the Company. The 1994
Stock Incentive Plan provides for the award to such executive officers,
directors and employees of the Company and the Management Company (subject to
the Ownership Limit) of nonqualified stock options and incentive stock options.
An optionee under the 1994 Stock Incentive Plan may, with the consent of the
Compensation Committee, elect to pay for the shares to be received upon exercise
of his or her options in cash, shares of Common Stock, or any combination
thereof.
Concurrently with the formation of the Company, the Company issued options
to purchase 146,475 shares of Common Stock to each of Messrs. Halpert and Wolfe
pursuant to their employment agreements. Such options vest 33 1/3% per year over
three years and are exercisable at $19.50 per share. In December 1994 the
Company issued options to purchase 5,130 shares of Common Stock to each of
Messrs. Distenfeld and Pounds. Such options vest 33 1/3% per year and are
exercisable at $19.50 per share.
In addition, upon the election of Messrs. Burns, Hart, Russell, and
Wilansky (the 'Independent Directors') to the Board of Directors in September
1994, the Company issued each Independent Director options to purchase 2,500
shares of Common Stock pursuant to the Stock Incentive Plan. See '--Compensation
of Directors.'
Retirement Plan. The Company has established the First Washington Realty
Trust, Inc. Retirement Plan (the '401(k) Plan') to cover employees of the
Company and the Management Company. The 401(k) Plan will permit employees of the
Company and the Management Company to defer a portion of their compensation, in
accordance with Section 401(k) of the Code. Such deferrals are treated for
federal income tax purposes as employer contributions. In addition,
participating employers are eligible to make a matching contribution and the
employer can make additional discretionary contributions. Employees of the
Company and the Management Company will be eligible to participate in the 401(k)
Plan if they meet certain requirements concerning period of service and other
matters.
53
<PAGE>
ADDITIONAL INFORMATION
Prior to the formation of the Company, Messrs. Halpert, Wolfe, and
Zimmerman were general partners of SP Associates Limited Partnership, the
Lower-Tier Partnership which owns the Penn Station Shopping Center. In August
1992, SP Associates Limited Partnership filed a voluntary bankruptcy petition
under Chapter 11 of the United States Bankruptcy Code as a result of its
lender's unwillingness to extend the non-recourse loan in the ordinary course on
terms and conditions acceptable to the partnership, and in August 1993 a Plan of
Reorganization was approved pursuant to which the loan was extended and each
creditor was to receive 100% of the payments owing to it.
Prior to the formation of the Company, Mr. Halpert was a general partner of
Elizabeth Associates Limited Partnership and Jamestown Associates Limited
Partnership, the partnerships which previously owned the portion of the
Georgetown Shops Property located at 1529 Wisconsin Avenue, N.W. and 3033 M
Street, N.W., respectively. In February 1992, Elizabeth Associates Limited
Partnership and Jamestown Associates Limited Partnership, which were parties to
a blanket loan on the property, each filed a voluntary bankruptcy petition under
such Chapter 11 as a result of its lender's unwillingness to extend the
non-recourse loan in the ordinary course on terms and conditions acceptable to
such partnerships. The partnerships and the lender reached a consensual
agreement in May 1993, and the petitions were dismissed prior to the filing of
any Plan of Reorganization.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from: (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The charter of the
Company contains such a provision which limits such liability to the maximum
extent permitted by the MGCL. This provision does not limit the ability of the
Company or its stockholders to obtain other relief, such as an injunction or
rescission.
The bylaws of the Company obligate it to the maximum extent permitted by
Maryland law to indemnify and to pay or reimburse reasonable expenses in advance
of final disposition of a proceeding to: (a) any present or former director or
officer or (b) any individual who, while a director of the Company and at the
request of the Company, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise. The charter and
bylaws also permit the Company to indemnify and advance expenses to any person
who served a predecessor of the Company in any of the capacities described above
and to any employee or agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that: (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding and
(i) was committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
addition, the MGCL requires the Company, as a condition to advancing expenses,
to obtain: (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the Company as authorized by the bylaws and (b) a written
statement by or on his behalf to repay the amount paid or reimbursed by the
Company if it shall ultimately be
54
<PAGE>
determined that the standard of conduct was not met. The termination of any
proceeding by conviction, or upon a plea of nolo contendere or its equivalent,
or an entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite standard of
conduct required for indemnification to be permitted. It is the position of the
Commission that indemnification of directors and officers for liabilities
arising under the Securities Act is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act of 1933, as amended.
The limited partnership agreement of the Operating Partnership (the
'Partnership Agreement') also provides for indemnification of the Company, as
general partner, and its officers and directors generally to the same extent as
permitted by the MGCL for a corporation's officers and directors and limits the
liability of the Company to the Operating Partnership and its partners in the
case of losses sustained, liabilities incurred or benefits not derived as a
result of errors in judgment or mistakes of fact or law or any act or omission
if the Company acted in good faith.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing, conflicts
of interest and other policies of the Company. These policies have been
determined by the Company's Board of Directors and generally may be amended or
revised from time to time by the Board of Directors without a vote of the
stockholders.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. The Company will
conduct all its investment activities through the Operating Partnership for as
long as the Operating Partnership exists. The Company's investment objective is
to achieve stable and increasing cash flow available for distributions and, over
time, to increase portfolio value through the intensive management, expansion
and renovation of its properties, by developing or selectively acquiring
additional retail or multifamily properties, or by expanding its third-party
management, leasing and related service business. See 'The Company--Growth
Strategies.'
The Company expects to pursue its investment objectives through the direct
or indirect ownership of properties. The Company currently intends to primarily
invest in or acquire retail properties concentrated in the Mid-Atlantic region.
However, future development or investment activities will not be limited to any
geographic area or product type or to a specified percentage of the Company's
assets. The Company will not have any limit on the amount or percentage of its
assets invested in one property. Subject to the percentage ownership limitations
and gross income tests necessary for REIT qualification, the Company also may
invest in securities of entities engaged in real estate activities or securities
of other issuers, including for the purpose of exercising control over such
entities, although it has not done so in the past. See 'Federal Income Tax
Considerations--Taxation of the Company.' The Company may acquire all or
substantially all of the securities or assets of other REITs or similar entities
where such investments would be consistent with the Company's investment
policies.
Investments in Others. The Company also may participate with other entities
in property ownership, through joint ventures or other types of ownership.
Equity investments may be subject to existing mortgage financing and other
indebtedness which have priority over the equity of the Company. The Company
will not enter into a joint venture or partnership to make an investment that
would not otherwise meet its investment policies.
Investments in Real Estate Mortgages. While the Company has emphasized
equity real estate investments, it may, in its discretion, invest in mortgages
and other real estate and related interests, including securities of other
REITS. The Company has not previously invested in mortgages or securities of
other REITs and the Company does not presently intend to invest to a significant
extent in mortgages or securities of other REITS. The Company may invest in
participating or convertible mortgages if it concludes that it may benefit from
the cash flow or any appreciation in the value of the subject property.
55
<PAGE>
Interim Investments. Pending disbursement for investment as described
herein, the Company may invest funds in deposits at commercial banks, money
market accounts, certificates of deposit, government securities or other liquid
investments (including GNMA, FNMA, and FHLMC mortgage-backed securities) as the
Board of Directors deems appropriate.
FINANCING POLICIES
The Company's policy is to maintain a ratio of debt (excluding the
Exchangeable Debentures) to total market capitalization of approximately 50% or
less. Upon completion of the Offering and use of the proceeds contemplated
thereby, the ratio of the Company's debt (including the Exchangeable Debentures)
to total market capitalization will be approximately 51.5%, and the ratio of the
Company's debt (excluding the Exchangeable Debentures) to total market
capitalization will be approximately 45.2%. The Company may, however, from time
to time re-evaluate its borrowing policies in light of then current economic
conditions, relative costs of debt and equity capital, the market value of its
properties, growth and acquisition opportunities and other factors. There is no
limit on the Company's ratio of debt-to-total market capitalization, and
accordingly the Company may modify its borrowing policy and may increase or
decrease its ratio of debt-to-total market capitalization. The Company may raise
such capital through additional equity offerings, debt financing or retention of
cash flow subject to provisions in the Code concerning transferability of
undistributed REIT income, or a combination of these methods.
The Company presently anticipates that most additional borrowings would be
made through the Operating Partnership, although the Company may incur
indebtedness, the proceeds of which may be reloaned to the Operating
Partnership. Borrowings may be unsecured or may be secured by any or all of the
Properties and may have full or limited recourse to all or any assets of the
Company, the Operating Partnership or any new property-owning partnership. The
Company anticipates that all or substantially all of the proceeds of any future
sale of shares of capital stock will be transferred to the Operating Partnership
in exchange for Units in the Operating Partnership.
The Company intends to finance future acquisitions with the most
advantageous sources of capital available at the time, which may include
undistributed cash or the reinvestment of the proceeds from the disposition of
assets. The Company may incur additional indebtedness to finance acquisitions
through secured or unsecured borrowings, the exchange of properties or issuance
of additional partnership units in the Operating Partnership, shares of Common
Stock, shares of preferred stock or other securities. In addition to the
Exchangeable Debentures, which rank senior to the Common Stock and the
Convertible Preferred Stock, the Company may also issue additional securities
senior to the shares of Common Stock and Convertible Preferred Stock, including
preferred shares and debt securities (either of which may be convertible into
beneficial interests in the Company or be accompanied by warrants to purchase
beneficial interest in the Company). The Company may acquire properties subject
to seller financing, existing loans secured by mortgages, deeds of trust or
similar liens. The Company may also obtain mortgage financing for properties it
acquires and refinance its existing properties.
To the extent the Company determines to obtain additional debt financing,
the Company may do so generally through mortgage loans secured by liens on
properties. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.' These mortgage loans
may be recourse or non-recourse and may be cross-collateralized or contain
cross-default provisions. The Company does not have a policy limiting the number
or amount of mortgages that may be placed on any particular property, but
mortgage financing instruments usually limit additional liens on such
properties. Future credit facilities and lines of credit may be used for the
purpose of making acquisitions or capital improvements or to provide working
capital.
The Company may incur indebtedness for purposes other than the acquisition
of properties when it deems it advisable to do so. For example, the Company may
borrow to meet the REIT taxable income distribution requirement under the Code
if the Company has taxable income without receipt of cash sufficient to meet
these distribution requirements. For short-term purposes, from time to time the
Company may borrow under lines of credit or arrange for other short-term
56
<PAGE>
borrowings from banks or other sources. The Company's financing strategy may be
reviewed from time to time and changed by the Board of Directors without a vote
of the stockholders.
CONFLICTS OF INTEREST POLICIES
The Company has adopted certain policies designed to reduce potential
conflicts of interest. In general, the Company will not: (i) engage in any
transaction with any director, officer or affiliate thereof involving the sale
or disposition of an equity interest in Company property to such person; or (ii)
sell any of the FWM Properties, without approval of a majority of the Company's
disinterested directors, and other transactions between the Company and any
director or officer, or affiliate thereof, generally must be approved by a
majority vote (or in certain cases by a unanimous vote) of the disinterested
directors (including a majority of the Independent Directors) as being fair,
competitive, and commercially reasonable and no less favorable to the Company
than similar transactions between unaffiliated parties under the same
circumstances. Such restrictions do not apply where such director, officer or
affiliate has acquired the property for the sole purpose of facilitating its
acquisition by the Company, and the total consideration paid by the Company does
not exceed the cost of the property to such person (where the cost is increased
by the person's holding costs and decreased by any income received by the person
from the property) and no special benefit results to such person.
Stuart D. Halpert, the Company's Chairman of the Board, and William J.
Wolfe, the Company's President and Chief Executive Officer, will be subject to
certain conflict of interest restrictions as set forth in their employment
agreements with the Company. See 'Management--Employment Agreements.' Certain of
the Company's independent directors generally may engage in real estate
transactions which may be of the type conducted by the Company, but it is not
anticipated that such transactions will have a material affect upon the
Company's operations.
There can be no assurance that these conflicts of interest policies will
successfully eliminate the influence of potential conflicts of interest, and, if
they are not successful, decisions could be made that might fail to reflect
fully the interests of all stockholders.
DEVELOPMENT POLICIES
The Company anticipates that it will invest primarily in existing retail
properties, although it also may invest in newly constructed properties or
properties under development. See 'The Company--Growth Strategies.' The Company
may in the future pursue additional development projects.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer shares of Common Stock and Convertible
Preferred Stock or other securities and to repurchase or otherwise reacquire its
shares of Common Stock and Convertible Preferred Stock or any other securities
and may engage in such activities in the future. The Company expects (but is not
obligated) to issue shares of Common Stock to holders of Common Units in the
Operating Partnership upon exercise of their exchange rights. As of September
30, 1996 the Company had issued 37,547 shares of Common Stock in exchange for
Common Units. The Company has issued 394,189 shares of Convertible Preferred
Stock and the Operating Partnership has issued 400,207 Common Units and 69,215
Exchangeable Preferred Units in connection with the acquisition of the Existing
Retail Properties. The Company has no outstanding loans to other entities or
persons, including its officers and trustees. The Company may in the future make
loans to other persons with the approval of the independent directors. The
Company has not engaged in trading, underwriting or agency distribution or sale
of securities of other issuers other than the Operating Partnership, nor has the
Company invested in the securities of other issuers other than the Operating
Partnership and Management Company for the purpose of exercising control, and
does not intend to do so.
The Company intends to make investments in such a way that it will not be
treated as an investment company under the Investment Company Act of 1940.
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<PAGE>
The Company has delivered and intends to continue to deliver annual reports
to its stockholders. At all times, the Company intends to make investments in
such a manner as to qualify as a REIT, unless because of circumstances or
changes in the Code (or the Treasury Regulations), the Board of Directors
determines that it is no longer in the best interest of the Company to qualify
as a REIT.
The Company's policies with respect to all of the above activities may be
reviewed and modified from time to time by the Company's Board of Directors
without a vote of the stockholders.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PARTNERSHIP AGREEMENT; EXCHANGE RIGHTS
Messrs. Halpert, Wolfe, Zimmerman, Blumenthal, Distenfeld and Pounds are
limited partners in the Operating Partnership and, as such, are parties to the
Partnership Agreement. Among other things, the Partnership Agreement provides
such holders of Common Units with the right to have their Common Units redeemed
for cash, or, at the election of the Company, to exchange their Common Units for
shares of Common Stock (on a one-for-one basis). See 'Risk Factors--Conflicts of
Interest,' and 'Risk Factors--Influence of Executive Officers.'
CERTAIN PROPERTIES NOT TRANSFERRED TO THE COMPANY
Messrs. Halpert, Wolfe, and Zimmerman are the sole owners of the sole
general partner of FW Realty Limited Partnership, which is a general partner in
the Mid-Atlantic Centers Limited Partnership (the 'MAC Partnership'). The MAC
Partnership owns nine properties managed by the Management Company. Certain
conflicts of interest may arise regarding the payment by the MAC Partnership of
management fees to the Company. See 'Risk Factors--Conflicts of Interest.'
Messrs. Halpert, Wolfe, and Zimmerman hold a minority ownership interest in
an office building with approximately 45,000 square feet of GLA. The Management
Company provides management and leasing services for this property at market
rates. The property was not transferred to the Company at the time of its
formation because it is not part of the Company's portfolio of neighborhood and
community shopping centers, and it is inconsistent with the Company's investment
objectives, as set forth herein under 'The Company--Growth Strategies.'
MANAGEMENT COMPANY
All of the voting common stock of the Management Company is owned by
Messrs. Halpert, Wolfe, and Zimmerman, which enables such individuals to control
the election of the board of directors of the Management Company. The Operating
Partnership owns all of the non-voting preferred stock of the Management
Company, which is generally entitled to dividends equal to 99% of the net cash
flow of the Management Company. Messrs. Halpert and Wolfe have a right of first
refusal with respect to the remaining capital stock of the Management Company.
OTHER
The Company paid legal fees in excess of $60,000 during 1995 to the law
firm of Latham & Watkins. Mr. William J. Wolfe's brother, Mr. Scott N. Wolfe, is
a partner of Latham & Watkins.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Stock by each of the Company's executive officers, and
directors, by the Company's executive officers, directors and directors as a
group, and by all persons known by the Company to be the beneficial owner of
more than five percent of the Company's outstanding shares of Common Stock as of
September 30, 1996. To the Company's knowledge, each person identified in the
table has sole voting and investment power with respect to all shares shown as
beneficially owned by such person, except as otherwise set forth in the notes to
the table. Unless otherwise indicated, the address of each person listed below
is 4350 East-West Highway, Suite 400, Bethesda, Maryland 20814:
<TABLE>
<CAPTION>
PERCENTAGE OF ALL
PERCENTAGE OF ALL SHARES OF COMMON
SHARES OF STOCK
NUMBER OF SHARES COMMON STOCK OUTSTANDING AFTER
NAME OF COMMON STOCK(1) OUTSTANDING(2) THE OFFERING(2)
------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Stuart D. Halpert(2)(5).......................... 227,774 6.7% 4.6%
William J. Wolfe(2)(5)........................... 227,774 6.7 4.6
Lester Zimmerman................................. 55,397 1.7 1.2
Jeffrey S. Distenfeld(2)(5)...................... 9,311 * *
James G. Pounds(2)(5)............................ 9,311 * *
James G. Blumenthal(2)(5)........................ 9,311 * *
Stanley T. Burns(3).............................. 2,500 * *
Matthew J. Hart(3)............................... 3,000 * *
William M. Russell(3)............................ 3,500 * *
Heywood Wilansky(3).............................. 2,500 * *
------- ---- -----
All executive officers and directors as a group
(10 persons)................................... 550,378 15.7% 11.0%
Farallon Capital Management, Inc.(4)............. 643,346 19.5% 13.4%
One Maritime Plaza
Suite 1325
San Francisco, CA 94111
<FN>
- ----------
* Denotes less than one percent.
(1) Includes shares of Common Stock issuable upon conversion of partnership
units ('Common Units') in the Operating Partnership. As of September 30,
1996, Common Units owned by the executive officers and directors were as
follows: Stuart D. Halpert--3,198, William J. Wolfe--3,198, Lester Zimmerman
--2,318, Jeffrey S. Distenfeld--3,077, James G. Pounds--3,077, and James G.
Blumenthal--3,077.
(2) Includes options to purchase shares of Common Stock (which are exercisable
within 60 days) as follows: Stuart D. Halpert--97,650, William J. Wolfe--
97,650, Jeffrey S. Distenfeld--1,710, James G. Pounds--1,710 and James G.
Blumenthal--1,710.
(3) Includes options to purchase 2,500 shares of Common Stock (which are
exercisable within 60 days).
(4) Consists of 196,254 shares held by Farallon Capital Partners, 195,182 shares
held by Farallon Capital Institutional, 42,107 shares held by Tinicum
Partners, 185,803 shares held by Farallon Capital Institutional Partners II,
and 24,000 shares held by Farallon Capital Management L.L.C. Each of the
foregoing entities are separate partnerships over which Farallon Capital
Management, Inc. has trading authority. Farallon Capital Management, Inc.
disclaims beneficial ownership over all such shares.
(5) Includes restricted shares of Common Stock held by Stuart D.
Halpert--39,200, William J. Wolfe--39,200, Jeffrey S. Distenfeld--1,960,
James G. Pounds--1,960 and James G. Blumenthal--1,960.
</FN>
</TABLE>
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the stock of the Company does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Maryland law and to the Company's charter and the Company's
bylaws, copies of which are exhibits to the Registration Statement filed in
connection with the June 1994 Offering. See 'Additional Information.'
GENERAL
The charter of the Company provides that the Company may issue up to
100,000,000 shares of capital stock, consisting of 90,000,000 shares of common
stock, par value $0.01 per share (the 'Common Stock'), and 10,000,000 shares of
preferred stock, par value $0.01 per share. As of September 30, 1996, 3,291,245
shares of Common Stock and 2,314,189 shares of Convertible Preferred Stock were
issued and outstanding. Under Maryland law, stockholders generally are not
liable for the corporation's debts or obligations solely as a result of their
status as stockholders. In determining whether a distribution (other than upon
voluntary or involuntary liquidation), by distribution, redemption or other
acquisition of shares or otherwise, is permitted under the MGCL, the amount of
the aggregate liquidation preference of the Convertible Preferred Stock will not
be counted as a liability of the Company.
COMMON STOCK
Subject to the preferential rights of any other shares or series of capital
stock, holders of shares of Common Stock are entitled to receive distributions
on such shares if, as and when authorized and declared by the Board of Directors
of the Company out of assets legally available therefor and to share ratably in
the assets of the Company legally available for distribution to its stockholders
in the event of its liquidation, dissolution or winding-up after payment of, or
adequate provision for, all known debts and liabilities of the Company. Holders
of shares of Convertible Preferred Stock are entitled to participate in amounts
available for distribution on the Common Stock in excess of $0.4875 per share of
Common Stock with respect to any quarterly distribution payment, based on the
number of shares of Common Stock (or fraction thereof ) into which each share of
Convertible Preferred Stock is (or will be) convertible. See '--Convertible
Preferred Stock--Distributions.'
Subject to the matters discussed under 'Certain Provisions of Maryland Law
and the Company's Charter and Bylaws--Control Share Acquisitions,' each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as otherwise required by law or except as provided with respect to any
other class or series of stock, the holders of such shares of Common Stock
possess the exclusive voting power. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all of the directors then standing
for election and the holders of the remaining shares of Common Stock will not be
able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, sinking
fund, redemption, exchange or preemptive rights to subscribe for any securities
of the Company. All shares of a particular class of issued Common Stock have
equal dividend, distribution, liquidation and other rights.
Pursuant to the MGCL, a corporation generally cannot (except under and in
compliance with specifically enumerated provisions of the MGCL) dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Company's charter
provides for approval of any such action by a majority of the votes entitled to
be cast in the matter, except in the case of amendment of the charter provisions
relating to removal of directors, classification of the Board of Directors,
voting rights of the Common Stock or voting
61
<PAGE>
requirements for charter amendments. In addition, a number of other provisions
of the MGCL could have a significant effect on the shares of Common Stock and
the rights and obligations of holders thereof. See 'Certain Provisions of
Maryland Law and the Company's Charter and Bylaws.'
The transfer agent and registrar for the shares of Common Stock is American
Stock Transfer & Trust Company.
CONVERTIBLE PREFERRED STOCK
Distributions. Holders of shares of the Convertible Preferred Stock are
entitled to receive, when and as declared by the Board of Directors, out of
assets legally available for the payment of distributions, cumulative
preferential cash distributions in an amount per share of Convertible Preferred
Stock equal to $0.6094 per quarter ($2.4375 per annum) plus a participating
distribution equal to the amount, if any, of distributions in excess of $0.4875
per quarter payable on the applicable Distribution Payment Date with respect to
the number of shares of Common Stock (or fraction thereof) into which a share of
Convertible Preferred Stock is then (or will be) convertible. The amount of
participating distribution payable on any Distribution Payment Date will equal
the number of shares of Common Stock, or fraction thereof, into which a share of
Convertible Preferred Stock is then (or will be) convertible, multiplied by the
quarterly distribution in excess of $0.4875 per share paid with respect to a
share of Common Stock on such Distribution Payment Date. As a result of such
participation right of the Convertible Preferred Stock, distributions on
Convertible Preferred Stock and Common Stock will be made out of cash available
for distribution as follows: (i) first, the outstanding shares of Convertible
Preferred Stock will receive $0.6094 per share per quarter; (ii) second, the
outstanding shares of Common Stock will receive $0.4875 per share per quarter;
and (iii) third, any remaining cash available for distribution will be shared
equally among the outstanding shares of Common Stock and Convertible Preferred
Stock as if all of the outstanding shares of Convertible Preferred Stock were
converted into shares of Common Stock. Distributions with respect to the
Convertible Preferred Stock are cumulative from the date of original issuance of
such stock and are payable quarterly in arrears on the fifteenth day of each
August, November, February, and May or, if such day is not a business day, on
the next succeeding business day (each, a 'Distribution Payment Date').
If, for any taxable year, the Company elects to designate as 'capital gains
dividends' (as defined in Section 857 of the Code) any portion (the 'Capital
Gains Amount') of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of stock (the 'Total
Dividends'), then the portion of the Capital Gains Amount that will be allocable
to the holders of Convertible Preferred Stock will be the Capital Gains Amount
multiplied by a fraction, the numerator of which shall be the total dividends
(within the meaning of the Code) paid or made available to the holders of the
Convertible Preferred Stock for the year and the denominator of which shall be
the Total Dividends.
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of the Company, subject to the prior rights of any series of capital stock
ranking senior to the Convertible Preferred Stock, the holders of shares of
Convertible Preferred Stock will be entitled to be paid out of the assets of the
Company legally available for distribution to its stockholders a liquidation
preference equal to the sum of $25.00 per share plus an amount equal to any
accrued and unpaid distributions thereon (whether or not earned or declared) to
the date of payment (the 'Convertible Preferred Liquidation Preference Amount'),
before any distribution of assets is made to holders of Common Stock or any
other capital stock that ranks junior to the Convertible Preferred Stock as to
liquidation rights. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Convertible Preferred
Stock will have no right or claim to any of the remaining assets of the Company.
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<PAGE>
Redemption. The Convertible Preferred Stock is not redeemable prior to July
15, 1999, except under certain limited circumstances to preserve the Company's
status as a REIT, as described below under '--Restrictions on Ownership,
Transfer and Conversion.' On and after July 15, 1999, the Company, at its option
(to the extent the Company has assets legally available therefor) upon not less
than 30 nor more than 60 days' written notice, may redeem shares of the
Convertible Preferred Stock, in whole or in part, at any time or from time to
time, for cash at the redemption price per share specified below, plus all
accrued and unpaid distributions, if any, thereon (whether or not earned or
declared) to the date fixed or redemption, if redeemed during the twelve-month
period beginning on July 15, of each year specified below:
<TABLE>
<CAPTION>
YEAR PRICE
<S> <C>
1999...................................... .......................... $27.44
2000................................................................. 26.95
2001................................................................. 26.46
2002................................................................. 25.98
2003................................................................. 25.49
2004 and thereafter.................................................. $25.00
</TABLE>
The Convertible Preferred Stock has no stated maturity and will not be
subject to any sinking fund. In addition to the redemption provision described
above, shares of Convertible Preferred Stock will be subject to redemption under
certain circumstances in order to preserve the Company's status as a REIT. See
'--Restrictions on Ownership, Transfer and Conversion.'
Voting Rights. Holders of the Convertible Preferred Stock do not have any
voting rights, except as set forth below. In any matter in which the Convertible
Preferred Stock may vote, including any action by written consent, each share of
Convertible Preferred Stock is entitled to one vote. The holders of each share
of the Convertible Preferred Stock may separately designate a proxy for the vote
to which that share of Convertible Preferred Stock is entitled.
Whenever distributions on any shares of the Convertible Preferred Stock
have been in arrears for six or more quarterly periods, the holders of such
shares of Convertible Preferred Stock (voting separately as a class with all
other series of preferred stock upon which rights to vote on such matter with
the Convertible Preferred Stock have been conferred and are then exercisable,
with each series having a number of votes proportional to the aggregate
liquidation preference of its outstanding shares) will be entitled to elect two
additional directors of the Company at a special meeting called by the holders
of record of at least 10% of the outstanding shares of Convertible Preferred
Stock and such other preferred stock, if any (unless such request is received
less than 90 days before the date fixed for the next annual or special meeting
of the stockholders), or at the next annual meeting of stockholders, and at each
subsequent annual meeting until all distributions accumulated on such shares of
the Convertible Preferred Stock for the past distribution periods and the then
current distribution period have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment. In such event, the
number of directors of the Company will be increased by two. Such right to elect
two directors will continue until payment of the distribution arrearage for the
Convertible Preferred Stock, at which time the term of any such directors shall
expire.
Conversion. Subject to the exceptions described under '--Restrictions on
Ownership, Transfer and Conversion,' holders of the Convertible Preferred Stock
have the right, as provided in the charter, exercisable on or after May 31,
1999, except in the case of Convertible Preferred Stock called for redemption,
to convert all or any of the outstanding shares of Convertible Preferred Stock
(with each share of Convertible Preferred Stock valued for purposes of
conversion at the Convertible Preferred Liquidation Preference Amount (currently
$25.00 per share) determined immediately following the most recent Convertible
Preferred Distribution Payment Date) into shares of Common Stock at a conversion
price of $19.50 per share of Common Stock, subject to adjustment upon the
occurrence of certain events. In the case of Convertible Preferred Stock called
for redemption, conversion rights will expire at the close of business on the
third business day immediately preceding the date fixed for redemption.
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<PAGE>
Restrictions on Ownership, Transfer and Conversion. As discussed below
under '--Restrictions on Ownership, Transfer and Conversion,' because the
Company intends to continue to qualify as a REIT under the Code, the Company's
charter contains certain provisions described more fully in that section
restricting the ownership, transfer and conversion of the Convertible Preferred
Stock and other classes of capital stock of the Company.
All certificates representing shares of Convertible Preferred Stock bear a
legend referring to the ownership, transfer and conversion restrictions
applicable to such shares.
Rank. The Convertible Preferred Stock, with respect to dividend rights and
distributions upon liquidation, dissolution, and winding up, ranks (i) senior to
the Common Stock, all other shares of Common Stock of the Company of all classes
and series, and shares of all other classes or series of capital stock issued by
the Company other than any series of capital stock the terms of which
specifically provide that the capital stock of such series rank senior to or on
a parity with such Convertible Preferred Stock with respect to dividend rights
or distributions upon liquidation, dissolution, or winding up of the Company, as
the case may be; (ii) on a parity with the shares of all other capital stock
issued by the Company the terms of which specifically provide that the shares
rank on a parity with the Convertible Preferred Stock with respect to dividends
and distributions upon liquidation, dissolution, or winding up of the Company or
make no specific provision as to their ranking; and (iii) junior to any capital
stock issued by the Company the terms of which specifically provide that the
shares rank senior to the Convertible Preferred Stock with respect to dividends
and distributions upon liquidation, dissolution, or winding up of the Company,
as the case may be (the issuance of which must have been approved by a vote of
at least a majority of the outstanding shares of Convertible Preferred Stock).
POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
The Board of Directors has the power under the charter to authorize the
Company to issue additional authorized but unissued shares of Common Stock and
preferred stock (including any unissued shares of any series of preferred stock,
to the extent permitted by the terms of such series) and to classify or
reclassify unissued shares of Common or preferred stock and thereafter to cause
the Company to issue such classified or reclassified shares of stock. Prior to
the issuance of such shares of Common Stock and shares or series of preferred
stock, the Board of Directors is required by the MGCL and the charter of the
Company to fix, the terms, preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each share or series.
The Company believes that this power of the Board of Directors will provide the
Company with increased flexibility in structuring possible future financings and
acquisitions and in meeting other needs which might arise. The additional
classes or series, as well as the Common Stock, will be available for issuance
without further action by the Company's stockholders (provided, however, that
the issuance of additional series of preferred stock with rights senior to the
Convertible Preferred Stock is subject to the approval of the holders of
Convertible Preferred Stock), unless such action is required by applicable law
or the rules of any stock exchange or automated quotation system on which the
Company's securities may be listed or traded. Although the Board of Directors
has no intention at the present time of doing so, it could authorize the Company
to issue a class or series that could, depending upon the terms of such class or
series, delay or impede a transaction or a change of control of the Company that
might involve a premium price for the Common Stock and Convertible Preferred
Stock or otherwise be in the best interest of the stockholders.
RESTRICTIONS ON OWNERSHIP, TRANSFER AND CONVERSION
For the Company to qualify as a REIT under the Code, not more than 50% in
value of the issued and outstanding capital stock may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year and the capital stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of twelve months (or during a proportionate part of a shorter
taxable year). In addition, rent
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<PAGE>
from Related Party Tenants (as defined below under 'Federal Income Tax
Considerations--Taxation of the Company --Income Tests') is not qualifying
income for purposes of the gross income tests of the Code. See 'Federal Income
Tax Considerations--Taxation of the Company--Requirements for Qualification.'
Because the Board of Directors believes it is essential for the Company to
qualify as a REIT, the Board of Directors has adopted, and the stockholders
prior to the June 1994 Offering have approved, provisions in the Company's
charter restricting the acquisition and ownership of shares of the Company's
capital stock.
Subject to certain exceptions specified in the Company's charter, no holder
may own, either actually or constructively under the applicable attribution
rules of the Code, more than 9.8% (by number or value, whichever is more
restrictive) of the outstanding shares of Common Stock (the 'Common Ownership
Limit'). Except as described below, the Common Ownership Limit will not apply,
however, to holders of shares of Common Stock who acquire shares of Common Stock
in excess of the Common Ownership Limit solely by reason of the conversion of
shares of Convertible Preferred Stock owned by such holder into shares of Common
Stock.
Subject to certain exceptions specified in the Company's charter, no holder
may acquire, either actually or constructively under the applicable attribution
rules of the Code, more than 9.8% (by number or value, whichever is more
restrictive) of the outstanding shares of Convertible Preferred Stock (the
'Convertible Preferred Ownership Limit'). Except as described below, there shall
be no restrictions on the ability of a holder of shares of Convertible Preferred
Stock to convert such shares into shares of Common Stock even if, as a result of
such conversion, the holder will own shares of Common Stock in excess of the
Common Ownership Limit. However, no person may actually or constructively
acquire or own shares of Convertible Preferred Stock or shares of Common Stock,
or convert Convertible Preferred Stock into Common Stock, to the extent that the
aggregate value of Convertible Preferred Stock and Common Stock actually and
constructively owned by such person would exceed 9.8% of the total value of the
outstanding shares of the capital stock of the Company (the 'Aggregate Stock
Ownership Limit'). Under certain circumstances, this limitation could prevent a
person who owns shares of Convertible Preferred Stock from converting a portion
of such shares into shares of Common Stock.
If, as a result of a purported acquisition (actual or constructive) of
capital stock, any person (a 'Prohibited Transferee') would acquire, either
actually or constructively under the applicable attribution rules of the Code,
shares of capital stock in excess of an applicable ownership restriction, such
shares will be automatically transferred to a trust for the benefit of a
charitable beneficiary, effective as of the close of business on the business
day prior to the purported acquisition by the Prohibited Transferee. While such
stock is held in trust, the trustee shall have all voting rights with respect to
the shares, and all dividends or distributions paid on such stock will be paid
to the trustee of the trust for the benefit of the charitable beneficiary (any
dividend or distribution paid on shares of capital stock prior to the discovery
by the Company that such shares have been automatically transferred to the trust
shall, upon demand, be paid over to the trustee for the benefit of the
charitable beneficiary). Within 20 days of receiving notice from the Company of
the transfer of shares to the trust, the trustee of the trust is required to
sell the shares held in the trust to a person who may own such shares without
violating the ownership restrictions (a 'Permitted Holder'). Upon such sale, the
price paid for the shares by the Permitted Holder shall be distributed to the
Prohibited Transferee to the extent of the lesser of (i) the price paid by the
Prohibited Transferee for the shares or, in the case of a transfer of shares to
a trust resulting from an event other than an actual acquisition of shares by a
Prohibited Transferee, the fair market value, on the date of transfer to the
trust, of the shares so transferred or (ii) the fair market value of the shares
on the date of transfer by the trustee to the Permitted Holder. Any proceeds in
excess of this amount shall be paid to the charitable beneficiary.
An automatic repurchase of shares by the Company will occur to the extent
necessary to prevent any violation of the Convertible Preferred Ownership Limit,
Common Stock Ownership Limit, or the Aggregate Stock Ownership Limit as the
result of events other than the actual or constructive acquisition of capital
stock by the holder, such as changes in the relative value of
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different classes of the Company's capital stock. In the event of any such
automatic repurchase, the repurchase price of each share will be equal to the
market price on the date of the event that resulted in the repurchase. Any
dividend or other distribution paid to a holder of repurchased shares (prior to
the discovery by the Company that such shares have been automatically
repurchased by the Company as described above) will be required to be repaid to
the Company upon demand.
If shares of capital stock which would cause the Company to be beneficially
owned by less than 100 persons are issued or transferred to any person, such
issuance or transfer shall be null and void to the intended transferee, and the
intended transferee would acquire no rights to such stock.
The Board of Directors may waive the Common Ownership Limit or the
Convertible Preferred Ownership Limit or the Aggregate Stock Ownership Limit
with respect to a particular stockholder if evidence satisfactory to the Board
of Directors and the Company's tax counsel is presented that such ownership will
not then or in the future jeopardize the Company's status as a REIT. As a
condition of such waiver, the Board of Directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of the Company.
In addition to any of the foregoing ownership limits, no holder may own,
either actually or constructively under the applicable attribution rules of the
Code, any shares of any class of the Company's capital stock if such ownership
or acquisition (i) would cause more than 50% in value of the Company's
outstanding capital stock to be owned, either actually or constructively under
the applicable attribution rules of the Code, by five or fewer individuals (as
defined in the Code to include certain entities), (ii) would result in the
Company's capital stock being beneficially owned by less than 100 persons
(determined without reference to any rules of attribution), or (iii) would
otherwise result in the Company failing to qualify as a REIT. Acquisition or
ownership (actual or constructive) of the Company's capital stock in violation
of these restrictions will result in automatic transfer of such stock to a trust
for the benefit of a charitable beneficiary, automatic repurchase of the
violative shares by the Company, or the violative transfer will be deemed void
ab initio, as described above.
If the Board of Directors shall at any time determine in good faith that a
person intends to acquire or own, has attempted to acquire or own, or may
acquire or own capital stock of the Company in violation of the above described
limits, the Board of Directors shall take such action as it deems advisable to
refuse to give effect or to prevent such ownership or acquisition, including but
not limited to causing the Company to repurchase stock, refusing to give effect
to such ownership or acquisition on the books of the Company, or instituting
proceedings to enjoin such ownership or acquisition.
The constructive ownership rules are complex and may cause Common Stock or
Convertible Preferred Stock owned actually or constructively by a group of
related individuals and/or entities to be constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8% of the outstanding
Common Stock or less than 9.8% of the outstanding Convertible Preferred Stock
(or the acquisition of an interest in an entity which owns Common Stock or
Convertible Preferred Stock) by an individual or entity could cause that
individual or entity (or another individual or entity) to constructively own
Common Stock or Convertible Preferred Stock in excess of the limits described
above, and thus subject such stock to the Common Ownership Limit, the
Convertible Preferred Ownership Limit, or the Aggregate Stock Ownership Limit.
All certificates representing shares of the Company's capital stock bear a
legend referring to the restrictions described above.
All persons who own a specified percentage (or more) of the outstanding
shares of the stock of the Company must file a completed questionnaire annually
with the Company containing information regarding their ownership of such
shares, as set forth in the Treasury Regulations. Under current Treasury
Regulations, the percentage will be set between 0.5% and 5.0%, depending on the
number of record holders of shares. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such information with
respect to the actual and
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constructive ownership of shares as the Board of Directors deems necessary to
comply with the provisions of the Code applicable to a REIT or to comply with
the requirements of any taxing authority or governmental agency.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of Common Stock or Convertible Preferred Stock might receive a premium for their
shares over the then prevailing market price or which such holders might believe
to be otherwise in their best interest.
REGISTRATION RIGHTS AGREEMENTS
Pursuant to various registration rights agreements the Company has shelf
registration statements effective (or has agreed to file a registration
statement) that cover: (i) the resale of shares of Convertible Preferred Stock
and shares of Common Stock and the issuance of shares of Common Stock upon
exchange of Common Units that were issued in private placements at the time of
and since the formation of the Company and (ii) the exchange of the Exchangeable
Debentures and Exchangeable Preferred Units for Convertible Preferred Stock. The
Company has also agreed to file a registration statement with respect to the
exchange of Common Units issued in connection with the acquisition of the New
Retail Properties. The Company is obligated to use its best efforts to
maintain the effectiveness of such registration statements. The exchange of such
outstanding securities for Common Stock and Convertible Preferred Stock will
increase the number of outstanding shares of Common Stock and Convertible
Preferred Stock, and will increase the Company's percentage ownership interest
in the Operating Partnership.
NYSE LISTING
The Common Stock is listed on the NYSE under the symbol 'FRW.' The
Preferred Stock is listed on the NYSE under the symbol 'FRW pfA.' The current
rules of the NYSE effectively preclude the listing on the NYSE of any securities
of an issuer which has issued securities or taken other corporate action that
would have the effect of nullifying, restricting or disparately reducing the per
share voting rights of holders of an outstanding class or classes of equity
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended (the 'Exchange Act'). The Company does not intend to issue any
additional securities that would make it ineligible for inclusion on the NYSE or
any national securities exchange or national market system. However, in the
event the Company issues additional securities that cause it to become
ineligible for continued inclusion on NYSE, such ineligibility would be likely
to reduce materially the liquidity of an investment in the Common Stock and
would likely depress its market value below that which would otherwise prevail.
SHARES AVAILABLE FOR FUTURE SALE
Thereare currently 2,314,189 shares of Convertible Preferred Stock issued
and outstanding and 3,291,245 shares of Common Stock issued and outstanding.
Sales of a substantial number of shares of Common Stock, or the perception that
such sales could occur, could adversely affect prevailing prices for the Common
Stock. The Company has reserved: (i) 709,716 shares of Common Stock for issuance
upon exchange of Common Units issued in connection with the formation of the
Company, and in connection with property acquisitions, (ii) 2,966,909 shares of
Common Stock for issuance upon conversion of outstanding Convertible Preferred
Stock issued in connection with the formation of the Company and in connection
with property acquisitions (which becomes convertible on or after May 31, 1999),
(iii) 1,822,068 shares of Common Stock for issuance upon conversion of reserved
Convertible Preferred Stock, (reserved for exchange of Exchangeable Preferred
Units and the Exchangeable Debentures issued in connection with the Formation
and subsequent property acquisitions), (iv) 123,077 shares of Common Stock for
issuance upon conversion of the FS Note, and (v) 594,874 shares of Common Stock
for issuance under the Company's 1994 Stock Incentive Plan, 1994 Contingent
Stock Awards and 1996 Contingent Stock Awards. Certain members of management are
permitted to sell only one-third of their shares of Common Stock or Common Units
issued in connection with the formation of the Company
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(including a redemption of Common Units for cash) at the end of each of the
three years following the formation of the Company.
Pursuant to various registration rights agreements the Company has shelf
registration statements effective (or has agreed to file a registration
statement) that cover: (i) the resale of shares of Convertible Preferred Stock
and shares of Common Stock and the issuance of shares of Common Stock upon
exchange of Common Units that were issued in private placements at the time of
and since the formation of the Company and (ii) the exchange of the Exchangeable
Debentures and Exchangeable Preferred Units for Convertible Preferred Stock. The
Company has also agreed to file a registration statement with respect to the
exchange of Common Units issued in connection with the acquisition of the New
Retail Properties. The Company is obligated to use its best efforts to maintain
the effectiveness of each of such registration statements for at least three
years following the effective date. The exchange of such outstanding securities
for Common Stock and Convertible Preferred Stock will increase the number of
outstanding shares of Common Stock and Convertible Preferred Stock, and will
increase the Company's percentage ownership interest in the Operating
Partnership.
In addition, the officers and directors of the Company and their affiliates
have agreed with the Underwriters not to sell shares of Common Stock for the
90-day period following the Offering. The Company has also agreed with the
Underwriters not to issue new shares of Common Stock (except pursuant to the
exchange or conversion of outstanding securities, the issuance of shares of
Common Stock pursuant to employee benefit plans and in connection with future
acquisitions) for a period of 180 days following the Offering.
The Company has also filed a registration statement with respect to the
shares of Common Stock issuable under the Stock Incentive Plan, which shares may
be resold without restriction, unless held by affiliates and intends to file a
registration statement with respect to all other shares of Common Stock issued
or issuable under the Company's employee benefit plans. See 'Management.' Such
shares of Common Stock will be freely transferable by the holders thereof.
CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's charter and bylaws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to Maryland law and
to the Company's charter and bylaws, copies of which are exhibits to the
registration statement of which this Prospectus is a part. See 'Additional
Information.'
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's bylaws provide that the number of directors of the Company
may be established by the Board of Directors but may not be fewer than the
minimum number required by MGCL (which under most circumstances is three
directors) nor more than fifteen. Any vacancy will be filled, at any regular
meeting or at any special meeting called for that purpose, by a majority of the
remaining directors, except that a vacancy resulting from an increase in the
number of directors will be filled by a majority vote of the entire Board of
Directors. Pursuant to the terms of the charter, the directors are divided into
three classes. One class held office initially for a term which expired at the
annual meeting of stockholders held in May 1995 (and the directors of such class
were reelected for a full term of three years). Another class held office for a
term which expired at the annual meeting of stockholders held in 1996 (and the
directors of such class were reelected for a full term of three years) and
another class will hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1997. As the term of each class expires,
directors in that class will be elected for a term of three years and until
their successors are duly elected and qualify. The Company believes that
classification of the Board of Directors will help to assure the continuity and
stability of the Company's business strategies and policies as determined by the
Board of Directors.
The classified director provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult, which
could discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. At least two annual meetings
of
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stockholders, instead of one, will generally be required to effect a change
in a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Holders of Common Stock will have no right to cumulative voting for
the election of directors. Consequently, at each annual meeting of stockholders,
the holders of a majority of shares of Common Stock will be able to elect all of
the successors of the class of directors whose term expires at that meeting.
REMOVAL OF DIRECTORS
The charter provides that a director may be removed only for cause (as
defined in the charter) and only by the affirmative vote of at least two-thirds
of the votes entitled to be cast in the election of directors. This provision,
when coupled with the provision in the bylaws authorizing the Board of Directors
to fill vacant directorships, precludes stockholders from removing incumbent
directors and filling the vacancies created by such removal with their own
nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain 'business combinations' (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting stock of the corporation (an 'Interested Stockholder') or an
affiliate thereof are prohibited for five years after the most recent date on
which the Interested Stockholder becomes an Interested Stockholder. Thereafter,
any such business combination must be recommended by the Board of Directors of
such corporation and approved by the affirmative vote of at least: (a) 80% of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation and (b) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. These provisions of Maryland law
do not apply, however, to business combinations that are approved or exempted by
the Board of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Board of Directors has
exempted from these provisions of the MGCL any business combination with the
Principals and other officers of the Company, any present or future affiliate or
associate of theirs or any other person acting in concert or as a group with any
of the foregoing persons. As a result, these persons may be able to enter into
business combinations with the Company, which may not be in the best interest of
the stockholders, without compliance by the Company with the super-majority vote
requirement and the other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL provides that 'control shares' of a Maryland corporation acquired
in a 'control share acquisition' have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. 'Control Shares' are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
such person, or in respect of which such person is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
of all voting power. Control shares do not include shares the acquiring person
is then entitled to vote as a result of having previously obtained stockholder
approval. A 'control share acquisition' means the acquisition of control shares,
subject to certain exceptions.
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A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights previously have
been approved) for fair value determined, without regard to the absence of
voting rights for control shares, as of the date of the last control share
acquisition or of any meeting of stockholders at which the voting rights of such
shares are considered and not approved. If voting rights for control shares are
approved at a stockholders meeting and the acquiror becomes entitled to vote a
majority of the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid in
the control share acquisition, and certain limitations and restrictions
otherwise applicable to the exercise of dissenters' rights do not apply in the
context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
The business combination statute and the control share acquisition statute
could have the effect of discouraging others to acquire the Company and of
increasing the difficulty of consummating any offer.
AMENDMENT TO THE CHARTER
Certain provisions of the Company's charter, including its provisions on
classification of the Board of Directors, removal of directors, voting rights of
Common Stock and voting requirements for charter amendments, may be amended only
by the affirmative vote of the holders of not less than two-thirds of all of the
votes entitled to be cast on the matter.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than a majority of all of the votes entitled to be cast
on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The bylaws of the Company provide that: (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only: (i) pursuant to the Company's notice of the meeting, (ii) by the
Board of Directors, (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
bylaws, and (b) with respect to special meetings of stockholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of stockholders, and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of the meeting,
(ii) by the Board of Directors, or (iii) provided that the Board of Directors
has determined that directors shall be elected to such meeting, by a stockholder
who is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the bylaws.
The provisions in the charter on classification of the Board of Directors
and removal of directors, the business combination and the control share
acquisition provisions of the MGCL, and the advance notice provisions of the
bylaws could have the effect of discouraging a takeover or other transaction in
which holders of some, or a majority, of the Common Stock might receive a
premium
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for their Common Stock over the then prevailing market price or which
such holders might believe to be otherwise in their best interests.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
regarding the Company and the Common Stock being registered by the Company is
based on current law. The information set forth below, to the extent that it
constitutes matters of law, summaries of legal matters or legal conclusions, is
the opinion of Latham & Watkins, tax counsel to the Company, as to the material
federal income tax considerations relevant to purchasers of the Common Stock.
This discussion does not purport to deal with all aspects of taxation that may
be relevant to particular stockholders in light of their personal investment or
tax circumstances, or to certain types of stockholders (including insurance
companies, financial institutions or broker-dealers, tax-exempt organizations,
foreign corporations and persons who are not citizens or residents of the United
States, except to the extent discussed under the headings 'Taxation of
Tax-Exempt Stockholders' and 'Taxation of Non-U.S. Stockholders') subject to
special treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE SHARES OF COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the 'Code'),
commencing with its taxable year ended December 31, 1994. The Company believes
that it has been organized and has operated in such a manner as to qualify for
taxation as a REIT under the Code commencing with such taxable year, and the
Company intends to continue to operate in such a manner, but no assurance can be
given that it has operated or will continue to operate in such a manner so as to
qualify or remain qualified.
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the federal income
tax treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof. Latham &
Watkins has acted as tax counsel to the Company in connection with the Company's
election to be taxed as a REIT.
In the opinion of Latham & Watkins, commencing with the Company's taxable
year ended December 31, 1994, the Company has been organized in conformity with
the requirements for qualification as a REIT, and its proposed method of
operation has enabled and will enable it to meet the requirements for continued
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various factual assumptions relating to the
organization and operation of the Company, the Operating Partnership, the Lower
Tier Partnerships, and the Management Company and is conditioned upon certain
representations made by the Company as to factual matters. In addition, this
opinion is based upon the factual representations of the Company concerning its
business and properties as set forth in this Prospectus and assumes that the
actions described in this Prospectus have been completed as described. Moreover,
such qualification and taxation as a REIT depends upon the Company's ability to
meet, through actual annual operating results, distribution levels and diversity
of stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which have not been and will not be reviewed by
Latham & Watkins. Accordingly, no assurance can be given that the actual results
of the Company's operation for any particular taxable year will satisfy such
requirements. Further, the anticipated income tax treatment described in this
Prospectus may be changed, perhaps retroactively, by legislative or
administrative action at any time. See '--Failure to Qualify.'
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If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the 'double
taxation' (at the corporate and stockholder levels) that generally results from
investment in a corporation. However, the Company will be subject to federal
income tax as follows: first, the Company will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the 'alternative minimum tax' on its items of tax preference. Third, if the
Company has (i) net income from the sale or other disposition of 'foreclosure
property' which is held primarily for sale to customers in the ordinary course
of business or (ii) other nonqualifying income from foreclosure property, it
will be subject to tax at the highest corporate rate on such income. Fourth, if
the Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the gross income attributable to the greater of the amount
by which the Company fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, with respect to an
asset (a 'Built-In Gain Asset') acquired by the Company from a corporation which
is or has been a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in certain transactions in which the basis of the Built-In
Gain Asset in the hands of the Company is determined by reference to the basis
of the asset in the hands of the C corporation, if the Company recognizes gain
on the disposition of such asset during the ten-year period (the 'Recognition
Period') beginning on the date on which such asset was acquired by the Company,
then, to the extent of the Built-In Gain (i.e., the excess of (a) the fair
market value of such asset over (b) the Company's adjusted basis in such asset,
determined as of the beginning of the Recognition Period), such gain will be
subject to tax at the highest regular corporate tax pursuant to Internal Revenue
Service ('IRS') regulations that have not yet been promulgated. The results
described above with respect to the recognition of Built-In Gain assume that the
Company will make an election pursuant to IRS Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or constructively, by
five or fewer individuals (as defined in the Code to include certain entities);
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of twelve months, or
during a proportionate part of a taxable year of less than twelve months.
Conditions (5) and (6) do not apply until after the first taxable year for which
an election is made to be taxed as a REIT. For purposes of conditions (5) and
(6), pension funds and certain other tax-exempt entities are treated as
individuals, subject to a 'look-through' exception in the case of condition (6).
The Company has satisfied condition (5) and believes that it has issued
sufficient shares to allow it to satisfy condition (6). In addition, the
Company's charter provides for restrictions regarding ownership and transfer of
shares, which restrictions are intended to assist the Company in
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continuing to satisfy the share ownership requirements described in (5) and (6)
above. Such ownership and transfer restrictions are described in 'Description of
Capital Stock--Restrictions on Ownership, Transfer and Conversion.' These
restrictions may not ensure that the Company will, in all cases, be able to
satisfy the share ownership requirements described above, primarily (though not
exclusively) as a result of fluctuations in value among the different classes of
the Company's capital stock. If the Company fails to satisfy such share
ownership requirements, the Company's status as a REIT will terminate. See
'--Failure to Qualify.'
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has and will continue to have a
calendar taxable year.
Ownership of Subsidiaries. The Company owns interests in certain of the
Lower Tier Partnerships through subsidiaries. Code Section 856(i) provides that
a corporation which is a 'qualified REIT subsidiary' (defined as any corporation
if 100 percent of the stock of such corporation is held by the REIT at all times
during the period such corporation was in existence) shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a 'qualified REIT subsidiary' shall be treated as
assets, liabilities and such items (as the case may be) of the REIT. Each of the
Company's subsidiaries qualify as 'qualified REIT subsidiaries' within the
meaning of the Code. Thus, in applying the requirements described herein, the
Company's subsidiaries are ignored, and all assets, liabilities and items of
income, deduction and credit of such subsidiaries are treated as assets,
liabilities and items of income, deduction, and credit of the Company.
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, IRS regulations provide that the REIT will be deemed
to own its proportionate share of the assets of the partnership and will be
deemed to be entitled to the income of the partnership attributable to such
share. In addition, the character of the assets and gross income of the
partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income tests
and the asset tests. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Partnership (including the
Operating Partnership's share of such items of any Lower Tier Partnership) are
treated as assets, liabilities and items of income of the Company for purposes
of applying the requirements described herein. A summary of the rules governing
the Federal income taxation of partnerships and their partners is provided below
in '--Tax Aspects of the Operating Partnership.' The Company has direct control
of the Operating Partnership and has and will continue to operate it consistent
with the requirements for qualification as a REIT.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including 'rents from
real property' and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by the Company will qualify as 'rents from real property' in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term 'rents from real
property' solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second,
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the Code provides that rents received from a tenant will not qualify as 'rents
from real property' in satisfying the gross income tests if the REIT, or an
actual or constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of such tenant (a 'Related Party Tenant').
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as 'rents from real property.' Finally, for rents received to qualify as
'rents from real property,' the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue.
The REIT may, however, directly perform certain services that are 'usually or
customarily rendered' in connection with the rental of space for occupancy only
and are not otherwise considered 'rendered to the occupant' of the property. The
Company has not and will not (i) charge rent for any property that is based in
whole or in part on the income or profits of any person (except by reason of
being based on a percentage of receipts or sales, as described above), (ii) rent
any property to a Related Party Tenant (unless the Board of Directors determines
in its discretion that the rent received from such Related Party Tenant is not
material and will not jeopardize the Company's status as a REIT), (iii) derive
rental income attributable to personal property (other than personal property
leased in connection with the lease of real property, the amount of which is
less than 15% of the total rent received under the lease), or (iv) perform
services considered to be rendered to the occupant of the property, other than
through an independent contractor from whom the Company derives no revenue.
The Management Company receives fees in exchange for the performance of
certain management services. Such fees will not accrue to the Company, but the
Company will derive dividends from the Management Company which qualify under
the 95% gross income test, but not the 75% gross income test. The Company
believes that the aggregate amount of any non-qualifying income in any taxable
year has not exceeded and will not exceed the limit on non-qualifying income
under the gross income tests.
The term 'interest' generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term 'interest'
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above in '--Taxation of the
Company--General,' even if these relief provisions apply, a tax would be imposed
with respect to the excess net income. No similar mitigation provision provides
relief if the Company fails the 30% gross income test. In such case, the Company
would cease to qualify as a REIT.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business (including the Company's share of any such gain realized by
the Operating Partnership) will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction
income may also have an adverse effect upon the Company's ability to satisfy the
income tests for qualification as a REIT. Under existing law, whether property
is held as inventory or primarily for
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sale to customers in the ordinary course of a trade or business is a question of
fact that depends on all the facts and circumstances with respect to the
particular transaction. The Operating Partnership intends to hold the Properties
for investment with a view to long-term appreciation, to engage in the business
of acquiring, developing, owning, and operating the Properties (and other
properties) and to make such occasional sales of the Properties as are
consistent with the Operating Partnership's investment objectives. There can be
no assurance, however, that the IRS might not contend that that one or more of
such sales is subject to the 100% penalty tax.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets (including its allocable
share of the assets held by the Operating Partnership) must be represented by
real estate assets (including (i) its allocable share of real estate assets held
by partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities.
The Operating Partnership owns 100% of the nonvoting preferred stock of the
Management Company and a note of the Management Company. The Operating
Partnership does not and will not own any of the voting securities of the
Management Company, and therefore the Company will not be considered to own more
than 10% of the voting securities of the Management Company. In addition, the
Company believes (and has represented to counsel to the Company for purposes of
its opinion, as discussed below) that the value of its pro rata share of the
securities of the Management Company to be held by the Operating Partnership did
not exceed at any time up to and including the date of this Prospectus 5% of the
total value of the Company's assets and will not exceed such amount in the
future. Latham & Watkins, in rendering its opinion as to the qualification of
the Company as a REIT, is relying on representations of the Company to such
effect with respect to the value of such securities and assets. No independent
appraisals have been obtained to support this conclusion. There can be no
assurance that the IRS will not contend that the value of the securities of the
Management Company held by the Company (through the Operating Partnership)
exceeds the 5% value limitation.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
additional securities of the Management Company or other securities or other
property during a quarter (including as a result of the Company increasing its
interests in the Operating Partnership), the failure can be cured by disposition
of sufficient nonqualifying assets within 30 days after the close of that
quarter. The Company has maintained and will continue to maintain adequate
records of the value of its assets to ensure compliance with the asset tests and
to take such other actions within the 30 days after the close of any quarter as
may be required to cure any noncompliance. If the Company fails to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's 'REIT taxable income' (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash income. In addition, if the Company disposes of any Built-In
Gain Asset during its Recognition Period, the Company will be required, pursuant
to IRS regulations which have not yet been promulgated, to distribute at least
95% of the Built-in Gain (after tax), if any, recognized on the disposition of
such asset. Such distributions must be paid in the taxable year to which they
relate, or in the following
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taxable year if declared before the Company timely files its tax return for such
year and if paid on or before the first regular dividend payment after such
declaration. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its 'REIT
taxable income,' as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. The Company has made and intends
to make timely distributions sufficient to satisfy these annual distribution
requirements.
It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the
distribution requirements described above. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet these distribution requirements due to timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at
taxable income of the Company. In the event that such timing differences occur,
in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying 'deficiency dividends'
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed.
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FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would reduce the cash available for distribution by the Company to its
stockholders. In addition, if the Company fails to qualify as a REIT, all
distributions to stockholders will be taxable as ordinary income, to the extent
of the Company's current and accumulated earnings and profits, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used herein, the term 'U.S. Stockholder' means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) is an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction in the case of U.S. Stockholders
that are corporations. For purposes of determining whether distributions to
holders of Common Stock are out of current or accumulated earnings and profits,
the earnings and profits of the Company will be allocated first to the
Convertible Preferred Stock (to the extent of the preferred distribution on such
stock), then to the Common Stock (to the extent of distributions equal to
$0.4875 per quarter per share) and then pro-rata between both the Convertible
Preferred Stock and the Common Stock with respect to any distributions in which
the Convertible Preferred Stock is entitled to participate.
Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to taxable U.S. Stockholders
as long-term capital gains (to the extent that they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which a U.S. Stockholder has held his shares of stock. U.S. Stockholders that
are corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income. For a discussion of the manner in which that
portion of any dividends designated by the Company as capital gain dividends
will be allocated among the holders of Convertible Preferred Stock and Common
Stock, see 'Description of Capital Stock--Convertible Preferred
Stock--Distributions.'
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in his shares of stock for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Stockholder's adjusted basis in his shares taxable as capital gains (provided
that the shares have been held as a capital asset). Dividends declared by the
Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.
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Distributions made by the Company and gain arising from the sale or
exchange by a U.S. Stockholder of shares of the Company will not be treated as
passive activity income, and, as a result, U.S. Stockholders generally will not
be able to apply any 'passive losses' against such income or gain. Distributions
made by the Company (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition of
shares, however, will not be treated as investment income unless the U.S.
Stockholder elects to reduce the amount of such U.S. Stockholder's total net
capital gain eligible for the 28% maximum capital gains rate by the amount of
such gain with respect to the shares.
Upon any sale or other disposition of shares of the Company, a U.S.
Stockholder will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received on such sale or other disposition and (ii)
the holder's adjusted basis in the shares for tax purposes. Such gain or loss
will be capital gain or loss if the shares have been held by the U.S.
Stockholder as a capital asset, and will be long-term gain or loss if such
shares have been held for more than one year. In general, any loss recognized by
a U.S. Stockholder upon the sale or other disposition of shares of the Company
that have been held for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions received by such U.S. Stockholder from the Company which were
required to be treated as long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its U.S. Stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. Stockholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status to the Company. See '--Taxation of Non-U.S.
Stockholders.'
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ('UBTI') when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt shareholder
(except certain tax-exempt shareholders described below) has not held its shares
as 'debt financed property' within the meaning of the Code and the shares are
not otherwise used in a trade or business, the dividend income from the Company
will not be UBTI to a tax-exempt shareholder. Similarly, income from the sale of
shares will not constitute UBTI unless such tax-exempt shareholder has held such
shares as 'debt financed property' within the meaning of the Code or has used
the shares in trade or business.
For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Section 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their own tax advisors concerning these
'set aside' and reserve requirements.
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Notwithstanding the above, however, the Omnibus Budget Reconciliation Act
of 1993 (the '1993 Act') provides that, effective for taxable years beginning in
1994, a portion of the dividends paid by a 'pension held REIT' shall be treated
as UBTI as to any trust which (1) is described in Section 401(a) of the Code,
(2) is tax-exempt under Section 501(a) of the Code, and (3) holds more than 10%
(by value) of the interests in the REIT. Tax-exempt pension funds that are
described in Section 401(a) of the Code are referred to below as 'qualified
trusts.'
A REIT is a 'pension held REIT' if (1) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code (added by the 1993 Act)
provides that stock owned by qualified trusts shall be treated, for purposes of
the 'not closely held' requirement, as owned by the beneficiaries of the trust
(rather than by the trust itself), and (2) either (a) at least one such
qualified trust holds more than 25% (by value) of the interests in the REIT, or
(b) one or more such qualified trusts, each of which owns more than 10% (by
value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend treated
as UBTI is equal to the ratio of (i) the UBTI earned by the REIT (treating the
REIT as if it were a qualified trust and therefore subject to tax on UBTI) to
(ii) the total gross income of the REIT. A de minimis exception applies where
the percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the 'not closely held' requirement without relying upon
the 'look-through' exception with respect to qualified trusts. As a result of
certain limitations on the transfer and ownership of stock contained in the
Charter, the Company is not and does not expect to be classified as a 'pension
held REIT.'
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, 'Non-U.S. Stockholders') are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Stockholder in light of its particular
circumstances. In addition, this discussion is based on current law, which is
subject to change, and assumes that the Company qualifies for taxation as a
REIT. Prospective Non-U.S. Stockholders should consult with their own tax
advisers to determine the impact of federal, state, local and foreign income tax
laws with regard to an investment in stock, including any reporting
requirements.
Distributions. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions ordinarily will be subject to withholding of United
States federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance of
deductions) at graduated rates, in the same manner as domestic stockholders are
taxed with respect to such dividends and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Stockholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations, not currently in effect, however, a Non-U.S.
Stockholder
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who wished to claim the benefit of an applicable treaty rate would be required
to satisfy certain certification and other requirements. Under certain treaties,
lower withholding rates generally applicable to dividends do not apply to
dividends from a REIT, such as the Company. Certain certification and disclosure
requirements must be satisfied to be exempt from withholding under the
effectively connected income exemption discussed above.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the stockholders's stock, but rather
will reduce the adjusted basis of such stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's stock, they
will give rise to gain from the sale or exchange of his stock, the tax treatment
of which is described below. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current or accumulated earnings and profits, the distribution will generally be
treated as a dividend for withholding purposes. However, amounts thus withheld
are generally refundable by the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless (i) investment
in the stock is effectively connected with the Non-U.S. Stockholder's United
States trade or business, in which case the Non-U.S. Stockholder will be subject
to the same treatment as domestic stockholders with respect to such gain (except
that a stockholder that is a foreign corporation may also be subject to the 30%
branch profits tax, as discussed above), or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a 'tax home' in the United States, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Stockholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be taxed at the same rates applicable to
domestic stockholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Stockholder that is a corporation,
as discussed above. The Company is required to withhold 35% of any such
distribution. That amount is creditable against the Non-U.S. Stockholder's
United States federal income tax liability.
Sale of Stock. Gain recognized by a Non-U.S. Stockholder upon the sale or
exchange of shares of stock generally will not be subject to United States
taxation unless the stock constitutes a 'United States real property interest'
within the meaning of FIRPTA. The stock will not constitute a 'United States
real property interest' so long as the Company is a 'domestically controlled
REIT.' A 'domestically controlled REIT' is a REIT in which at all times during a
specified testing period less than 50% in value of its stock is held directly or
indirectly by Non-U.S. Stockholders. The Company believes that it is currently a
'domestically controlled REIT,' and therefore that the sale of shares of stock
will not be subject to taxation under FIRPTA. However, because the shares of
stock will be publicly traded, no assurance can be given that the Company will
continue to be a 'domestically-controlled REIT.' Notwithstanding the foregoing,
gain from the sale or exchange of shares of stock not otherwise subject to
FIRPTA will be taxable to a Non-U.S. Stockholder if the Non-U.S. Stockholder is
a nonresident alien individual who is present in the United States for 183 days
or more during the taxable year and has a 'tax home' in the United States. In
such case, the nonresident alien individual will be subject to a 30% United
States withholding tax on the amount of such individual's gain.
If the Company is not or ceases to be a 'domestically-controlled REIT,'
whether gain arising from the sale or exchange by a Non-U.S. Stockholder of
shares of Stock would be subject to United
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States taxation under FIRPTA as a sale of a 'United States real property
interest' will depend on whether the shares are 'regularly traded' (as defined
by applicable Treasury Regulations) on an established securities market (e.g.,
the New York Stock Exchange) and on the size of the selling Non-U.S.
Stockholder's interest in the Company. If gain on the sale or exchange of shares
of stock were subject to taxation under FIRPTA, the Non-U.S. Stockholder would
be subject to regular United States income tax with respect to such gain in the
same manner as a U.S. Stockholder (subject to any applicable alternative minimum
tax, a special alternative minimum tax in the case of nonresident alien
individuals and the possible application of the 30% branch profits tax in the
case of foreign corporations), and the purchaser of the stock would be required
to withhold and remit to the IRS 10% of the purchase price.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of stocks by or through a foreign office of a foreign broker.
Information reporting (but not backup withholding) will apply, however, to a
payment of the proceeds of a sale of stock by a foreign office of a broker that
(a) is a United States person, (b) derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States or
(c) is a 'controlled foreign corporation' (generally, a foreign corporation
controlled by United States stockholders) for United States tax purposes, unless
the broker has documentary evidence in its records that the holder is a Non-U.S.
Stockholder and certain other conditions are met, or the stockholder otherwise
establishes an exemption. Payment to or through a United States office of a
broker of the proceeds of sale of stocks is subject to both backup withholding
and information reporting unless the stockholder certifies under penalties of
perjury that the stockholder is a Non-U.S. Stockholder, or otherwise establishes
an exemption. A Non-U.S. Stockholder may obtain a refund of any amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS.
The United States Treasury has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify and modify reliance standards. If finalized in the current
form, the proposed regulations would generally be effective for payments made
after December 31, 1997, subject to certain transition rules.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
General. Substantially all of the Company's investments will be held
indirectly through the Operating Partnership. In general, partnerships are
'pass-through' entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include in its income its proportionate share of
the foregoing partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income. Moreover, for purposes of the
REIT asset tests, the Company will include its proportionate share of assets
held by the Operating Partnership. See '--Taxation of the Company.'
Final regulations were recently released which provide that if a
partnership is formed or availed of in connection with a transaction a principal
purpose of which is to reduce substantially the present value of the partners'
aggregate federal income tax liability in a manner that is inconsistent with the
intent of subchapter K of the Code (governing partners and partnerships), the
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Commissioner of the IRS can recast the transaction for federal income tax
purposes, as appropriate, to achieve tax results that are consistent with the
intent of subchapter K. While it is anticipated that these regulations will not
affect treatment of the Company, the Operating Partnership or its partners, the
scope and effect of such regulations are unclear. If the regulations were to be
applied to the Operating Partnership, the Operating Partnership could be ignored
for tax purposes, with the result that the limited partners of the Operating
Partnership could be deemed to have received Common Stock in the Company instead
of Common Units in the Operating Partnership. Such treatment, however, should
not adversely affect the Company's ability to qualify as a REIT.
Entity Classification. The Company's interest in the Operating Partnership
and the Lower Tier Partnerships involve special tax considerations, including
the possibility of a challenge by the IRS of the status of the Operating
Partnership or any Lower Tier Partnership as a partnership (as opposed to an
association taxable as a corporation) for Federal income tax purposes. If any of
the partnerships were treated as an association, such partnership would be
taxable as a corporation and therefore subject to an entity-level tax on its
income. In such a situation, the character of the Company's assets and items of
gross income would change and preclude the Company from satisfying the asset
tests and possibly the income tests (see '--Taxation of the Company --Asset
Tests' and '--Income Tests'), and in turn would prevent the Company from
qualifying as a REIT. See '--Taxation of the Company' and '--Failure to Qualify'
above for a discussion of the effect of the Company's failure to meet such tests
for a taxable year. In addition, a change in any of the partnerships' status for
tax purposes might be treated as a taxable event in which case the Company might
incur a tax liability without any related cash distributions.
An organization formed as a partnership will be treated as a partnership
for federal income tax purposes rather than as a corporation only if it has no
more than two of the four corporate characteristics that the Treasury
Regulations use to distinguish a partnership from a corporation for tax
purposes. These four characteristics are (i) continuity of life, (ii)
centralization of management, (iii) limited liability and (iv) free
transferability of interests. The Company has not requested, and does not intend
to request, a ruling from the IRS that each of the partnerships will be treated
as partnerships for federal income tax purposes. However, in connection with the
filing of the Registration Statement of which this Prospectus is a part, Latham
& Watkins delivered an opinion to the Company stating that based on the
provisions of the Partnership Agreement (and each of the partnership agreements
for the Lower Tier Partnerships), and certain factual assumptions and
representations described in the opinion, the Operating Partnership (and each of
the Lower Tier Partnerships) will be treated as a partnership for federal income
tax purposes (and not as an association or a publicly traded partnership taxable
as a corporation). Unlike a private letter ruling, an opinion of counsel is not
binding on the IRS, and no assurance can be given that the IRS will not
challenge the status of the Operating Partnership (or any of the Lower Tier
Partnerships) as partnerships for federal income tax purposes. If such
challenges were sustained by a court, the Operating Partnership or any of the
Lower Tier Partnerships could be treated as a corporation for federal income tax
purposes.
Recently proposed Treasury Regulations (the 'Proposed Regulations'), if
finalized in their present form, would eliminate the four factor test described
above and, in its place, permit a partnership or limited liability company to
elect to be taxed as a partnership for federal income tax purposes without
regard to the number of corporate characteristics possessed by such entity. The
Proposed Regulations are proposed to apply for tax periods beginning on or after
the date that final regulations are published by the IRS. Until that time, the
existing regulations will continue to apply. The Proposed Regulations provide
that the IRS will not challenge the classification of any existing partnership
or limited liability company for tax periods to which the existing Treasury
Regulations apply if (1) the entity had a reasonable basis for its claimed
classification, (2) the entity claimed that same classification in all prior
years, and (3) as of the date that the proposed regulations were published,
neither the entity nor any member of the entity had been notified in writing
that the classification of the entity is under examination by the IRS.
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Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The Operating Partnership's
allocations of taxable income and loss are intended to comply with the
requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Properties) that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution (a 'Book-Tax Difference').
Such allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property (including certain of the Properties). Moreover, subsequent
to the formation of the Operating Partnership, additional persons have
contributed appreciated property to the Operating Partnership in exchange for
interests in the Operating Partnership. The Partnership Agreement requires that
such allocations be made in a manner consistent with Section 704(c) of the Code.
In general, the principals of FWM and other Continuing Investors who are
limited partners of the Operating Partnership will be allocated depreciation
deductions for tax purposes which are lower than such deductions would be if
determined on a pro rata basis. In addition, in the event of the disposition of
any of the contributed assets which have a Book-Tax Difference, all income
attributable to such Book-Tax Difference will generally be allocated to such
limited partners, and the Company will generally be allocated only its share of
capital gains attributable to appreciation, if any, occurring after the time of
contribution to the Operating Partnership. This will tend to eliminate the
Book-Tax Difference over the life of the Operating Partnership. However, the
special allocation rules of Section 704(c) do not always entirely eliminate the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed assets
in the hands the Operating Partnership may cause the Company to be allocated
lower depreciation and other deductions, and possibly an amount of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See '--Taxation of the Company--Annual Distribution Requirements.'
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the 'traditional method' or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to be
entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have
determined to use the 'traditional method' for accounting for Book-Tax
Differences with respect to the Properties initially contributed to the
Operating Partnership.
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With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, such
property will initially have a tax basis equal to its fair market value, and
Section 704(c) of the Code will not apply.
Basis in Operating Partnership Interest. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has adjusted tax
basis in its interest in the Operating Partnership. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners), exceeds the Company's adjusted tax basis,
such excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such taxable income will normally be
characterized as a capital gain, and if the Company's interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive distributions
will constitute long-term capital gain.
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
A significant portion of the cash to be used by the Operating Partnership
to fund distributions to partners is expected to come from the Management
Company, through interest payments and dividends on non-voting preferred stock
to be held by the Operating Partnership. The Management Company will pay federal
and state tax on its net income at full corporate rates, which will reduce the
cash available for distribution to stockholders.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the 'Underwriters'), through their Representatives,
Alex. Brown & Sons Incorporated, Friedman, Billings, Ramsey & Co., Inc. and
Tucker Anthony Incorporated have severally agreed to purchase from the Company
the following respective numbers of shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated........................
Friedman, Billings, Ramsey & Co., Inc..................
Tucker Anthony Incorporated............................
---------
Total.................................................. 1,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of Common Stock offered hereby if any of
such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Representatives of the Underwriters.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 225,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 1,500,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will sell such additional shares on the same terms as those on
which the 1,500,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
or to contribute to payments the Underwriters may be required to make in respect
thereof.
In addition, the Company and each of its executives, officers and directors
have agreed with the Underwriters not to offer, sell, contract to sell or
otherwise issue or dispose of shares of Common Stock for the 90-day period
following the Offering, except that the Company may issue new shares of Common
Stock pursuant to the exchange or conversion of outstanding securities, the
issuance of shares of Common Stock pursuant to employee benefit plans and in
connection with future acquisitions. See 'Shares Available for Future Sale.'
Alex. Brown & Sons Incorporated and Friedman, Billings, Ramsey & Co., Inc.
will receive an advisory fee of $125,000 in connection with the Offering.
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EXPERTS
The consolidated balance sheets of First Washington Realty Trust, Inc. as
of December 31, 1995 and 1994 and the consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995, the combined statement of revenues and certain expenses
of the New Retail Properties for the year ended December 31, 1995, the combined
statement of revenues and certain expenses of the 1996(B) Acquisition Properties
and the financial statement schedules listed in Item 35(a)3 included in this
Form S-11, have been included herein in reliance on the reports of Coopers &
Lybrand L.L.P, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Latham &
Watkins, Washington, D.C. Latham & Watkins will rely as to certain matters of
Maryland law, including the legality of the Common Stock, on the opinion of
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. In addition, the
description of federal income tax consequences contained in this Prospectus
entitled 'Federal Income Tax Considerations' is based upon the opinion of Latham
& Watkins. Certain legal matters related to the Offering will be passed upon for
the Underwriters by Hogan & Hartson L.L.P., Washington, D.C.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a registration statement on Form S-11 under the Securities Act
with respect to the securities offered hereby. This Prospectus, which
constitutes part of the registration statement, omits certain information
contained in the registration statement and the exhibits thereto on file with
the Commission pursuant to the Securities Act and the rules and regulations of
the Commission thereunder. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'). The Company has filed reports and other information with the Commission
and is subject to the periodic reporting and informational requirements of the
Exchange Act. The registration statement, the exhibits and schedules forming a
part thereof as well as such reports and other information filed by the Company
with the Commission can be inspected and copies obtained from the Commission at
Room 1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
website at http://www.sec.gov containing reports, prospectuses and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission. In addition, similar information
concerning the Company can be inspected and copied at the offices of the NYSE,
20 Broad Street, New York, NY 10005. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the registration statement,
each such statement being qualified in all respect by such reference.
The Company furnishes its stockholders with annual reports containing
consolidated financial statements audited by its independent accountants.
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GLOSSARY OF TERMS
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
'ACMs' means asbestos-containing materials.
'ADA' means the Americans with Disabilities Act.
'Affiliate' of an issuer means, as defined in Rule 144, a person that
directly, or indirectly, through the use of one or more intermediaries controls,
or is controlled by, or is under the common control with, such issuer.
'Aggregate Ownership Limit' has the meaning ascribed to it in 'Description
of Capital Stock--Restrictions on Ownership, Transfer and Conversion.'
'Awards' means, collectively, non-qualified stock options, incentive stock
options and stock appreciation rights.
'Board of Directors' means the board of directors of the Company.
'Bond Obligations' means tax-exempt bond financing obligations of
approximately $7.3 million (collateralized by the Mayfair Shopping Center)
issued by the Philadelphia Industrial Development Authority.
'Book-Tax Difference' has the meaning ascribed to it in the section
entitled 'Federal Income Tax Considerations--Tax Aspects of the Operating
Partnership--Tax Allocations with Respect to the Properties.'
'Business Combinations,' shall have the meaning associated to it under
Section 3-601 of the MGCL.
'Capital Gains Amount' has the meaning ascribed to it in Section 857 of
the Code.
'CERCLA' means the Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act of
1986.
'Code' means the Internal Revenue Code of 1986, as amended.
'Commission' means the Securities and Exchange Commission.
'Common Stock' means shares of the common stock of the Company, $0.01 par
value per share.
'Common Stock Ownership Limit' shall have the meaning ascribed to it in
'Description of Capital Stock--Restrictions on Ownership, Transfer and
Conversion.'
'Common Unit' means the units of the Operating Partnership exchangeable for
shares of Common Stock on a one-for-one basis (or, at the option of the Company,
redeemable by the Operating Partnership for cash).
'Company' means First Washington Realty Trust, Inc., a Maryland
corporation, and, unless the context otherwise requires, those entities owned or
controlled by the Company.
'Compensation Committee' means the committee appointed by the Company's
Board of Directors to determine the granting of Awards.
'Control Shares' has the meaning ascribed to it in the section entitled
'Risk Factors--Ownership Limit and Limits on Changes in Control--Maryland
Control Share Acquisition Statute.'
'Convertible Preferred Ownership Limit' shall have the meaning ascribed to
it in 'Description of Capital Stock--Restrictions on Ownership, Transfer and
Conversion.'
'Convertible Preferred Stock' means Series A Cumulative Participating
Convertible Preferred Stock of the Company.
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'Distribution Payment Date' means the date on which the distributions with
respect to the Convertible Preferred Stock will be paid.
'EBITDA' is equal to earnings before interest, income taxes, depreciation,
amortization and minority interest.
'Exchange Act' means the Securities Exchange Act of 1934, as amended.
'Exchangeable Debentures' means the $25 million in aggregate principal
amount of 8.25% Exchangeable Debentures issued by the Operating Partnership in
the Formation Transactions, which are exchangeable for shares of Convertible
Preferred Stock.
'Existing Retail Properties' means the 33 retail properties currently owned
by the Company. The Existing Retail Properties are: Brafferton Center, Bryans
Road Shopping Center, Capital Corner Shopping Center, Chesapeake Bagel Building,
Clinton Square Shopping Center, Clopper's Mill Village Shopping Center, Colonial
Square Shopping Center, Centre Ridge Marketplace, Connecticut Avenue Shops,
Davis Ford Crossing, Festival at Woodholme, 15th & Allen Shopping Center,
Firstfield Shopping Center, First State Plaza, Fox Mill Shopping Center, The
Georgetown Shops, Glen Lea Shopping Center, Hanover Village Shopping Center,
James Island Shopping Center, Kenhorst Plaza Shopping Center, Laburnum Park
Shopping Center, Laburnum Square Shopping Center, Mayfair Shopping Center, P.G.
County Commercial Park, Penn Station Shopping Center, Potomac Plaza, Rosecroft
Shopping Center, Shoppes of Kildaire, Stefko Boulevard Shopping Center,
Southside Marketplace, Takoma Park Shopping Center, Thieves Market and Valley
Centre.
'Exchangeable Preferred Unit' means exchangeable preferred units of the
Operating Partnership that are exchangeable for shares of Common Stock on a
one-for-one basis (or, at the option of the Company, redeemable by the Operating
Partnership for cash).
'Farallon' means Farallon Capital Management, Inc.
'FHA' means the Fair Housing Amendments Act of 1988.
'FHLMC' means Federal Home Loan Mortgage Commission.
'FIRPTA' means the Foreign Investment in Real Property Tax Act of 1980.
'FNMA' means Federal National Mortgage Association.
'FS Note' means the $4.8 million note issued by the Operating Partnership
in connection with the Formation Transactions to the prior owner of First State
Plaza Shopping Center, which note is exchangeable for Common Stock.
'FWM' means First Washington Management, Inc., a District of Columbia
corporation.
'FWM Common Stock' means common stock of FWM entitled to receive 1% of the
cash flow of FWM.
'FWM Note' means a promissory note issued to the Principals in the face
amount of $4.0 million.
'FWM Partnerships' means the limited partnerships that owned the FWM
Properties prior to the transfer to the Operating Partnership.
'FWM Preferred Stock' means non-voting preferred stock of FWM entitled to
receive 99% of the cash flow of FWM.
'FWM Properties' means the Properties formerly owned by the FWM
Partnerships.
'FWM Retail Properties' means the 14 Retail Properties formerly owned by
the FWM Partnerships.
'GAAP' means Generally Accepted Accounting Principles.
'GLA' means gross leasable area and includes two pad sites at Penn Station
Shopping Center (90,000 square feet) and one pad site at Laburnum Park Shopping
Center (43,500 square feet) that are not owned by the Company.
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'GNMA' means Government National Mortgage Association.
'Interested Stockholders,' under Maryland law, means all persons owning
beneficially, directly or indirectly, more than 10% of the voting power of
outstanding voting shares of stock of a Maryland corporation.
'IRS' means the Internal Revenue Service.
'June 1995 Offering' means the initial public offering of Common Stock in
June 1995.
'Lower Tier Partnerships' means those partnerships in which the Operating
Partnership owns a 99% partnership interest and the Company (or a wholly owned
subsidiary of the Company) owns a 1% partnership interest, which limited
partnerships own six of the Properties.
'MAC Partnership' means Mid-Atlantic Centers Limited Partnership, a
Maryland limited partnership and an affiliate of FWM.
'Management Company' means FWM after formation of the Company. The
Management Company conducts property management, leasing and related services
for the Company and for certain third parties. The Company owns 100% of FWM's
non-voting Preferred Stock, but does not own any of the voting Common Stock of
FWM.
'MGCL' means the Maryland General Corporation Law, as amended from time to
time.
'Multifamily Properties' means Branchwood Apartments and Broadmoor
Apartments, the two multifamily apartment properties which the Company acquired
in connection with the Formation Transactions.
'NAREIT' means the National Association of Real Estate Investment Trusts,
Inc.
'NASDAQ' means the Nasdaq National Market.
'Net Operating Income' represents minimum and percentage rents, tenant
reimbursements and other related income, reduced by real estate taxes, insurance
expense, common area maintenance expenses, utilities and management fees.
'New Retail Properties' means the following six retail properties: City
Line Shopping Center, Four Mile Fork Shopping Center, Kings Park Shopping
Center, Newtown Square Shopping Center, Northway Shopping Center and Shoppes of
Graylyn.
'Nomura Capital' means Nomura Asset Capital Corporation, which provided the
Nomura Mortgage Loan.
'Nomura Mortgage Loan' means the $38.5 million mortgage loan from Nomura
Capital secured by four of the Properties.
'NYSE' means the New York Stock Exchange.
'Operating Partnership' means First Washington Realty Limited Partnership,
a Maryland limited partnership. The Operating Partnership owns all of the
Properties (or interests therein). Upon conversion of all Common Units and
Exchangeable Preferred Units, the Company will own a 100% general partnership
interest in the Operating Partnership.
'Options' means the opportunities granted to certain officers, directors,
key employees and consultants of the Company to acquire Common Stock pursuant to
its Stock Incentive Plan.
'Partnership Agreement' means the agreement of limited partnership of the
Operating Partnership.
'Preferred Stock' means the preferred stock of the Company, $0.01 par value
per share.
'Properties' means one or more of the 39 Retail Properties and the two
Multifamily Properties owned or to be acquired by the Company, as more
particularly described in the section entitled 'Properties.'
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'REIT' means a real estate investment trust as defined pursuant to Sections
856 through 860 of the Code.
'Retail Properties' means one or more of the 33 Existing Retail Properties
and the 6 New Retail Properties.
'Securities Act' means the Securities Act of 1933, as amended.
'Stock Incentive Plan' means the Company's 1994 Stock Option Plan.
'Subsidiaries' means all of the subsidiaries of the Company.
'Total market capitalization' means the sum of: (i) the aggregate market
value of the outstanding shares of Common Stock (based on $20.00 per share)
assuming full exchange of Common Units in the Operating Partnership for shares
of Common Stock, and full exchange of Convertible Preferred Stock for Common
Stock, plus (ii) the total debt of the Company.
'UBTI' means unrelated business taxable income as defined pursuant to
Sections 511 and 512 of the Code.
'U.S. Shareholder' has the meaning ascribed to it in the section entitled
'Federal Income Tax Considerations--Taxation of Taxable U.S. Stockholders.'
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
PRO FORMA (UNAUDITED):
- -- Pro Forma Consolidated Balance Sheet as of September 30, 1996........................................... F- 2
- -- Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 1996............. F- 3
- -- Pro Forma Consolidated Statement of Operations for the year ended December 31, 1995..................... F- 4
- -- Notes and Management's Assumptions to the Pro Forma Consolidated Financial Statements................... F- 5
HISTORICAL:
- -- Consolidated Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995.................. F- 8
- -- Consolidated Statements of Operations for the nine months and three months ended September 30, 1996
(unaudited) and 1995 (unaudited)...................................................................... F- 9
- -- Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited) and 1995
(unaudited)........................................................................................... F-10
- -- Notes to Unaudited Consolidated Financial Statements.................................................... F-11
- -- Report of Independent Accountants....................................................................... F-15
- -- Consolidated Balance Sheets as of December 31, 1995 and 1994............................................ F-16
- -- Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993.............. F-17
- -- Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993.... F-18
- -- Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993.............. F-19
- -- Notes to the Consolidated Financial Statements.......................................................... F-20
NEW RETAIL PROPERTIES:
- -- Report of Independent Accountants....................................................................... F-36
- -- Combined Statement of Revenues and Certain Expenses for the year ended December 31, 1995 and the nine
months ended September 30, 1996 (unaudited)........................................................... F-37
- -- Notes to Combined Statement of Revenues and Certain Expenses............................................ F-38
1996(B) ACQUISITION PROPERTIES:
- -- Report of Independent Accountants....................................................................... F-39
- -- Combined Statement of Revenues and Certain Expenses for the year ended December 31, 1995 and the six
months ended June 30, 1996 (unaudited) and 1995 (unaudited)........................................... F-40
- -- Notes to Combined Statement of Revenues and Certain Expenses............................................ F-41
</TABLE>
F-1
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEET
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- -----
ASSETS
<S> <C> <C> <C>
Rental properties:
Land................................................................. $ 56,511 $ 11,141(A) $ 67,652
Building and improvements............................................ 229,263 44,563(A) 273,826
------- ------ -------
285,774 55,704 341,478
Accumulated depreciation............................................. (28,324) -- (28,324)
------- ------ -------
Rental properties, net............................................... 257,450 55,704 313,154
Cash and equivalents................................................... 1,870 2,571(C) 4,441
Tenant receivables, net................................................ 4,692 -- 4,692
Deferred financing costs, net.......................................... 4,717 433(A) 5,150
Other assets........................................................... 6,240 -- 6,240
----- ------ -----
Total assets.................................................... $ 274,969 $ 58,708 $ 333,677
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage and other notes payable..................................... $ 162,346 $ 24,630(D) $ 186,976
Debentures........................................................... 25,000 -- 25,000
Accounts payable and accrued expenses................................ 5,215 -- 5,215
------- ------ -------
Total liabilities 192,561 24,630 217,191
Minority interest...................................................... 12,573 6,375(B) 18,948
Stockholders' equity:
Convertible Preferred Stock $.01 par value, 3,500,000 shares
designated; 2,314,189 shares issued and outstanding............... 23 -- 23
Common Stock $.01 par value, 90,000,000 shares authorized; 3,291,245
and 4,791,245 shares issued and outstanding respectively........ 32 15(E) 47
Additional paid-in capital........................................... 86,538 27,688(F) 114,226
Accumulated distributions in excess of earnings...................... (16,758) -- (16,758)
------- ------ -------
Total stockholders' equity...................................... 69,835 27,703 97,538
------ ------ -------
Total liabilities and stockholders' equity...................... $ 274,969 $ 58,708 $ 333,677
========== ========= ==========
</TABLE>
The accompanying notes and management assumptions are an integral part of
these pro forma consolidated financial statements.
F-2
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------------------------------------------
1996(A) 1996(B)
ACQUISITION ACQUISITION NEW RETAIL PRO
HISTORICAL PROPERTIES PROPERTIES PROPERTIES ADJUSTMENTS FORMA
---------- ----------- ----------- ---------- ----------- -----
(B) (C) (D)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Minimum rents............................. $ 23,408 $ 250 $ 774 $ 4,292 -- $ 28,724
Percentage rents.......................... 501 0 0 262 -- 763
Tenant reimbursements..................... 5,015 58 176 1,023 -- 6,272
Other income.............................. 1,189 1 1 13 -- 1,204
------ --- --- ----- -- ------
Total revenues 30,113 309 951 5,590 36,963
------ --- --- ----- ------ ------
Expenses:
Property operating and maintenance........ 7,623 67 222 1,337 173(E) 9,422
General and administrative................ 2,348 -- -- -- -- 2,348
Interest.................................. 11,025 -- -- -- 2,442(F) 13,467
Depreciation and amortization............. 5,783 -- -- -- 1,292(G) 7,075
----- -- --- ----- ----- -----
26,779 67 222 1,337 3,907 32,312
------ -- --- ----- ----- ------
Income before income from Management
Company, minority interest and
distributions to Preferred Stockholders... 3,334 242 729 4,253 (3,907) 4,651
Income from Management Company.............. 97 -- -- -- -- 97
--- --- --- --- --- ---
Income before minority interest and
distributions to Preferred Stockholders... 3,431 242 729 4,253 (3,907) 4,748
(Income)/loss allocated to minority
interest.................................. (486) -- -- -- (260)(H) (746)
---- ---- ---- ---- ---- ----
Income before distributions to preferred
stockholders.............................. 2,945 242 729 4,253 (4,167) 4,002
Distributions to preferred stockholders..... (4,231) -- -- -- -- (4,231)
------ ------ ------ ------ ------ ------
Income (loss) allocated to common
stockholders.............................. $ (1,286) $ 242 $ 729 $ 4,253 $(4,167) $ (229)
--------- --------- --------- --------- ------- ---------
Net loss per Common Share................... $ (0.40) $ (0.05)
========= =========
Shares of Common Stock, in thousands........ 3,227 4,727
===== =====
</TABLE>
The accompanying notes and management assumptions are an integral part of
these pro forma consolidated financial statements.
F-3
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
1996(A) 1996(B)
ACQUISITION ACQUISITION NEW RETAIL PRO
HISTORICAL PROPERTIES PROPERTIES PROPERTIES ADJUSTMENTS FORMA
---------- ----------- ----------- ---------- ----------- -----
(A) (B) (C) (D)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Minimum rents............................... $ 26,876 $ 1,474 $ 1,946 $ 5,578 -- $ 35,874
Percentage rents............................ 662 -- -- 401 -- 1,063
Tenant reimbursements....................... 5,016 318 407 1,021 -- 6,762
Other income................................ 1,463 3 -- 39 -- 1,505
----- ----- ----- ----- ----- -----
Total revenues 34,017 1,795 2,353 7,039 -- 45,204
------ ----- ----- ----- ----- ------
Expenses:
Property operating and maintenance.......... 8,048 399 524 1,307 277(E) 10,555
General and administrative.................. 2,831 -- -- -- -- 2,831
Interest.................................... 12,666 -- -- -- 4,422(F) 17,088
Depreciation and amortization............... 6,606 -- -- -- 2,337(G) 8,943
----- ----- ----- ----- ----- -----
30,151 399 524 1,307 7,036 39,417
------ --- --- ----- ----- ------
Income before income from Management Company,
minority interest and distributions to
Preferred Stockholders...................... 3,866 1,396 1,829 5,732 (7,036) 5,787
Income from Management Company................ 449 -- -- -- -- 449
--- --- --- --- --- ---
Income before minority interest and
distributions to Preferred Stockholders..... 4,315 1,396 1,829 5,732 (7,036) 6,236
(Income) loss allocated to minority
interest.................................... (570) -- -- -- (407)(H) (977)
---- ---- ---- ---- ---- ----
Income before distributions to preferred
stockholders................................ 3,745 1,396 1,829 5,732 (7,443) 5,259
Distributions to preferred stockholders....... (5,641) -- -- -- -- (5,641)
------ ------ ------ ------ ------ ------
Income (loss) allocated to common
stockholders................................ $ (1,896) $ 1,396 $ 1,829 $ 5,732 $(7,443) $ (382)
--------- --------- --------- --------- ------- ---------
Net loss per Common Share..................... $ (0.59) $ (0.08)
========= =========
Shares of Common Stock, in thousands.......... 3,201 4,701
===== =====
</TABLE>
The accompanying notes and management assumptions are an integral part of
these pro forma consolidated financial statements.
F-4
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited Pro Forma Consolidated Balance Sheet is
presented as if the Offering, and the acquisition of the New Retail
Properties had been consummated on September 30, 1996.
The accompanying unaudited Pro Forma Consolidated Statements of Operations
are presented as if:
(i) the acquisition of the 1996(A) and the 1996(B) Acquisition Properties
and the proposed acquisition of the the New Retail Properties had been
consummated as of January 1, 1995; and
(ii) the June 1995 Offering had occurred as of January 1, 1995; and
(iii) the Offering had occurred as of January 1, 1995.
The 1996(A) Acquisition Properties consist of the operations of Stefko
Boulevard Shopping Center and 15th & Allen Shopping Center, both purchased on
January 4, 1996, Clopper's Mill Village Shopping Center purchased on March
20, 1996 and Centre Ridge Marketplace purchased on March 29, 1996.
The 1996(B) Acquisition Properties consist of the operations of Takoma Park
Shopping Center Purchased on April 29, 1996 and Southside Marketplace
Shopping Center purchased on June 7, 1996.
These pro forma consolidated financial statements should be read in
conjunction with the historical financial statements and notes thereto,
included elsewhere in this Prospectus. In management's opinion, all
adjustments necessary to reflect the effects of the acquisition of the
1996(A) and 1996(B) Acquisition Properties, the proposed acquisition of the
New Retail Properties and the June 1995 offering and the Offering have been
made.
The unaudited pro forma consolidated financial statements are not necessarily
indicative of the actual financial position at September 30, 1996 or what the
actual results of operations of the Company would have been assuming the June
1995 Offering, the acquisitions of the 1996(A) and 1996(B) Acquisition
Properties and the proposed acquisition of the New Retail Properties had been
completed as of January 1, 1995, nor are they indicative of the results of
operations for future periods.
2. ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET:
(A) Reflects the purchase of the New Retail Properties for $53,829,
(including the payment of transaction expenses of $1,379), expansions of
existing retail properties of $1,875 and deferred financing costs of $433.
These items were financed through new mortgage debt of $8,244, the assumption
of existing mortgage debt of $21,076, cash of $20,669 from the proceeds of
the Offering and the issuance of approximately 300,000 Common Units with a
value of approximately $6,148.
(B) Reflects the common minority interest share (17.5%) of the Offering
proceeds as follows:
<TABLE>
<S> <C>
ProForma Stockholders' Equity before Minority Interest adjustment.... $116,486
Less Preferred Stockholder liquidation preference.................... (57,855)
Less Preferred Unitholders liquidation preference.................... (10,530)
--------
Equity available for Common Unitholders.............................. 48,101
Common Minority interest ownership %................................. 17.5%
Common Minority interest ownership................................... 8,418
Preferred Minority interest ownership................................ 10,530
--------
ProForma Minority Interest........................................... $ 18,948
========
</TABLE>
F-5
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands)
(unaudited)
(C) Reflects the following transactions:
<TABLE>
<S> <C>
Sale of 1,500,000 shares of Common Stock at $20.00 per share....................... $ 30,000
Transaction costs associated with the sale of Common Stock......................... (2,070)
------
Net Proceeds....................................................................... 27,930
Purchase of the New Retail Properties.............................................. (18,794)
Repayment of Mortgage Debt......................................................... (4,690)
Property expansion expenditures.................................................... (1,875)
------
$ 2,571
=========
</TABLE>
(D) Reflects new mortgage debt of $8,244 and the assumption of mortgage debt
in the amount of $21,076 in connection with the acquisition of the New
Retail Properties less repayment of $4,690 of Mortgage Debt with proceeds
from the Offering.
(E) Reflects $.01 par value associated with the sale of 1,500,000 shares of
Common Stock.
(F) Reflects the net proceeds of the offering ($27,915) plus the issuance
of approximately 300,000 Common Units ($6,148) less the amounts
allocated to minority interests ($6,375).
3. ADJUSTMENTS TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS:
(A) Reflects the proforma results of operations for the year ended December 31,
1995 as reported in Footnote 2 of the Company's 1995 financial statements
included herein. The proforma results of operations were presented as if
the June 1995 Offering and the Acquisitions of the Festival at Woodholme
Shopping Center, the UDR Properties, Kenhorst Shopping Center and
Firstfield Shopping Center had occurred on January 1, 1995.
(B) Reflects the operations of the 1996(A) Acquisition Properties for the six
months ended June 30, 1996 and the year ended December 31, 1995. The
adjustment for the six months ended June 30, 1996 represents the activity
only for the period of time prior to the acquisition of the 1996(A)
Acquisition Properties by the Company.
(C) Reflects the operations of the 1996(B) Acquisition Properties for the six
months ended June 30, 1996 and the year ended December 31, 1995. The
adjustment for the six months ended June 30, 1996 represents the activity
only for the period of time prior to the acquisition of the 1996(B)
Acquisition Properties by the Company.
(D) Reflects the operations of the New Retail Properties for the nine months
ended September 30, 1996 and the year ended December 31, 1995.
F-6
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
(E) Reflects the net increase in property operating and
maintenance costs relating to:
1996(A) Acquisition Properties management fees to be incurred.......... $ 8 $ 43
1996(B) Acquisition Properties management fees to be incurred.......... 23 58
New Retail Properties Management fees to be incurred................... 142 176
--------- ---------
$ 173 $ 277
========= =========
(F) Reflects the net increase (decrease) in interest expense relating to:
Repayment of existing mortgage debt ($4,690, 8.5%)..................... $ (298) $ (397)
The 1996(A) Acquisition Properties mortgage debt....................... 229 818
The 1996(B) Acquisition Properties debt................................ 530 1,307
Debt related to the New Retail Properties ............................. 1,951 2,600
Amortization relating to:
The New Retail Properties mortgage financing costs................... 29 39
Deferred financing costs on mortgages to be repaid................... (12) (17)
The 1996(A) Acquisition Properties Mortgage debt..................... 3 15
The 1996(B) Acquisition Properties Mortgage debt..................... 10 57
--------- ---------
$ 2,442 $ 4,422
========= =========
(G) Reflects the net increase in depreciation and amortization
relating to:
The 1996(A) Acquisition Properties (Cost basis: $17.1 million)......... $ 86 $ 542
The 1996(B) Acquisition Properties (Cost basis: $12.7 million)......... 162 402
The New Retail Properties (Cost basis: $43.9 million).................. 1,044 1,393
--------- ---------
$ 1,292 $ 2,337
========= =========
Depreciation is calculated using the
straight-line method over 31.5 years. It is
assumed that 80% of the acquisition cost
basis is allocated to the building.
(H) Reflects the limited partners' interest in the Operating
Partnership after preferred distributions.
Pro forma income before distributions and minority interest............ $ 4,731 $ 6,216
========= =========
Distributions to Preferred Stockholders (84.6%)........................ $ (4,231) $ (5,641)
Distributions to Preferred Unitholders (15.4%)......................... (721) (858)
---- ----
Total distributions............................................. $ (4,952) $ (6,499)
========= =========
Income allocated to Preferred Minority interest........................ 729 957
Minority interest ownership of City Line Shopping Center (11%)......... 17 20
-- --
Total income allocated to minority interest............................ $ 746 $ 977
========= =========
</TABLE>
F-7
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Rental properties:
Land................................................................................. $ 56,511 $ 42,420
Buildings and improvements........................................................... 229,263 185,672
------- -------
285,774 228,092
Accumulated depreciation............................................................... (28,324) (22,775)
------- -------
Rental properties, net............................................................... 257,450 205,317
Cash and equivalents................................................................... 1,870 7,806
Tenant receivables, net................................................................ 4,692 3,214
Deferred financing costs, net.......................................................... 4,717 5,690
Other assets........................................................................... 6,240 5,378
--------- ----------
Total assets................................................................. $ 274,969 $ 227,405
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable............................................................... $ 162,346 $ 116,182
Debentures........................................................................... 25,000 25,000
Accounts payable and accrued expenses................................................ 5,215 4,059
------- -------
Total liabilities............................................................ 192,561 145,241
Minority interest...................................................................... 12,573 11,088
Stockholders' equity:
Convertible preferred stock $.01 par value, 3,750,000 shares designated; 2,314,189
issued and outstanding................................................................. 23 23
Common stock $.01 par value, 90,000,000 shares authorized; 3,291,245 and 3,189,549
shares issued and outstanding, respectively............................................ 32 32
Additional paid-in capital........................................................... 86,538 80,699
Accumulated distributions in excess of earnings...................................... (16,758) (9,678)
------- ------
Total stockholders' equity................................................... 69,835 71,076
--------- ----------
Total liabilities and stockholders' equity................................... $ 274,969 $ 227,405
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED FOR NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Minimum rents........................................... $ 8,390 $ 6,152 $ 23,408 $ 16,597
Percentage rents........................................ 107 121 501 302
Tenant reimbursements................................... 1,742 1,175 5,015 3,106
Other income............................................ 275 256 1,189 787
--- --- --- ---
Total revenues..................................... 10,514 7,704 30,113 20,792
------ ----- ------ ------
Expenses:
Property operating and maintenance...................... 2,631 1,787 7,623 5,024
General and administrative.............................. 648 1,737 2,348 2,152
Interest................................................ 3,999 2,845 11,025 8,095
Depreciation and amortization........................... 2,039 1,533 5,783 4,162
----- ----- ----- -----
Total expenses..................................... 9,317 7,902 26,779 19,433
----- ----- ------ ------
Income before income from Management Company, minority
interest and distributions to Preferred Stockholders.... 1,197 (198) 3,334 1,359
Income from Management Company............................ 90 87 97 361
-- --- - ---
Income before minority interest and distributions to
Preferred Stockholders.................................. 1,287 (111) 3,431 1,720
(Income) loss allocated to minority interest.............. (188) (218) (486) (87)
---- --- ---- ---
Income before distributions to Preferred Stockholders..... 1,099 (329) 2,945 1,633
Distributions to Preferred Stockholders................... (1,410) (1,388) (4,231) (3,728)
------ ------ ------ ------
Net Income (loss) allocated to common stockholders........ $ (311) $ (1,717) $ (1,286) $ (2,095)
========= ========= ========= =========
Net Income (loss) per Common Share........................ $ (0.09) $ (0.56) $ (0.40) $ (1.01)
========= ========= ========= =========
Shares of Common Stock, in thousands...................... 3,288 3,076 3,227 2,081
===== ===== ===== =====
Distributions per share................................... $ 0.4875 $ 0.4875 $ 1.4625 $ 1.4625
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
---------------
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Income before distributions to Preferred Stockholders............................... $ 2,945 $ 1,633
Adjustment to reconcile net cash provided by operating activities:
Income allocated to minority interest............................................. 486 87
Depreciation and amortization..................................................... 5,784 4,162
Amortization of deferred financing costs and loan discounts....................... 1,668 1,713
Equity in earnings of Management Company.......................................... 263 99
Compensation paid or payable in company stock..................................... 1,136 1,183
Provision for uncollectible accounts.............................................. 228 349
Recognition of deferred rent...................................................... (691) (549)
Net changes in:
Tenant receivables.............................................................. (1,015) (46)
Other assets.................................................................... (1,359) (1,329)
Account payable and accrued expenses............................................ 21 (514)
---- ----
Net cash provided by operating activities.................................. 9,466 6,788
----- -----
Investing activities:
Additions to rental properties...................................................... (3,298) (1,420)
Purchase of rental properties....................................................... (38,962) (13,851)
------- -------
Net cash used in investing activities...................................... (42,260) (15,271)
------- -------
Financing activities:
Proceeds from line of credit........................................................ 8,348 --
Proceeds from mortgage notes........................................................ 30,225 --
Proceeds from issuance of Common Stock.............................................. -- 27,129
Cost of raising equity capital...................................................... -- (2,334)
Repayment on mortgage notes......................................................... (612) (2,193)
Additions to deferred financing costs............................................... (591) (136)
Repayments of Advances due Principals............................................... -- (447)
Distributions paid to Preferred Stockholders........................................ (4,231) (3,728)
Distributions paid to Common Stockholders........................................... (4,720) (3,048)
Distributions paid to minority interest............................................. (1,561) (1,167)
---- ----
Net cash provided by financing activities.................................. 26,858 14,076
------ ------
Net increase (decrease) in cash and equivalents..................................... (5,936) 5,593
Cash and equivalents, beginning of period........................................... 7,806 1,113
----- -----
Cash and equivalents, end of period................................................. $ 1,870 $ 6,706
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim consolidated financial statements of the Company are
prepared pursuant to the Securities and Exchange Commission's rules and
regulations for reporting on Form S-11 and should be read in conjunction
with the audited financial statements included herein. Accordingly certain
disclosures accompany annual financial statements prepared in accordance
with generally accepted accounting principles are omitted. In the opinion
of management, all adjustments, consisting solely of normal recurring
adjustments, necessary for fair presentation of the consolidated financial
statements for the interim periods have been included. The current period's
results of operations are not necessarily indicative of results which
ultimately may be achieved for the year.
The consolidated financial statements include the accounts of the Company
and its majority owned partnerships, including the Operating Partnership.
All significant intercompany balances and transactions have been
eliminated.
Loss per Share
Loss per share is calculated by dividing income after minority interest,
less preferred distributions by the weighted average number of common shares
outstanding during the three months and nine months ended September 30,
1996 and 1995 respectively. The weighted average number of common shares
outstanding during three months ended September 30, 1996 and 1995 were
3,288,000 and 3,076,000, respectively and the weighted average number of
common shares outstanding during nine months ended September 30, 1996 and
1995 were 3,227,000 and 2,081,000 respectively. Options outstanding are not
included since their inclusion would be anti-dilutive. The assumed conversion
of the Preferred Stock as of the date of issuance would have been
anti-dilutive. The assumed conversion of the partnership units held by the
limited partners of the Operating Partnership as of the REIT formation, which
would result in the elimination of earnings and losses allocated to minority
interests would have been anti-dilutive, as the allocation of losses to
limited partners was suspended due to their lack of responsibility to fund
losses. The Debentures, which are exchangeable into shares of Convertible
Preferred Stock, do not meet the criteria for classification as common
stock equivalents.
2. PURCHASE OF RENTAL PROPERTIES
On June 1, 1995, the Company purchased the Festival at Woodholme Shopping
Center located in Baltimore, Maryland for an approximate purchase price of
$14.3 million. The acquisition was financed through the issuance of
approximately 96,000 Operating Partnership common units with a value of
approximately $1.6 million and assumed mortgage indebtedness of $12.7
million. Concurrent with the closing, the Company made a $1.0 million
mortgage curtailment. The mortgage bears interest at 9.6% per annum and is
payable monthly based on a 28 year amortization schedule. The loan is due
in April 2000. The center is anchored by Sutton Place Gourmet and Pier One
Imports.
On June 30, 1995, (effective July 1, 1995) the Company purchased four
shopping centers located in Richmond, Virginia for an approximate purchase
price of $20.3 million. The shopping centers are Glen Lea, anchored by
Winn-Dixie Supermarket; Hanover Village, anchored by Farm Fresh
Supermarket; Laburnum Square, anchored by Hannaford Brothers Supermarket;
and Laburnum Park, anchored by Ukrops Supermarket. The acquisition was
financed through the issuance of approximately 358,000 shares of Preferred
Stock with a value of approximately $8.1 million, and cash of approximately
$12.2 million.
F-11
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
On October 12, 1995, the Company purchased Kenhorst Plaza Shopping Center
in Reading, Pennsylvania for an approximate purchase price of $11.0
million. The center is anchored by Redner's Supermarket and Rite-Aid Drugs.
The property was financed from the proceeds of the $14.2 million mortgage
loan obtained from Lutheran Brotherhood using Glen Lea, Hanover Village,
Laburnum Park and Laburnum Square as collateral.
On November 15, 1995, the Company purchased Firstfield Shopping Center
located in Gaithersburg, Maryland for an approximate price of $3.4 million.
The acquisition was financed through the issuance of approximately 36,000
shares of Preferred Stock with a value of approximately $0.8 million, a
seller provided purchase money note in the amount of approximately $2.5
million and $0.1 million cash.
On January 4, 1996, the Company purchased two shopping centers, Stefko
Boulevard Shopping Center, located in Bethlehem, Pennsylvania and 15th &
Allen Shopping Center, located in Allentown, Pennsylvania, from one seller
for an approximate purchase price of $9.3 million. The shopping centers are
each anchored by Laneco Supermarket. The acquisition was financed through
the issuance of approximately 121,000 Common Units with a value of
approximately $2.2 million, mortgage indebtedness of approximately $6.1
million and $1.0 million cash. The mortgage loan bears interest at 7.745%
per annum and is self amortizing over a 25 year period.
On March 20, 1996, the Company purchased the Clopper's Mill Village
Shopping Center located in Germantown, Maryland for an approximate purchase
price of $20.2 million. The center is anchored by Shoppers Food Warehouse
and CVS/Pharmacy. The purchase was financed with new mortgage debt of $14.5
million, the issuance of approximately 183,000 Common Units with a value of
approximately $3.5 million, the issuance of approximately 69,000 Preferred
Units with a value of approximately $1.7 million and approximately $.5
million cash. The mortgage loan bears interest at 7.18% per annum,
amortizes over a 25 year period and matures in 10 years.
On March 29, 1996, the Company purchased Centre Ridge Marketplace located
in Centreville, Virginia. The purchase price of the property was $5.5
million. On June 1, 1996, the Company purchased the Superfresh Supermarket
building, which anchors the shopping center for $3.0 million. The Company
expects to spend approximately $2.1 million for the construction of an
additional 34,000 square feet. The total cost of the project will be
approximately $11.0 million which will be financed through a $9.0 million
construction loan and $2.0 million of cash. A portion of the cash came from
a draw on the Company's line of credit.
On April 29, 1996, the Company purchased Takoma Park Shopping Center
located in Takoma Park, Maryland for an approximate purchase price of $4.6
million. The center is anchored by Shoppers Food Warehouse. The purchase
was financed with new mortgage debt of $2.4 million and a draw on the
Company's line of credit in the amount of $2.1 million and $0.1 million
cash. The Company plans on renovating the shopping center at a cost of
approximately $.8 million. The work is expected to be completed by October
1996 and will be financed through additional proceeds from the current
first trust lender.
On June 7, 1996, the Company purchased Southside Marketplace shopping
center located in Baltimore, Maryland for an approximate purchase price of
$11.0 million. The center is anchored by Metro Foods and Rite Aid Drugs.
The purchase was financed through the assumption of an $8.1 million first
trust mortgage and a draw on the Company's line of credit in the amount of
approximately $2.9 million.
The following unaudited pro forma condensed consolidated results of
operations are presented as if the acquisitions had occurred on January 1
of the period presented. In preparing the pro forma data, adjustments have
been made for the June 1995 Offering transactions. The pro forma
information is provided for information purposes only. It is based on
historical information and does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future results
of operations of the Company.
F-12
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- ------------
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Total revenues........................................ $ 31,373 $ 27,837 $ 37,865
--------- --------- ---------
Expenses:
Property operating and maintenance.................. 7,943 6,560 9,074
General and administrative.......................... 2,348 2,152 2,831
Interest............................................ 11,800 10,886 14,856
Depreciation and amortization....................... 6,031 5,402 7,419
----- ----- -----
Total Expenses................................. 28,122 25,000 34,180
------ ------ ------
Income before income from Management Company, minority
interest and distributions to Preferred
Stockholders........................................ 3,251 2,837 3,685
Income from Management Company........................ 97 361 449
-- --- ---
Income before minority interest and distributions to
Preferred Stockholders.............................. 3,348 3,198 4,134
Income allocated to minority interest................. (516) (422) (637)
---- ---- ----
Income before distributions to Preferred
Stockholders........................................ 2,832 2,776 3,497
Distributions to Preferred Stockholders............... (4,231) (4,231) (5,642)
------ ------ ------
Loss allocated to Common Stockholders................. $ (1,399) $ (1,455) $ (2,145)
========= ========= =========
Net loss per common share............................. $ (0.43) $ (0.45) $ (0.66)
========= ========= =========
</TABLE>
3. SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash transactions for the nine months ended September 30, 1996
and 1995 and were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Liabilities assumed in purchase of rental properties.......................... $ 8,097 $ 11,723
Common units in the Operating Partnership issued in connection with the
purchase of rental properties............................................... -- $ 1,630
Convertible Preferred Stock issued in connection with the Purchase of UDR
Properties.................................................................. -- $ 8,055
Adjustment for minority interest's ownership of the operating partnership $ 1,485 $ 3,560
Accrual of cost of raising equity capital..................................... -- $ 474
Recognition of excess minority interest share of losses previously allocated
to common stockholders...................................................... -- $ 647
</TABLE>
F-13
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
4. ENVIRONMENTAL
The Company, as an owner of real estate, is subject to various
environmental laws of Federal and local governments. Compliance by the
Company with existing laws has not had a material adverse effect on its
financial condition and management does not believe it will have such an
effect in the future. However, the Company cannot predict the impact of new
or changed laws or regulations on its current Properties.
All of the Properties have been subjected to Phase I environmental audits.
Such audits have not revealed, nor is management aware of any environmental
liability that management believes would have a material adverse impact on
the consolidated financial position, results from operations or liquidity,
including the two situations discussed below. Management is unaware of any
instances in which it would incur and be financially responsible for any
material environmental costs if any or all Properties were sold, disposed
of or abandoned.
Contamination caused by dry cleaning solvents has been detected in ground
water below the Penn Station Shopping Center. The source of the
contamination has not been determined. Potential sources include a dry
cleaner tenant at the Penn Station Shopping Center and a dry cleaner
located in an adjacent property. Sampling conducted at the site indicates
that the contamination is limited and is unlikely to have any effect on
human health. The Company has made a request for closure to the State of
Maryland. Management believes that there is very little exposure at this
time, and therefore has not recorded an accrued environmental clean-up
liability.
Petroleum has been detected in the soil of a parcel adjacent to Fox Mill
Shopping Center on property occupied by Exxon Corporation ('Exxon') for use
as a gas station (the 'Exxon Station'). Exxon has taken steps to remediate
the petroleum in and around the Exxon Station, which is located
down-gradient from the Fox Mill Shopping Center. Exxon has agreed to take
full responsibility for the remediation of such petroleum. Currently, there
has been no contamination of the Company's property and none is expected to
occur. In addition, a dry cleaning solvent has been detected in the
groundwater below the Fox Mill Shopping Center. A groundwater pump and
treatment system, approved by the Virginia Water Control Board, was
installed in July 1992, and was operating until recently when the Control
Board ordered quarterly sampling to determine if further remediation is
necessary. The cost of running the pumps and monitoring the contamination
is approximately $10 per annum. The previous owner of the Fox Mill Shopping
Center has agreed to fully remediate the groundwater contamination.
Management does not believe that it has a material probable liability,
notwithstanding the pledge of the previous owner and the Company believes
that there is minimal exposure at this time, and therefore has not recorded
an accrued environmental clean-up liability.
5. SUBSEQUENT EVENTS
On October 19, 1996, the Board of Directors declared a distribution of
$0.4875 and $.6094 per share of Common Stock and Preferred Stock,
respectively to shareholders of record as of November 1, 1996, paid on
November 15, 1996.
F-14
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of First Washington Realty Trust, Inc.
We have audited the accompanying consolidated balance sheets of First
Washington Realty Trust, Inc. and Subsidiaries, as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
management of First Washington Realty Trust, Inc. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Washington Realty Trust, Inc. and Subsidiaries as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
February 9, 1996
F-15
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1995 and 1994
(dollars in thousands except share data)
<TABLE>
<CAPTION>
1995 1994
---- ----
ASSETS
<S> <C> <C>
Rental properties:
Land.................................................................................... $ 42,420 $ 32,417
Buildings and improvements.............................................................. 185,672 142,796
------- -------
228,092 175,213
Accumulated depreciation................................................................ (22,775) (17,241)
------- -------
Rental properties, net.................................................................. 205,317 157,972
Cash and equivalents...................................................................... 7,806 1,113
Tenant receivables, net................................................................... 3,214 2,550
Deferred financing costs, net............................................................. 5,690 7,228
Other assets.............................................................................. 5,378 3,624
----- -----
Total assets.................................................................... $ 227,405 $ 172,487
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................................................................. $ 116,182 $ 89,858
Debentures.............................................................................. 25,000 25,000
Accounts payable and accrued expenses................................................... 4,059 2,620
Advances due Principals................................................................. -- 447
------- -------
Total liabilities............................................................... 145,241 117,925
Minority interest......................................................................... 11,088 8,580
Stockholders' equity:
Convertible preferred stock $.01 par value, 3,750,000 shares designated; 2,314,189 and
1,920,000 shares issued and outstanding, respectively..................................... 23 19
Common stock $.01 par value, 90,000,000 shares authorized; 3,189,549 and 1,574,359
shares issued and outstanding, respectively............................................... 32 16
Additional paid-in capital................................................................ 80,699 48,245
Accumulated distributions in excess of earnings........................................... (9,678) (2,298)
------ ------
Total stockholders' equity...................................................... 71,076 45,982
------ ------
Total liabilities and stockholders' equity...................................... $ 227,405 $ 172,487
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Minimum rents.................................................................. $ 23,276 $ 14,701 $ 10,594
Percentage rents............................................................... 495 255 68
Tenant reimbursements.......................................................... 4,362 2,823 1,889
Third-party fees............................................................... -- 1,912 4,396
Other income................................................................... 1,447 508 245
----- --- ---
Total revenues............................................................ 29,580 20,199 17,192
------ ------ ------
Expenses:
Property operating and maintenance............................................. 7,229 6,299 5,137
General and administrative..................................................... 2,831 1,356 2,665
Interest....................................................................... 11,230 9,301 7,909
Depreciation and amortization.................................................. 5,808 4,579 2,721
----- ----- -----
Total expenses............................................................ 27,098 21,535 18,432
------ ------ ------
Income (loss) before income from Management Company, extraordinary item,
distribution to Preferred Stockholders and minority interest................... 2,482 (1,336) (1,240)
Income from Management Company................................................... 449 500 --
--- --- -----
Income (loss) before extraordinary item, distributions to Preferred Stockholders
and minority interest.......................................................... 2,931 (836) (1,240)
Extraordinary item--Gain on early extinguishment of debt and debt
restructuring.................................................................. -- 2,251 2,665
----- ----- -----
Income before distributions to Preferred Stockholders and minority interest...... 2,931 1,415 $ 1,425
======
Income allocated to minority interest............................................ (602) (1,101)
---- ------
Income before distributions to Preferred Stockholders............................ 2,329 314
Distributions to Preferred Stockholders.......................................... (5,117) (1,811)
------ ------
Loss allocated to Common Stockholders............................................ $ (2,788) $ (1,497)
========= =========
Net loss per Common Share........................................................ $ (1.19) $ (0.95)
========= =========
Shares of Common Stock, in thousands............................................. 2,351 1,574
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
CONVERTIBLE ADDITIONAL DISTRIBUTIONS
COMMON PREFERRED PAID IN EXCESS ACCUMULATED
STOCK STOCK IN CAPITAL OF EARNINGS DEFICIT TOTAL
----- ----- ---------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992...... $ $ $ $ $ (16,437) $ (16,437)
----- ------ ------ ------ -------- -------
Net income........................ 1,425 1,425
Distributions..................... (441) (441)
Contributions..................... 293 293
------ ------- ------- ------ --- ---
Balance, December 31, 1993........ (15,160) (15,160)
Common stock issued in connection
with June 1994 Offering
(1,282,051 shares).............. 13 24,987 25,000
Common stock issued in exchange
for $4 million note due from
Management Company (189,744
shares)......................... 2 (2)
Stock issued to Farallon (102,564
shares)......................... 1 1,999 2,000
Convertible Preferred Stock issued
in connection with June 1994
Offering (1,920,000 shares)..... 19 47,981 48,000
Cost of raising capital........... (11,902) (11,902)
Net income........................ 314 875 1,189
Cash distributions................ (2,612) (2,039) (4,651)
Pre-reorganization
contributions................... 1,772 1,772
Adjustment for deconsolidation of
Management Company.............. (204) (204)
Reclassification of accumulated
deficit upon reorganization..... (14,756) 14,756 --
Reclassification of minority
interest........................ (62) (62)
------- ------- --- ------ ------ ---
Balance, December 31, 1994........ 16 19 48,245 (2,298) -- 45,982
Net Income........................ 2,329 2,329
Issuance of Common Stock
(1,528,393 shares).............. 15 27,114 27,129
Issuance of Preferred Stock
(358,000 shares)................ 4 8,051 8,055
Issuance of Common Stock for
compensation (66,666 shares).... 1 1,182 1,183
Issuance of Preferred Stock
(36,189 shares)................. 0 787 787
Cost of raising equity capital.... (2,808) (2,808)
Cash distributions................ (9,709) (9,709)
Exchange of common units for
common shares (20,131 shares)... 119 119
Adjustment for Minority Interest's
ownership of the Operating
Partnership..................... (1,991) (1,991)
------- ------- ------- ------ ------- ------
Balance, December 31, 1995........ $ 32 $ 23 $ 80,699 ($ 9,678) $ -- $ 71,076
========= ========= ========= ========= ======== =========
</TABLE>
F-18
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Income before distributions to Preferred Stockholders........................... $ 2,329 $ 314 $ 1,425
Adjustment to reconcile net cash provided by operating activities:
Income allocated to minority interest......................................... 602 1,101 --
Depreciation and amortization................................................. 5,808 4,579 2,721
Amortization of deferred financing costs and loan discounts................... 2,260 1,308 216
Compensation paid or payable in company stock................................. 1,800 -- --
Provision for uncollectible accounts.......................................... 483 941 318
Gain on early extinguishment of debt and debt restructuring................... -- (2,251) (2,665)
Recognition of deferred rent.................................................. (855) 537 30
Net changes in:
Tenant receivables.......................................................... (292) (1,336) (522)
Other assets................................................................ (2,160) (1,048) (417)
Account payable and accrued expenses........................................ (3) (981) (275)
Equity in earnings of Management Company.................................... 31 -- --
-- -------- -------
Net cash provided by operating activities.............................. 10,003 3,164 831
------ ----- ---
Investing activities:
Additions to rental properties.................................................. (2,067) (3,301) (515)
Purchase of rental properties................................................... (27,917) (52,935) --
Sale of land.................................................................... -- -- 65
Distributions from Management Company........................................... 100 -- --
-------- -------- -------
Net cash used in investing activities.................................. (29,884) (56,236) (450)
-------- -------- -------
Financing activities:
Proceeds from mortgage notes.................................................... 16,720 40,834 5,801
Proceeds from Debentures........................................................ -- 25,000 --
Proceeds from sale of Common Stock.............................................. 27,129 25,000 --
Proceeds from sale of Preferred Stock........................................... -- 48,000 --
Cost of raising equity capital.................................................. (2,680) (8,962) --
Repayment on mortgage notes..................................................... (2,260) (63,800) (5,395)
Additions to deferred financing costs........................................... (581) (8,032) (300)
(Reduction in) addition to Advances due Principals.............................. (447) -- (487)
Establishment of Lender escrows................................................. -- (737) --
Prepayment penalties............................................................ -- (276) --
Distributions paid--Pre-reorganization.......................................... -- (2,039) (441)
Distributions paid to Preferred Stockholders.................................... (5,117) (1,811) --
Distributions paid to Common Stockholders....................................... (4,593) (801) --
Distributions paid to minority interest......................................... (1,597) (509) --
Contributions--Pre-reorganization............................................... -- 1,772 293
Deconsolidation of Management Company........................................... -- (24) --
------ --- -------
Net cash provided by (used in) financing activities.................... 26,574 53,615 (529)
------ ------ ----
Net increase (decrease) in cash and equivalents................................. 6,693 543 (148)
Cash and equivalents, beginning of period....................................... 1,113 570 718
----- --- ---
Cash and equivalents, end of period............................................. $ 7,806 $ 1,113 $ 570
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
1. ORGANIZATION AND BUSINESS
First Washington Realty Trust, Inc. and subsidiaries (collectively, the
'Company') is the successor to substantially all of the interests of First
Washington Management, Inc. ('FWM'), its affiliates and certain others in a
portfolio of 14 retail and two multifamily properties owned by FWM and its
affiliates (collectively, the 'Existing Properties'), and six properties
acquired from unrelated third parties (the 'Acquisition Properties' and
collectively, the 'Properties') all located in the Mid-Atlantic region and
the economic beneficiary of the related acquisition, property management,
renovation and third-party businesses (together with the Existing
Properties, the 'FWM Group' or 'Predecessor') through the issuance of
1,282,051 and 1,920,000 shares of Common and Convertible Preferred Stock,
respectively, (the 'Offering') of the Company.
The Company, incorporated in Maryland in April 1994, is self-managed and
self-administered and has elected to be taxed as a real estate investment
trust ('REIT') under the Internal Revenue Code of 1986, as amended (the
'Code').
On June 27, 1994, the Company completed a private placement offering (the
'June 1994 Offering') of 1,920,000 shares of 9.75% Series A Cumulative
Participating Convertible Preferred Stock ('Preferred Stock') with a $0.01
par value per share and a liquidation preference of $25.00 per share, and
1,282,051 shares of $0.01 par value Common Stock. The June 1994 Offering
price per share of Preferred Stock and Common Stock was $25.00 and $19.50,
respectively, resulting in gross offering proceeds of $73.0 million. Net of
Initial Purchaser's Discount/Placement Agent's fee and total estimated
offering expenses, the Company received approximately $63.1 million in
proceeds.
Simultaneously with the June 1994 Offering, the Company was admitted as the
sole general partner of First Washington Realty Limited Partnership (the
'Operating Partnership'). The transactions leading to the admittance of the
Company into the Operating Partnership were as follows:
The Operating Partnership was formed via the contribution of
substantially all the assets of or interests in the FWM Properties by
the owners, net of related mortgage indebtedness. In addition, certain
of the Principals contributed a $4.0 million promissory note with no
cost basis (the 'FWM Note') due from First Washington Management, Inc.
('FWM'), operator of the related acquisition, property management,
leasing and brokerage business, to the Company in exchange for 189,744
shares of Common Stock. The Company was admitted as the sole general
partner of the Operating Partnership, receiving an approximate
ownership interest of 83.5% in exchange for contributing the net June
1994 Offering proceeds and the FWM Note.
The net proceeds of the June 1994 Offering, together with borrowings
of $38.5 million under new mortgage loans collateralized by certain of
the Properties and the issuance of $25.0 million of Exchangeable
Debentures, were used to repay indebtedness of $68.1 million including
approximately $3.1 million for prepaid interest and amortization,
prepayment penalties and term extension fees; to purchase the
Acquisition Properties at a cost of $51.9 million; to pay expenses in
connection with the Formation Transactions of $6.5 million; and, to
fund working capital. The original owners' interests in the properties
were converted into 337,732 limited partnership units, including 2,564
units received by the Principals in connection with their contribution
of all of the non-voting preferred stock entitled to 99% of the cash
flow of FWM, which are exchangeable on a one-for-one basis for shares
of the Company's common stock.
Farallon Capital Management, Inc. ('Farallon'), a previously unrelated third
party, along with certain of its affiliates were reimbursed approximately
$1.1 million advanced in connection with their funding of certain expenses
relating to the Offering and received 102,564 shares of Common Stock with a
value of $2.0 million
F-20
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
based upon the June 1994 Offering price of $19.50 per share. The Common
Stock issued was recorded at its fair value with a corresponding increase
in costs of raising capital.
The accompanying financial statements for the periods prior to the REIT
formation are presented on a combined historical cost basis due to their
common control and management. The exchange of the Predecessor for
interests in the Operating Partnership was accounted for as a
reorganization of entities under common control. As such, these assets and
liabilities were transferred and accounted for at historical cost in a
manner similar to that in a pooling of interests.
The Company's assets are held by, and all its operations conducted through,
the Operating Partnership and FWM. As of December 31, 1995, the Company and
the Operating Partnership, including subsidiary partnerships, collectively
owned 100% of the properties. Due to the Company's ability, as the general
partner, to exercise both financial and operational control over the
Operating Partnership, the Operating Partnership is consolidated for
financial reporting purposes. Subsequent to the admittance of the Company,
allocation of net income to the limited partners of the Operating
Partnership is based on their respective partnership interests and is
reflected in the accompanying Consolidated Financial Statements as minority
interests. Losses allocable to the limited partners in excess of their
basis are allocated to the Common Stockholders as the limited partners have
no requirement to fund losses.
The Company's investment in the preferred stock of FWM is accounted for
under the equity method of accounting. In addition to receiving fees under
third-party management, leasing and brokerage agreements, FWM manages all
the properties owned by the Operating Partnership in exchange for a fee.
On September 14, 1994, the Company filed a registration statement with the
Securities and Exchange Commission to register shares issued or reserved
for issuance pursuant to the June 1994 Offering. The registration statement
was declared effective on December 15, 1994.
On June 27, 1995, the Company completed a public offering of 1,450,000
shares of Common stock (the 'June 1995 offering'). The shares of stock were
priced at $17.75 per share, resulting in gross offering proceeds of $25.7
million. The Company netted $23.0 million after deducting the underwriters
discount and estimated offering expenses of $2.7 million.
On July 27, 1995, an additional 78,393 shares of Common Stock were issued
pursuant to the exercise of a portion of the underwriters over-allotment
option. The Company received additional proceeds of $1.3 million net of the
underwriters discount.
The Company's financial results are affected by general economic conditions
in the markets in which its properties are located. An economic recession,
or other adverse changes in general or local economic conditions, could
result in the inability of some existing tenants of the Company to meet
their lease obligations and could otherwise adversely affect the Company's
ability to attract or retain tenants. The Retail Properties are typically
anchored by supermarkets, drug stores and other consumer necessity and
service retailers which usually offer day-to-day necessities rather than
luxury items. These types of tenants, in the experience of the Company,
generally maintain more consistent sales performance during periods of
adverse economic conditions.
2. ACQUISITION OF RENTAL PROPERTIES
With the proceeds from the June 1994 Offering, the Company acquired six
additional retail properties (collectively, the 'Acquisition Properties'),
net of mortgage debt assumed, for an aggregate purchase price of
approximately $83.8 million. The properties were acquired for approximately
$51.9 million in cash, the assumption of approximately $14.4 million of
debt, including purchase money notes exchangeable into either
F-21
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
shares of Convertible Preferred Stock or Common Stock (see Note 3),
issuance of 352,000 Exchangeable Preferred Units and net of an additional
$8.7 million of debt assumed and repaid. The acquisitions were accounted
for using the purchase method of accounting.
On June 1, 1995, the Company purchased the Festival at Woodholme Shopping
Center located in Baltimore, Maryland for an approximate price of $14.3
million. The acquisition was financed through the issuance of approximately
96,000 Operating Partnership common units with a value of approximately
$1.6 million and assumed mortgage of indebtedness of $12.7 million.
Concurrent with the closing, the Company made a $1.0 million mortgage
curtailment. The mortgage bears interest at 9.6% per annum and is payable
monthly based on a 28 year amortization schedule. The loan is due in April
2000. The center is anchored by Sutton Place Gourmet and Pier One Imports.
On June 30, 1995 (effective July 1, 1995), the Company purchased four
shopping centers located in Richmond, Virginia for an approximate purchase
price of $20.3 million. The shopping centers are Glen Lea, anchored by
Winn-Dixie Supermarket; Hanover Village, anchored by Farm Fresh Supermarket
Supermarket; Laburnum Square, anchored by Hannaford Brothers; and Laburnum
Park, anchored by Ukrops Supermarket. The acquisition was financed through
the issuance of approximately 358,000 shares of Preferred Stock with a
value of approximately $8.1 million, and cash of approximately $12.2
million.
The Company obtained a loan commitment using the four Richmond properties
as collateral, in the amount of $14.2 million which has a term of ten
years, and bears interest at 8.57% per annum, with monthly payments based
on a 22 year amortization schedule. The loan closed on October 6, 1995.
On October 12, 1995, the Company purchased Kenhorst Plaza Shopping Center
in Reading, Pennsylvania for an approximate purchase price of $11.0
million. The center is anchored by Redner's Supermarket and Rite-Aid Drugs.
The property was financed from the proceeds of the $14.2 million loan
discussed above.
On November 15, 1995, the Company purchased Firstfield Shopping Center
located in Gaithersburg, Maryland for an approximate price of $3.4 million.
The acquisition was financed through the issuance of approximately 36,000
shares of Preferred Stock with a value of approximately $0.8 million, a
seller provided purchase money note in the amount of approximately $2.5
million and $0.1 million cash.
The following unaudited pro forma condensed combined results of operations
for the years ended December 31, 1995 and 1994 are presented as if the
acquisitions of the rental properties occurred on January 1 of the period
presented. In preparing the pro forma data, adjustments have been made for
the June 1995 Offering and the June 1994 Offering and Formation
transactions. The proforma statements are provided for information purposes
only. They are based on historical information and do not necessarily
reflect the actual results that would have occurred nor are they
necessarily indicative of future results of operations of the Company.
F-22
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
1995 1994
---- ----
(UNAUDITED)
<S> <C> <C>
Total revenues.................................................................. $ 34,017 $ 31,026
Expenses:
Property operating and maintenance............................................ 8,048 8,693
General and administrative.................................................... 2,831 603
Interest...................................................................... 12,666 12,624
Depreciation and amortization................................................. 6,606 6,882
----- -----
30,151 28,802
------ ------
Income before income from Management Company and minority interest.............. 3,866 2,224
Income from Management Company.................................................. 449 700
--- ---
Income before distributions to preferred stockholders and minority interest..... 4,315 2,924
Income allocated to minority interest........................................... (570) (386)
Distributions to preferred stockholders......................................... (5,641) (5,641)
------ ------
Loss allocated to common stockholders........................................... $ (1,896) $ (3,103)
========= =========
Net loss per common share....................................................... $ (0.59) $ (0.97)
========= =========
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its majority owned partnerships, including the Operating Partnership.
All significant intercompany balances and transactions have been
eliminated. Combined financial statements, including the accounts after
elimination of all transactions between business entities included in the
FWM Group, are presented prior to the June 1994 Offering.
Following the formation of the Company and the recapitalization of FWM, the
accounts of the Management Affiliate were deconsolidated, resulting in a
net charge to accumulated deficit of $204.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates involve judgments with respect
to, among other things, various future economic factors which are difficult
to predict and are beyond the control of the Company. Therefore, actual
amounts could differ from these estimates.
Rental Properties
Rental properties are carried at the lower of cost less accumulated
depreciation or net realizable value. Depreciation is computed on the
straight-line basis over the estimated useful lives of the assets. The
Company uses a 27.5-to 31.5-year estimated life for buildings and 5-to
31.5-year estimated life for capital improvements. Tenant improvement
expenditures are depreciated over the term of the related lease.
Expenditures for ordinary maintenance and repairs are charged to operations
as incurred while significant
F-23
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
renovations and improvements that improve and/or extend the useful life of
the asset are capitalized and depreciated over the estimated useful life.
In determining whether there has been any impairment losses, the Company
determines that the property's net projected undiscounted cash flow before
debt service is sufficient to recover the cost of the asset. An impairment
loss would result if the carrying value were greater than the cumulative
undiscounted net cash flow. The amount of an impairment would be calculated
by determining the difference between the carrying value and the cumulative
discounted net cash flow.
Cash and Equivalents
All demand, money market accounts, certificates of deposit and repurchase
agreement accounts with an original maturity of three months or less at
date of purchase are considered to be cash and equivalents. The Company
places its temporary cash investments with high quality financial
institutions. The deposits at such financial institutions are guaranteed by
the Federal Deposit Insurance Corporation ('FDIC') up to $100. At various
times during the year, the Company has deposits in excess of the FDIC
insurance limit. In addition, the Company is required to maintain escrow
deposits with certain lenders. Such amounts which are included in other
assets, are also in excess of FDIC insurance limits.
Deferred Lease Costs
Deferred lease costs consist of fees and costs incurred to initiate and
renew operating leases, including amounts paid to FWM, and are amortized
over the lease term and are included in other assets.
Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain
long-term financing and are being amortized over the terms of the
respective loans using the effective interest method. Unamortized deferred
financing costs are charged to expense when debt is retired before the
maturity date. Accumulated amortization of deferred financing costs at
December 31, 1995 and 1994 was $3,492 and $1,373, respectively. Deferred
financing cost amortization expense is included in interest expense and
amounted to $2,260, $1,308 and $216 during 1995, 1994, and 1993
respectively.
Revenue Recognition
Rental income attributable to leases is recorded when due from tenants.
Certain of the leases provide for escalating base rents, which are
recognized on a straight-line basis over the term of the agreement. Rents
accrued, but not yet paid, are included in accounts receivable. As of
December 31, 1995 and 1994, the amounts of these straight-line receivables
were $2,396 and $1,541, respectively. The amount of rental income from the
straight-lining of rents amounted to $855, ($603) and ($30) for the years
ended 1995, 1994 and 1993, respectively. Certain of the leases also provide
for additional revenue to be paid based upon the level of sales achieved by
the lessee. Most leases provide for tenant reimbursement of common area
maintenance and other operating expenses.
An allowance for doubtful accounts has been provided against the portion of
tenant accounts receivable which is estimated to be uncollectible. Tenant
accounts receivable in the accompanying combined balance sheets are shown
net of an allowance for doubtful accounts of $418 and $391 as of December
31, 1995, and 1994, respectively.
F-24
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
Income Taxes
The Company operates and intends to continue to operate in a manner
intended to qualify as a REIT under the Code. A trust which distributes at
least 95% of its taxable income to its shareholders each year and which
meets certain other conditions will not be taxed on that portion of its
taxable income which is distributed to its shareholders. During 1995,
common and preferred distributions paid of $0 and $1.90 per share are
treated as ordinary income, respectively and $1.95 and $0.54 are treated as
a return of capital, respectively.
If the Company fails to qualify as a REIT in any tax year, the Company will
be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Even if the
company qualifies for taxation as a REIT, the Company may be subject to
certain state and local taxes on its income and property and federal income
and excise taxes on its undistributed income.
Loss per Share
Loss per share is calculated by dividing income after minority interest,
less preferred distributions by the weighted average number of common
shares outstanding during the respective periods. Options outstanding are
not included since their inclusion would be anti-dilutive. The assumed
conversion of the Preferred Stock as of the date of issuance would have
been anti-dilutive. The assumed conversion of the partnership units held by
the limited partners of the Operating Partnership as of the REIT formation,
which would result in the elimination of earnings and losses allocated to
minority interests would have no effect for 1995 and would have been
anti-dilutive in 1994, as the allocation of losses to limited partners was
suspended due to their lack of responsibility to fund losses. The
Debentures, which are exchangeable into shares of Convertible Preferred
Stock, do not meet the criteria for classification as common stock
equivalents.
Minority Interest
Minority interest represents the limited partners' interest of 422,802, and
347,056 common units as of December 31, 1995 and 1994, respectively, and
352,000 Exchangeable Preferred Units in the Operating Partnership. The
Exchangeable Preferred Units have an aggregate liquidation preference of
$8,800. At the date of formation, the minority interest was established
based on their interest in the value of the Operating Partnership.
Annually, the income is assigned to Preferred Stockholders to the extent of
their distributions and amounts necessary to maintain their balance at its
liquidation value. Any remaining income is assigned to minority Common
Stockholders based on their percentage interest during the period the
income is generated. Losses of the Operating Partnership are allocated to
minority Common Stockholders based on their percentage interest to the
extent that they have capital available. In the event that consolidated net
assets decrease below the Preferred Stock liquidation value, operating
losses are allocated to the Preferred minority interest based on their
percentage ownership. Additionally, the impact on stockholders equity of
changes in minority interest percentage ownership caused by the issuance of
common stock or conversions of preferred stock are reflected in additional
paid in capital.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS 121, which is required to be adopted by January 1, 1996,
established accounting standards for the impairment of long-lived assets,
certain intangible assets and cost in excess of net assets related to those
assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
F-25
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation. SFAS 123, which is required to be adopted by January 1, 1996,
established financial accounting and reporting standards for issuance of
equity instruments to acquire goods and services from non-employees. The
Company intends to continue to measure compensation using the accounting
prescribed by APB Opinion No. 25.
The Company does not expect that adoption of SFAS 121 and 123 will have a
material effect on its consolidated financial position, consolidated
statement of income or liquidity.
4. RENTAL PROPERTIES
Depreciation expense for each of the years ended December 31, 1995, 1994,
and 1993 was $5,534, $4,223, and $2,296, respectively.
For each of the years ended December 31, 1995, 1994, and 1993, maintenance
and repairs expense was $1,872, $1,552, and $771, respectively, and real
estate taxes were $2,044, $1,484, and $1,109, respectively. Such amounts
are included in property operating and maintenance expense in the
accompanying consolidated statements of operations.
5. DEFERRED FINANCING COSTS
As part of the June 1994 Offering, the Company purchased an interest rate
cap, prepaid some mortgage interest and incurred various finance charges
and other costs associated with the mortgage loans. These costs have been
recorded as deferred finance charges and are amortized over the life of the
related loans. A summary of the charges incurred during 1994 is as follows:
Purchase of interest rate cap......................... $ 3,204
Buy down of interest rates............................ 2,751
Lender's points, fees and other charges............... 2,077
-----
Total incurred................................. $ 8,032
=========
F-26
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
6. MORTGAGE DEBT
Mortgage and other notes payable consisted of the following as of December
31, 1995 and 1994, respectively:
1995 1994
---- ----
Mortgage notes with fixed interest at:
8.50%, maturing July 1997........................ $ $ 2,000
6.50%, maturing June 1998........................ 4,151 4,151
6.50%, maturing July 1999(f)..................... 3,587 3,587
6.50%, maturing July 1999........................ 3,826 3,826
6.70%, maturing July 1999(a)(b)(c)............... 38,500 38,500
7.00%, maturing July 1999........................ 3,500 3,518
7.00%, maturing July 1999........................ 3,656 3,656
9.60% maturing April 2000........................ 11,671 --
5.00%, maturing July 2000(d)..................... 4,308 4,167
6.50% to 8.00%, maturing through July 2001....... 9,332 9,325
8.57% maturing October 2005...................... 14,163 --
7.50% maturing December 2005..................... 2,520 --
6.50%, maturing April 2006....................... 7,998 7,998
----- -----
Total fixed rate notes........................... 107,212 80,728
------- ------
Mortgage notes with variable rates:
Variable maturing June 1998(e)................... 7,440 7,600
Variable maturing February 2020.................. 1,530 1,530
----- -----
Total variable rate notes........................ 8,970 9,130
----- -----
$ 116,182 $ 89,858
========== =========
(a) As part of this loan the lender required the Company to establish
escrow accounts for real estate taxes, insurance and a replacement
reserve. These escrows, totaling $512 at December 31, 1995, are
included in other assets.
(b) The Company borrowed $38.5 million under new mortgage loans
(collectively, the 'Nomura Mortgage Loan') collateralized by five of
the Properties. These loans, which bear interest at 30-day LIBOR
(5.69% at December 31, 1995) plus 2.0% and mature on July 1, 1999,
are closed to prepayment for 48 months and can be prepaid thereafter
based on a 1.50% declining prepayment penalty. To mitigate its
exposure to these variable rate loans, the Company entered into a
five year interest rate protection agreement for a notional amount
of $38.5 million that is effective through the loans maturity, and
caps the interest rate at 6.20% for year one, 6.70% for year two,
and 7.70% for years three through five. The financing cost of the
interest rate protection agreement of approximately $3.2 million, is
being amortized over the life of the agreement using the effective
interest rate method resulting in an effective interest rate on the
Nomura Mortgage Loan of approximately 8.9% per annum. The estimated
fair market value of the interest rate protection agreement, as
determined by the issuing financial institution, was approximately
$1.2 million at December 31, 1995.
F-27
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
(c) In December 1995, the Company entered into two interest rate swap
contracts with a notional amount of $38.5 million. The Company
intends to hold such contracts, the first of which commences in July
1996 and expires in June 1999 and the second of which commences in
July 1999 and expires in December 2003,until their expiration dates.
The purpose of the swaps is to fix the interest rate on the $38.5
million Nomura loan through its expiration date of June 1999 at
7.09% and to mitigate any interest rate exposure upon refinancing
the loan by fixing the LIBOR rate at 6.375% for the period beginning
July 1999 through December 2003. Under the terms of the interest
rate contract, the Company will be paying a fixed rate of 5.09% to
the Counter Party through June 1999 and a fixed rate of 6.375%
through December 2003. The Company will be receiving variable
payments from the Counter Party based on 30 day libor through
December 2003. The Counter Party has as collateral a $2.4 million
restriction on the $5.8 million line of credit it provided the
Company (see below). The fair market value of each of the interest
rate swaps is determined by the amounts at which they could be
settled. If the Company had settled these agreements with the
counter party on December 31, 1995, the Company would have paid
approximately $1.2 million.
(d) In connection with the purchase of First State Plaza and Valley
Centre, the Company issued a $4.8 million note (the 'FS Note')
bearing interest at 5.0% per annum, plus a participation under
certain circumstances as described in the agreement, and is
exchangeable for shares of Common Stock. The FS Note was recorded
net of a discount of $703 of which $492 remains outstanding,
reflecting an effective interest rate of approximately 8.2% as the
stated interest rate represented a below market rate. This discount
is being amortized over the life of the loan using the effective
interest method.
(e) The Company assumed Bond Obligations of $7.6 million collateralized
by Mayfair Shopping Center. The Bond Obligations bear interest at a
variable rate, plus a credit enhancement fee of 2.0%. The variable
rate is determined weekly at the rate necessary to produce a bid in
the process of remarketing the Bond Obligations equal to par plus
accrued interest, based on comparable issues in the market. The
interest rate, including the 2.0% credit enhancement fee, was 7.35%
at December 31, 1995. The Bond Obligations have a stated maturity of
February 1, 2010, however, the letter of credit supporting the Bond
Obligations expires on June 24, 1998.
(f) $1,750 of this loan was repaid with proceeds from the June 1994
Offering. As part of this transaction, the lender waived $787 of
accrued interest. This has been recorded as an extraordinary item
during 1994.
A portion of the net proceeds from the June 1994 Offering, along with
proceeds from the aforementioned new borrowings were used to repay
indebtedness of $68.1 million, including approximately $3.1 million for
prepaid and escrowed interest and principal amortization, prepayment
penalties and loan extension fees. The Operating Partnership recorded
extraordinary gains of approximately $2,251, including $787 of accrued
interest, resulting from the early extinguishment of debt at a discount.
In June 1993, the Company purchased at a discount the original debt,
which bore interest at the prime rate plus 1.0% and matured on December
31, 1993, including accrued interest of $54, for a payment of $4,578 and
a note for $1,044. The $1,618 discount has been reflected as an
extraordinary gain in 1993.
In August 1992, an FWM-affiliated partnership owning the Penn Station
Shopping Center was voluntarily placed in Chapter 11 under the United
States Bankruptcy Code as a result of the lender's unwillingness to
extend the loan in the ordinary course on terms and conditions acceptable
to the partnership. Among other matters, the lender, as a condition to
the extension, endeavored to convert the loan from non-recourse to
personal recourse. In July 1993, a consensual plan was approved by all
parties and the loan was modified and extended, on a non-recourse basis,
to provide for capitalization of $800 of accrued interest, bringing the
F-28
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
principal balance to $20,000, waiver of approximately $897 of accrued
interest and an extension of the maturity through August 1998. Interest
would accrue at the rate of 8% per annum through August 1995, increasing
to 8.5% for the year ending August 1996 and increasing to 8.75% for the
remainder of the term, resulting in an effective rate of approximately
8.4% per annum. Principal amortization, based on a 30-year amortization
schedule, would begin in September 1995. The original note of $19,200 had
accrued interest outstanding of $1,697 at July 30, 1993. Accordingly, the
Company reflected an extraordinary gain of $897 in 1993 for the forgiveness
of interest on the debt pursuant to the plan of reorganization. The note
was repaid in June 1994 from proceeds of the June 1994 Offering and an
extraordinary gain was recognized during 1994 for $1,200 less the
write-off of unamortized deferred charges of $198.
The Nomura Mortgage Loan, the Debentures (see Note 7), the Bond
Obligations, and the FS Note contain affirmative and negative covenants,
events of default and other provisions as are customarily required for
such instruments. The most restrictive covenants require the Company to
maintain a leverage ratio (total indebtedness divided by net worth) of at
least 2.50, maintain a debt service coverage ratio (net income before
interest and depreciation divided by scheduled debt service payments) of
at least 1.50 and require the Operating Partnership to maintain a net
worth of at least $57 million. Management believes that the Company is in
compliance with all restrictive covenants. In the case of mortgage loans
on four of the Properties, scheduled principal amortization for the five
years subsequent to June 27, 1994 of approximately $868 was escrowed in
an irrevocable trust at closing of the June 1994 Offering with the
corresponding note balances reduced for reporting purposes. As of
December 31, 1995, $328 was considered extinguished.
Maturities of the existing indebtedness at December 31, 1995 are as
follows for the years ending December 31:
AMOUNT
------
1996...................................................... $ 522
1997...................................................... 2,838
1998...................................................... 4,768
1999...................................................... 59,013
2000...................................................... 16,637
Thereafter................................................ 32,896
------
116,674
Less: Unamortized loan discount........................... (492)
----
$ 116,182
==========
The fair market value of the Company's mortgage debt at December 31, 1995
was approximately $116.6 million. The amount was estimated by the Company
using a discounted cash flow analysis using the Company's estimate of
current interest rates for similar notes.
The Company has entered into a line-of-credit agreement (the 'Agreement')
providing for a borrowing facility up to $5.8 million, with interest
payable monthly at a rate of LIBOR (5.69% December 31, 1995) plus 2.0%.
The Agreement, which matures June 1, 1998, is collateralized by one of
the properties and requires an annual non-refundable facility fee of $16.
The Agreement calls for the amount of the facility to be curtailed at any
point when it exceeds 75% of the appraised value of the collateral.
Interest paid for the years ended December 31, 1995, 1994, and 1993 was
$8,965, $9,114, and $7,548, respectively.
F-29
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
7. DEBENTURES
Simultaneous with the June 1994 Offering, the Company effected a private
placement with respect to $25.0 million of aggregate principal amount of
8.25% Debentures due June 27, 1999, with interest payable quarterly
beginning September 27, 1994. The Debentures are exchangeable in the
aggregate for one million shares of Convertible Preferred Stock,
representing approximately 15.4% of all shares of Common Stock (assuming
exchange/conversion of all Common Units and Convertible Preferred Stock (or
securities exchangeable into Convertible Preferred Stock or Common Stock)).
The Debentures are collateralized by two of the Properties. The fair market
value of the Debentures as of December 31, 1995 was approximately $24.5
million.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of
December 31, 1995 and 1994, respectively:
1995 1994
---- ----
Tenant Security Deposits............................ $ 993 $ 683
Accrued compensation................................ 617 --
Accounts payable and other accrued expenses......... 1,569 1,503
Accrued tenant improvement construction allowance... 700 --
Due to Management Affiliate......................... 180 434
--- ---
$ 4,059 $ 2,620
========= =========
9. PREFERRED STOCK
The Company's charter authorizes the issuance of up to 10,000,000 shares of
preferred stock, par value $.01 per share. In connection with the June 1994
Offering, the Company designated 3,500,000 (subsequently increased to
3,750,000) shares of preferred stock as Convertible Preferred Stock, of
which 1,920,000 shares were issued and remain outstanding. The Convertible
Preferred Stock has a liquidation preference equal to $25.00 per share plus
an amount equal to any accrued and unpaid dividend, (the 'Convertible
Preferred Liquidation Preference Amount'). Holders of the Convertible
Preferred Stock are entitled to receive cumulative preferential cash
dividends in an amount per share of Convertible Preferred Stock equal to
$0.6094 per quarter plus a participating dividend equal to the amount, if
any, of dividends in excess of $0.4875 per quarter with respect to the
number of shares of Common Stock into which a share of Convertible
Preferred Stock is then convertible.
Shares of Convertible Preferred are convertible on or after May 31, 1999
into shares of Common Stock, at a conversion price equal to $19.50.
F-30
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
10. SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash transactions for the year ended December 31, 1995,
and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Liabilities assumed in purchase of rental properties................................... $ 11,723 $ 22,428
Common and Preferred units in the Operating Partnership issued in connection with the
purchase of the rental properties....................................................... $ 1,630 $ 8,800
Convertible Preferred Stock issued in connection with the purchase of rental
properties............................................................................. $ 8,842 --
Common Stock issued as a fee for the funding of offering costs......................... -- $ 2,000
Accrual of cost of raising capital..................................................... $ 128 $ 940
Reclassification of accumulated deficit at June 27, 1994 to additional paid-in
capital................................................................................ -- $ 14,756
Adjustment for Minority Interest's ownership of the Operating Partnership.............. $ 1,991 $ 8,862
Deconsolidation of Management Affiliate................................................ -- $ 204
Accrual of tenant improvement construction allowance................................... $ 700 --
</TABLE>
There were no significant noncash transactions for the year ended
December 31, 1993.
The above information supplements the disclosures required by Statement
of Financial Accounting Standards No. 95-'Statement of Cash Flows.'
11. LEASE AGREEMENTS
The Company is the lessor of 27 retail properties with initial lease
terms expiring through the year 2020. Many leases are renewable for three
to five years at the lessee's option. Future minimum lease receipts under
noncancelable operating leases as of December 31, 1995 are as follows:
1996.............................................. $ 22,005
1997.............................................. 19,533
1998.............................................. 16,856
1999.............................................. 14,373
2000.............................................. 11,994
Thereafter........................................ 74,215
------
$ 158,976
===========
These future rentals do not include additional rent which may be received
from tenants for pass-through provisions in leases related to increases
in operating expenses and percentage rentals or rentals on the
multifamily properties due to their short duration.
F-31
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
12. COMMITMENTS AND CONTINGENCIES
Environmental
The Company, as an owner of real estate, is subject to various
environmental laws of Federal and local governments. Compliance by the
Company with existing laws has not had a material adverse effect on its
financial condition and management does not believe it will have such an
effect in the future. However, the Company cannot predict the impact of
new or changed laws or regulations on its current Properties.
All of the Properties have been subjected to Phase I environmental
audits. Such audits have not revealed, nor is management aware of any
environmental liability that management believes would have a material
adverse impact on the consolidated financial position, results from
operations or liquidity, including the two situations discussed below.
Management is unaware of any instances in which it would incur and be
financially responsible for any material environmental costs if any or
all Properties were sold, disposed or abandoned.
Contamination caused by dry cleaning solvents has been detected in ground
water below the Penn Station Shopping Center. The source of the
contamination has not been determined. Potential sources include a dry
cleaner tenant at the Penn Station Shopping Center and a dry cleaner
located in an adjacent property. Sampling conducted at the site indicates
that the contamination is limited and is unlikely to have any effect on
human health. The Company has made a request for closure to the State of
Maryland. Management believes that there is minimal exposure at this
time, and therefore has not recorded an accrued environmental clean-up
liability.
Petroleum has been detected in the soil of a parcel adjacent to Fox Mill
Shopping Center on property occupied by Exxon Corporation ('Exxon') for
use as a gas station (the 'Exxon Station'). Exxon has taken steps to
remediate the petroleum in and around the Exxon Station, which is located
down gradient from the Fox Mill Shopping Center. Exxon has agreed to take
full responsibility for the remediation of such petroleum. Currently,
there has been no contamination of the Company's property and none is
expected to occur. In addition, a dry cleaning solvent has been detected
in the groundwater below the Fox Mill Shopping Center. A groundwater pump
and treatment system, approved by the Virginia Water Control Board, was
installed in July 1992, and was operating until recently when the Control
Board ordered quarterly sampling to determine if further remediation is
necessary. The cost of running the pumps and monitoring the contamination
is approximately $10 per annum. The previous owner of the Fox Mill
Shopping Center has agreed to fully remediate the groundwater
contamination. Management does not believe that it has a material
probable liability, not withstanding the pledge of the previous owner and
the Company believes that there is minimal exposure at this time and
therefore has not recorded an accrued environmental clean-up liability.
Employment agreements
Two of the Company's officers have entered into three year employment
agreements. The agreements call for a base salary plus an incentive
compensation arrangement based on the Company meeting certain operating
result requirements. The incentive compensation is in the form of common
stock grants. Up to 100,000 shares of stock may be issued to each of the
two officers (or their designees). These additional shares of stock will
be recorded as additional compensation in the period earned. During 1995,
22,417 shares were issued to each of the two officers. No additional
shares were issued during 1994.
F-32
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
13. RELATED-PARTY TRANSACTIONS
The Operating Partnership owns 100% of the Preferred non-voting stock of
First Washington Management, Inc. (FWM), which entitles it to 99% of the
cash flow of FWM, which amounted to $100 and $255 in 1995 and 1994
respectively. Certain of the officers of the Company own 100% of the
Common Stock of FWM which entitles them to 1% of the cash flow of FWM,
which amounted to approximately $1 and $3 in 1995 and 1994 respectively.
In addition, the Company received $480 and $245 of interest income,
included in income from Management Affiliate, on the FWM Note in 1995 and
1994 respectively. The Company's equity in earnings of FWM for the year
ended December 31, 1995 and 1994 was ($31) and $0, respectively.
FWM provides property management, leasing and other related services to
the Company. Management and other fees paid by the Company in 1995
amounted to $1,178. Management and other fees paid by the Company during
the period from June 27, 1994 through December 31, 1994 amounted to $350.
Fees for such services were eliminated in the combined financial
statements for the periods prior to the REIT formation.
14. STOCK INCENTIVE PLAN
The Company established a stock incentive plan (the 'Stock Incentive
Plan') for the Company's directors, executive officers and other key
employees.
The Stock Incentive Plan provides that 351,540 shares of Common Stock
will be reserved for issuance. Currently, with the closing of the June
1994 Offering, the Company issued options to two officers to purchase
146,475 Shares of Common Stock each, pursuant to their respective
employment agreements. Such options vest 33 1/3% per years over 3 years,
have a life of ten years and are exercisable at $19.50 per Share. As of
December 31, 1995, no options were exercised.
The Company has also issued options to certain officers and employees to
purchase an aggregate of 35,868 Shares of Common Stock. The options have
an exercise price of $19.50 and have a term of ten years. The option
rights vest 20% per year beginning with the first anniversary date of the
grant if the employee continues to be employed by the Company. As of
December 31, 1995 no options were exercised. During 1995, 9,781 options
were forfeited.
The Company has also issued a total of 10,000 options to the four
independent board members. These options have an exercise price of $19.50
and have a term of 10 years. These option rights are vested immediately.
F-33
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
15. CONDENSED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1995 FIRST SECOND THIRD FOURTH
---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Total Revenues.............................................. $ 6,480 $ 6,608 $ 7,704 $ 8,788
Net Income (loss) before Preferred Distributions and
Minority Interest........................................... $ 979 $ 918(1)$ (78)(1)$ 1,112
Net Income (loss) allocated to Common Stockholders.......... $ (536) $ 224(1)$ (1,684)(1)$ (792)
Net Income (loss) per Common Share.......................... $ (0.34) $ 0.14 $ (0.55) $ (0.25)
1994 FIRST SECOND THIRD FOURTH
---- ----- ------ ----- ------
Total Revenues.............................................. $ 4,038 $ 4,184 $ 5,865 $ 6,112
Net Income (loss) before Preferred Distributions and
Minority Interest........................................... $ (595) $ 1,470(3) $ 383 $ 157
Net Income (loss) allocated to Common Stockholders.......... n/a(2) n/a(2) $ (1,130)(4) $ (367)
Net Income (loss) per Common Share.......................... n/a(2) n/a(2) $ (0.72) $ (0.32)
</TABLE>
(1) The decrease in net income allocated to Common Shareholders in the
third quarter was due to increases in general and administrative
expenses, operating and maintenance expenses, depreciation and
amortization expense and interest expense. The increase in these
expenses were partially offset by increased revenues. General and
administrative expenses increased due to the awarding of performance
bonuses in the form of stock grants during the third quarter. The
increases in other expenses and revenues were due to the acquisition
of five properties. In addition, there was an increase in the amount
of income allocated to minority interests in the third quarter when
compared to the previous quarter. This occurred because the common
minority interests were allocated losses in the second quarter which
were suspended from previous quarters due to lack of basis. The
common minority interests are not allocated losses if their basis
would fall below zero because they are not required to fund losses.
The common minority interests currently have basis.
(2) Not applicable--the Company commenced operations as a corporation on
June 27, 1994.
(3) Large increase in net income due to the recognition of a $2,251 gain
on early extinguishment of debt and debt restructuring.
(4) Includes reclassification of net income prior to the June 1994
offering to minority interest.
16. SUBSEQUENT EVENTS
On January 19, 1996, the Board of Directors declared a distribution of
$0.4875 and $.6094 per Common and Preferred share of stock, respectively
to shareholders of record as of February 1, 1996. On February 15, 1996,
distributions in the amount of $2,965 were paid.
On January 4, 1996, the Company purchased two shopping centers, Stefko
Boulevard Shopping Center, located in Bethlehem, Pennsylvania and 15th &
Allen Shopping Center, located in Allentown, Pennsylvania, from one seller
for an approximate purchase price of $9.3 million. The shopping centers
are each anchored by Laneco Supermarket. The acquisition was financed
through the issuance of approximately 121,000 Common Units with a value of
approximately $2.2 million, mortgage indebtedness of approximately $6.1
million and $1.0 million cash. The mortgage loan bears interest at 7.745%
per annum and is self amortizing over a 25 year period.
On March 20, 1996, the Company purchased the Clopper's Mill Village
Shopping Center located in Germantown, Maryland for an approximate
purchase price of $20.2 million. The center is anchored by Shoppers
Food Warehouse and CVS/Pharmacy. The purchase was financed with new
mortgage debt of
F-34
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(dollars in thousands, except share data)
$14.5 million, the issuance of approximately 183,000 Common Units with
a value of approximately $3.5 million, the issuance of approximately
69,000 Preferred Units with a value of approximately $1.7 million and
approximately $500,000 cash. The mortgage loan bears interest at 7.18%
per annum, amortizes over a 25 year period and matures in 10 years.
On March 29, 1996, the company purchased Centre Ridge Marketplace located
in Centreville, Virginia. The purchase price of the property was $5.5
million. The company expects to spend approximately $2.1 million for the
construction of an additional 34,000 square feet and $3.0 million for the
purchase of the building currently owned by the Superfresh Supermarket,
which anchors the shopping center. The purchase of the Superfresh
building will occur when the tenant opens for business which is expected
to take place in June 1996. The total cost of the project will be
approximately $11.0 million which will be financed through a $9.0 million
construction loan and $2.0 million of cash. A portion of the cash is
expected to come from a draw on the Company's line of credit.
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
First Washington Realty Trust, Inc.
We have audited the combined statement of revenues and certain expenses
of the New Retail Properties, as described in Note 1, for the year ended
December 31, 1995. This financial statement is the responsibility of each of
the respective New Retail Properties' management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statement of revenues
and certain expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. An audit also includes assessing the accounting
principles used and the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Form S-11 of First Washington
Realty Trust, Inc., and is not intended to be a complete presentation of the
New Retail Properties' revenues and expenses and may not be comparable to
results from future operations of the New Retail Properties.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the combined revenues and certain expenses
of the New Retail Properties for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
October 18, 1996
F-36
<PAGE>
NEW RETAIL PROPERTIES
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
(dollars in thousands)
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
Revenues:
Minimum rents......................... $ 4,292 $ 5,578
Percentage rents...................... 262 401
Tenant reimbursements................. 1,023 1,021
Other income.......................... 13 39
----- -----
Total revenues................... 5,590 7,039
----- -----
Certain expenses:
Real estate taxes..................... 494 591
Recoverable operating expenses........ 777 646
Other operating expenses.............. 66 70
----- -----
Total certain expenses........... 1,337 1,307
----- -----
Revenues in excess of certain expenses..... $ 4,253 $ 5,732
========= =========
The accompanying notes are an integral part of this combined statement of
revenues and certain expenses.
F-37
<PAGE>
NEW RETAIL PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
(dollars in thousands)
1. BASIS OF PRESENTATION
The statement of revenues and certain expenses relates to the operations of
six properties (the 'New Retail Properties') which are expected to be
acquired by First Washington Realty Limited Partnership (the 'Operating
Partnership'), whose general partner is First Washington Realty Trust, Inc.
The accompanying combined statement of revenues and certain expenses
includes the accounts of the following shopping center properties, City
Line Shopping Center located in Philadelphia, Pennsylvania, Four Mile Fork
Shopping Center located in Fredericksburg, Virginia, Kings Park Shopping
Center located in Burke, Virginia, Newtown Square Shopping Center located
in Newtown Square, Pennsylvania, Northway Shopping Center located in
Millersville, Maryland, and Shoppes of Graylyn located in Wilmington,
Delaware. The accompanying combined financial statement includes the
operations of these properties.
Rental revenues and expenses are recorded using the accrual basis of
accounting.
The accompanying combined financial statement is not representative of the
actual operations for the year presented as certain expenses which may not
be comparable to the expenses expected to be incurred by the Company in the
proposed future operations of the New Retail Properties have been excluded.
The Company is not aware of any material factors relating to the New Retail
Properties that would cause the reported financial information not to be
necessarily indicative of future operating results. Expenses excluded
consist of interest, depreciation and amortization and the following other
costs which, in the opinion of management, are not directly related to the
future operations of the New Retail Properties.
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
Management fees........................ $ 257 $ 336
Leasing commissions.................... $ 156 $ 27
Non-recurring capital expenditures..... $ 51 $ 0
Other.................................. $ 85 $ 81
2. OPERATING LEASES
In addition to minimum rent, certain tenant leases provide for the
reimbursement of certain operating expenses and/or percentage rent in the
amount of a percentage of annual gross sales in excess of a specified base
sales amount.
Minimum rents presented for the nine months ended September 30, 1996 and the
year ended December 31, 1995, contain straight-line adjustments for rental
revenue increases or abatements in accordance with generally accepted
accounting principles. The aggregate rental revenue increases (decreases)
resulting from the straight-line adjustments for the nine months ended
September 30, 1996 (unaudited) and the year ended December 31, 1995 was $(6)
and $16, respectively.
No individual tenant accounts for 10% or more of the total rents for the
nine months ended September 30, 1996 or the year ended December 31, 1995.
The New Retail Properties are leased to tenants under operating leases with
expiration dates extending to the year 2013. Minimum future base rentals
under noncancelable operating leases as of December 31, 1995 are
approximately as follows:
1996............................................................ $ 5,495
1997............................................................ 5,159
1998............................................................ 4,362
1999............................................................ 3,338
2000............................................................ 2,452
2001 and thereafter............................................. 10,309
------
$ 31,115
=========
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of First Washington Realty Trust, Inc.
We have audited the combined statement of revenues and certain expenses
of the 1996(B) Acquisition Properties, as described in Note 1, for the year
ended December 31, 1995. This financial statement is the responsibility of
each of the respective 1996(B) Acquisition Properties' management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenues and
certain expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. An audit also includes assessing the accounting
principles used and the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Form S-11 of First Washington
Realty Trust, Inc., and is not intended to be a complete presentation of the
1996(B) Acquisition Properties' revenues and expenses and may not be
comparable to results from future operations of the 1996(B) Acquisition
Properties.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the revenues and certain expenses of the
1996(B) Acquisition Properties for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
July 2, 1996
F-39
<PAGE>
1996(B) ACQUISITION PROPERTIES
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
(dollars in thousands)
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
Revenues:
Minimum rents........................ $ 774 $ 1,946
Tenant reimbursements................ 176 407
Other income......................... 1 --
--- -----
Total revenues.................. 951 2,353
--- -----
Certain expenses:
Real estate taxes.................... 112 287
Recoverable operating expenses....... 105 192
Other operating expenses............. 5 45
- --
Total certain expenses.......... 222 524
--- ---
Revenues in excess of certain expenses.... $ 729 $ 1,829
========= =========
The accompanying notes are an integral part of this combined statement of
revenues and certain expenses.
F-40
<PAGE>
1996(B) ACQUISITION PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
(dollars in thousands)
1. BASIS OF PRESENTATION
The combined statement of revenues and certain expenses relates to the
operations of the two 1996(B) Acquisition Properties which were acquired by
First Washington Realty Limited Partnership (the 'Operating Partnership'),
whose general partner is First Washington Realty Trust, Inc. The accompanying
combined statement of revenues and certain expenses includes the accounts of
Takoma Park Shopping Center located in Takoma Park, Maryland (acquired April
29, 1996) and Southside Marketplace Shopping Center located in Baltimore,
Maryland (acquired June 7, 1996) for the period of time prior to acquisition.
Rental revenues and expenses are recorded using the accrual basis of
accounting.
The accompanying combined financial statement is not representative of the
actual operations for the year presented as certain expenses which may not be
comparable to the expenses expected to be incurred by the Company in the
proposed future operations of the 1996(B) Acquisition Properties have been
excluded. The Company is not aware of any material factors relating to the
1996(B) Acquisition Properties that would cause the reported financial
information not to be necessarily indicative of future operating results.
Expenses excluded consist of interest, depreciation and amortization of the
following there costs which, in the opinion of management, are not directly
related to the future operations of the 1996(B) Acquisition Properties.
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
Management fees..................... $ 14 $ 99
Leasing Commissions................. $ 0 $ 6
Professional Fees................... $ 6 $ 240
2. OPERATING LEASES
In addition to minimum rent, certain tenant leases provide for the
reimbursement of certain operating expenses and/or percentage rent in the
amount of a percentage of annual gross sales in excess of a specified base
sales amount.
There are no tenants which accounted for 10% or more of the total rents for
the six months ended June 30, 1996 or the year ended December 31, 1995.
The 1996(B) Acquisition Properties are leased to tenants under operating
leases with expiration dates extending to the year 2016. Minimum future base
rentals noncancelable operating leases as of December 31, 1995 are
approximately as follows:
1996............................................................ $ 1,161
1997............................................................ 1,934
1998............................................................ 1,918
1999............................................................ 1,842
2000............................................................ 1,784
2001 and thereafter............................................. 13,438
------
$ 22,077
=========
F-41
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................... 1
Risk Factors..................................... 8
The Company...................................... 19
Properties....................................... 21
Use of Proceeds.................................. 33
Price Range of the Common Stock and
Distributions.................................. 33
Capitalization................................... 35
Selected Pro Forma and Historical Financial and
Portfolio Information.......................... 36
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 39
Management....................................... 46
Policies With Respect to Certain Activities...... 55
Certain Relationships and Related Transactions... 59
Principal Stockholders........................... 60
Description of Capital Stock..................... 61
Shares Available for Future Sale................. 67
Certain Provisions of Maryland Law and the
Company's Charter and Bylaws................... 68
Federal Income Tax Considerations................ 71
Underwriting..................................... 85
Experts.......................................... 86
Legal Matters.................................... 86
Additional Information........................... 86
Glossary of Terms................................ 87
Index to Financial Statements.................... F-1
1,500,000 SHARES
FIRST WASHINGTON
REALTY TRUST, INC.
COMMON STOCK
----------
PROSPECTUS
----------
Alex. Brown & Sons
Incorporated
Friedman, Billings & Co.
Inc.
Tucker Anthony
Incorporated
November , 1996
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the amount of fees and expenses to be
incurred in connection with the issuance and distribution of the Common Stock
registered hereby:
SEC Registration Fee............................................ $ 11,238
NASD Filing Fee................................................. $ 4,209
Printing and Mailing Costs...................................... $125,000
Legal Fees and Expenses......................................... $150,000
Accounting Fees and Expenses.................................... $ 50,000
Blue Sky Fees and Expenses (including Fees of Counsel).......... $ 7,500
Transfer Agent and Registrar Fees............................... $ 5,000
Miscellaneous................................................... $ 22,053
--------
Total.................................................... $375,000
========
_________
* To be completed by amendment.
ITEM 31. SALES TO SPECIAL PARTIES
See Item 32 below.
ITEMS 32. RECENT SALES OF UNREGISTERED SECURITIES
(a) Securities sold
The following table sets forth the date of sale, title and amount of
unregistered securities sold by the Company since its incorporation on April 25,
1994:
DATE OF
SALE TITLE AMOUNT
---- ----- ------
04/28/94 Common Stock 100 shares
06/27/94 Common Stock 1,574,359 shares
06/27/94 Preferred Stock 1,920,000 shares
06/27/94 Preferred Units 352,000 units
06/27/94 Common Units 347,056 units
06/01/95 Common Units 95,877 units
06/30/95 Preferred Stock 358,000 shares
11/15/95 Preferred Stock 36,189 shares
01/04/96 Common Units 120,785 units
03/20/96 Common Units 183,545 units
03/20/96 Preferred Units 69,215 units
(b) Underwriters and other purchasers
i. April 28, 1994 Sales. Underwriters were not retained in connection
with the sale of these securities. These shares were 'founders shares' sold
to officers and directors of the Company.
ii. June 27, 1994 Sales. Friedman, Billings, Ramsey & Co., Inc. ('FBR')
acted as placement agent and as the initial purchaser with respect to such
sales of Common Stock and Preferred Stock. Such sales were made in a
private placement to 'accredited investors.' Underwriters were not retained
in connection with the sale of the Common Units and Preferred Units. The
Preferred Units were issued to the sellers of Davis Ford Crossing and
Mayfair Shopping Center, 'accredited investors.' The Common Units were
issued to certain investors in the partnership that owned certain of the
properties that were transferred to the Company at its formation.
II-1
<PAGE>
iii. June 1, 1995 Sales. Underwriters were not retained in connection
with the sale of these securities. These units were sold to the seller of
Festival at Woodholme Shopping Center, an 'accredited investor.'
iv. June 30, 1995 Sales. Underwriters were not retained in connection
with the sale of these securities. These shares were issued to the sellers
of The UDR Properties, 'accredited investors.'
v. November 15, 1995 Sales. Underwriters were not retained in
connection with the sale of these securities. These shares were issued to
the seller of Firstfield Shopping Center, an 'accredited investor.'
vi. January 4, 1996 Sales. Underwriters were not retained in connection
with the sale of these securities. These units were sold to the seller of
Stefko Boulevard Shopping Center and 15th, Allen Shopping Center, an
'accredited investor.'
vii. March 20, 1996 Sales. Underwriters were not retained in connection
with the sale of these securities. These units were sold to the seller of
Clopper's Mill Village Shopping Center, an 'accredited investor.'
(c) Consideration
i. April 28, 1994 Sales. The aggregate offering price of the shares of
Common Stock was $100. There were no underwriting discounts or commissions
with respect to such securities.
ii. June 27, 1994 Sales.
a) The Company received approximately $73.0 million in consideration
for the sale of 1,282,051 shares of Common Stock and 1,920,000 shares of
Convertible Preferred Stock. As compensation for acting as initial
purchaser and placement agent in connection with the sale of such shares,
FBR received from the Company an initial purchaser discount, placement
agent fees and a financial advisory fee which totalled $5.0 million in the
aggregate. The shares of Common Stock and Convertible Preferred Stock were
sold to 'accredited investors'.
b) 189,744 shares of Common Stock were issued to four executive
officers and directors of the Company in exchange for the contribution of
promissory notes (the 'FWM Notes') having a value of approximately $3.7
million. No underwriting fees or commissions were paid in connection with
the issuance of such shares.
c) 102,564 shares of Common Stock were issued to Farallon and its
affiliates in consideration for Farallon's agreement to fund approximately
$2.0 million of the expenses of the June 1994 Offering. Concurrent with the
issuance of such shares the Company also made a cash reimbursement of
approximately $1.1 million to Farallon.
d) The Preferred Units were issued, in addition to debt assumption of
$16.3 million, in consideration for the purchase of two shopping centers.
These units were valued, at such time, at $8.8 million.
e) The Common Units were issued in consideration for certain properties
transferred to the Company at the time of its formation. These units were
valued, at such time, at approximately $6.8 million.
iii. June 1, 1995 Sales. These units were issued in exchange for
property having a value of approximately $1.6 million, net of assumed
indebtedness. There were no underwriting discounts or commissions with
respect to such securities.
iv. June 30, 1995 Sales. These shares were issued, in addition to a
cash payment of $12.2 million, in consideration for the UDR Properties.
These shares were valued, at such time, at $8.1 million. There were no
underwriting discounts or commissions with respect to such securities.
v. November 15, 1995 Sales. These shares were issued, in addition to a
seller purchase note of $2.5 million and a cash payment of $100,000, in
consideration for the purchase of Firstfield Shopping Center. These shares
were valued, at such time, at $0.8 million. There were no underwriting
discounts or commissions with respect to such securities.
vi. January 4, 1996 Sales. These units were issued, in addition to
cash payments of $47.1 million, in consideration for the purchase of
two shopping centers. These units were valued, at such time, at
II-2
<PAGE>
approximately $2.2 million. There were no underwriting discounts or
commissions with respect to such securities.
vii. March 20, 1996 Sales. These units were issued, in addition to a
cash payment of $14.5 million, in consideration for the purchase of
Clopper's Mill Village Shopping Center. These units were valued, at such
time, at approximately $3.5 million (Common Units) and $1.7 million
(Preferred Units).
(d) Exemption from registration claimed.
Each of the transactions is exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended (the 'Act').
(e) Terms of Conversion
The Preferred Units are exchangeable for Preferred Stock on a
one-for-one basis. The Common Units are exchangeable, at the Company's
option, for cash equal to the fair market value of a share of Common Stock
at the time of exchange or one share of Common Stock. Holders of the
Convertible Preferred Stock have the right, exercisable on or after May 31,
1999, to convert shares of Convertible Preferred Stock (with each share of
Convertible Preferred Stock valued at the current Liquidation Preference
Amount of $25.00 per share) into shares of Common Stock at a conversion
price of $19.50 per share of Common Stock, subject to adjustment upon the
occurrence of certain events.
ITEM 33. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The charter of the
Company contains such a provision which limits such liability to the maximum
extent permitted by the MGCL. This provision does not limit the ability of the
Company or its stockholders to obtain other relief, such as an injunction or
rescission.
The bylaws of the Company obligate it to the maximum extent permitted by
Maryland law to indemnify and to pay or reimburse reasonable expenses in advance
of final disposition of a proceeding to (a) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of the Company and at the
request of the Company, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The charter
and bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
addition, the MGCL requires the Company, as a condition to advancing expenses,
to obtain (a) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Company as authorized by the bylaws and (b) a written statement by or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined
II-3
<PAGE>
that the standard of conduct was not met. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted.
The Partnership Agreement also provides for indemnification of the Company,
as general partner, and its officers and directors generally to the same extent
as permitted by the MGCL for a corporation's officers and directors and limits
the liability of the Company to the Operating Partnership and its partners in
the case of losses sustained, liabilities incurred or benefits not derived as a
result of errors in judgement or mistakes of fact or law or any act or omission
if the Company acted in good faith.
It is the position of the Commission that indemnification of directors and
officers for liabilities arising under the Securities Act is against public
policy and is unenforceable pursuant to Section 14 of the Securities Act.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS.
1. See Index to Financial Statements on F-1.
2. Report of Independent Accountants.
3. Financial Statement Schedules
Schedule II--Variation and Qualifying Accounts.
Schedule III--Real Estate Investments and Accumulated Depreciation.
(b) EXHIBITS.
1.1 Form of Underwriting Agreement(9)
3.1 Articles of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
5 Opinion of Ballard Spahr Andrews & Ingersoll regarding legality(9)
8 Opinion of Latham & Watkins regarding tax matters(9)
10.1 First Amended and Restated Agreement of Limited Partnership of First
Washington Realty Limited Partnership(1)
10.2 Negotiable Promissory Note between First Washington Management, Inc.
and Stuart D. Halpert(1)
10.3 Negotiable Promissory Note between First Washington Management, Inc.
and William J. Wolfe(1)
10.4 Negotiable Promissory Note between First Washington Management, Inc.
and Jack Spector(1)
10.5 Negotiable Promissory Note between First Washington Management, Inc.
and Lester Zimmerman(1)
10.6 Term Loan Note dated June 27, 1994 in the approximate amount of $4.8
million from First Washington Realty Limited Partnership in favor of
First State Plaza Associates L.P.(1)
II-4
<PAGE>
(b)EXHIBITS--(Continued)
10.7 Indenture of Mortgage, Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and Assignment of Leases and Rents dated as
of June 27, 1994, between JFD Limited Partnership, Greenspring
Associates Limited Partnership and FW-Byrans Road Limited Partnership
as mortgagors, trustors and debtors, Nomura Asset Capital Corporation,
as mortgagee, beneficiary, and secured party, and Douglas J. Mathis
and Kelly M. Wrenn, as individual trustees(1)
10.8 Promissory Note in the principal amount of $38.5 million dated June
27, 1994 from the Company in favor of Nomura Asset Capital
Corporation(1)
10.9 Cash Collateral Account Security, Pledge and Assignment Agreement
among JFD Limited Partnership, Greenspring Associates Limited
Partnership and FW-Bryans Road Limited Partnership as borrowers, and
Nomura Asset Capital Corporation, as Lender(1)
10.10 The 1994 Stock Option Plan of First Washington Realty Trust, Inc.,
First Washington Realty Limited Partnership and First Washington
Management, Inc.(1)
10.11 Employment Contract, dated June 30, 1996, between the Company and
Stuart D. Halpert(9)
10.12 Employment Contract, dated June 30, 1996, between the Company and
William J. Wolfe(9)
10.13 Indemnity, Pledge and Security Agreement dated June 27, 1994 between
the Operating Partnership, Stuart D. Halpert, William J. Wolfe, Lester
Zimmerman and Jack E. Spector(1)
10.14 Term Loan Agreement dated as of June 27, 1994 between the Company and
First State Plaza Associates Limited Partnership(1)
10.15 Stock Option Agreement between the Company and William J. Wolfe(2)
10.16 Stock Option Agreement between the Company and Stuart D. Halpert(2)
10.17 Stock Option Agreement between the Company and Jeffrey S.
Distenfeld(2)
10.18 Stock Option Agreement between the Company and James Blumenthal(2)
10.19 Stock Option Agreement between the Company and James G. Pound(2)
10.20 Stock Option Agreement between the Company and Stanley T. Burns(2)
10.21 Stock Option Agreement between the Company and Matthew J. Hart(2)
10.22 Stock Option Agreement between the Company and William J. Russell(2)
10.23 Stock Option Agreement between the Company and Heywood Wilansky(2)
10.24 Purchase Agreement dated March 30, 1995, between the First Washington
Realty Trust, Inc. and United Dominion Realty Trust, Inc.(1)
10.25 Contribution Agreement dated May 3, 1995 between First Washington
Realty Limited Partnership and Stewart J. Greenebaum, Samuel G. Rose
and Woodholme Center, Inc., all of the general and limited partners of
Woodholme Properties Limited Partnership(1)
10.26 Real Estate Purchase Agreements dated May 1, 1995 between First
Washington Realty Trust, Inc. and United Dominion Realty Trust,
Inc.(3)
10.27 Form of Registration Rights Agreement between First Washington Realty
Trust, Inc. and United Dominion Realty Trust, Inc.(4)
10.28 Real Estate Purchase Agreement dated August 18, 1995 between First
Washington Realty Limited Partnership and Kenhorst Plaza Associates,
L.P.(4)
II-5
<PAGE>
(b)EXHIBITS--(Continued)
10.29 Deed of Trust and Security Agreement dated October 6, 1995 between
First Washington Realty Limited Partnership and Lutheran Brotherhood
and Deed of Trust Note of even date therewith.(4)
10.30 Real Estate Purchase Agreement dated November 15, 1995, by and between
First Washington Realty Trust, Inc. and Firstfield Center Duncan
Limited Partnership.(5)
10.31 Contribution Agreement dated October 30, 1995, by and between First
Washington Realty Limited Partnership and Carriage Associates Limited
Partnership.(5)
10.32 Purchase Money Deed of Trust dated November 15, 1995, by and between
First Washington Realty Limited Partnership and Army and Air Force
Mutual Aid Association.(5)
10.33 Mortgage, Assignment of Leases and Rents and Security Agreement dated
January 4, 1996, by and between Allenbeth Associates Limited
Partnership (First Washington Realty Trust, Inc. is the sole general
partner) and Nomura Asset Capital Corporation.(5)
10.34 Real Estate Purchase Agreement dated February 1, 1996, by and between
First Washington Realty Limited Partnership and Centre Ridge
Development L.P.(6)
10.35 Agreement to Sell Real Estate dated March 28, 1996, by and between
First Washington Realty Limited Partnership and Super Fresh Food
Markets of Virginia, Inc.(6)
10.36 Contribution Agreement dated March 20, 1996 (effective as of March 1,
1996), by and between First Washington Realty Limited Partnership and
Brian G. McElwee, Richard W. Ireland, John H. Donegan, Stacy C.
Hornstein, Sweet Gum Tree, L.L.C. and Wendy A. Seher.(6)
10.37 Amendment and Restatement of Deed of Trust, Assignment and Security
Agreement dated March 21, 1996 by and between Clopper's Mill Village
Center, L.C., Timothy R. Casgar and Margaret Everson-Fischer,
Trustees, and Jackson National Life Insurance Company.(6)
10.38 Credit Line Deed of Trust and Security Agreement dated March 28, 1996
by and between First Washington Realty Limited Partnership, Sam T.
Beale and Barry Musselman, as Trustees, and South Trustees, and
SouthTrust Bank of Alabama, N.A.(6)
10.39 Real Estate Purchase Agreement dated October 23, 1995 by and between
First Washington Realty Limited Partnership and 6875 New Hampshire
Avenue Partnership.(7)
10.40 Purchase Money Deed of Trust and Security Agreement dated April 24,
1996 by and between First Washington Realty Limited Partnership and
Nicoletta R. Parker and Margaret H. Blewitt, as Trustees.(7)
10.41 Purchase Agreement dated April 4, 1996 by and between First Washington
Realty Limited Partnership and Michael F. Klein, Philip E. Klein,
Jeffrey F. Klein, George Arconti, Professional Real Estate Services,
Inc., H.S. Taylor White, Rick C. Klein and William S. Berman.(7)
10.42 Indemnity Deed of Trust, Security Agreement and Assignment of Rents
and Leases dated June 28, 1995 by and between Southside Marketplace
Limited Partnership in favor of Fleet Management and Recovery
Corporation.(7)
10.43 First Washington Realty Trust, Inc. Restricted Stock Plan.(7)
10.44 The Contingent Stock Agreement dated June 30, 1996 by and between
First Washington Realty Trust, Inc. and William J. Wolfe.(7)
10.45 The Contingent Stock Agreement dated June 30, 1996 by and between
First Washington Realty Trust, Inc. and Stuart D. Halpert.(7)
II-6
<PAGE>
(b)EXHIBITS--(Continued)
10.46 Restricted Stock Agreement dated June 30, 1996 by and between First
Washington Realty Trust, Inc. and William J. Wolfe.(7)
10.47 Restricted Stock Agreement dated June 30, 1996 by and between First
Washington Realty Trust, Inc. and Stuart D. Halpert.(7)
10.48 Contribution Agreement dated October 21, 1996 by and between
Continental Realty Investor Corp., JHP Development Company, Inc., J.
Mark Shapiro, John A. Luetkemeyer, Jr., James Stone Trustee for Mary
Luetkemeyer, James Stone Trustee for Julia Luetkemeyer, James Stone
Trustee for Anne Luetkemeyer, Tripec Associates, L.P., Herbert Rochlin
and JHJ Investment Limited Partnership and First Washington Realty
Limited Partnership.(9)
10.49 Contribution Agreement dated October 22, 1996, by and between Isadore
Shooster, Harry Shooster, Donald Shooster, David Shooster, Daniel
Shooster, Myra Gerson, Richard and Helaine Gordon, David and Michele
Saland and Fairless Hills S.C. Associates and First Washington Realty
Limited Partnership.(9)
10.50 Real Estate Purchase Agreement dated October 15, 1996 by and between
Graylyn Shopping Center Associates, L.P. and First Washington Realty
Limited Partnership.(9)
10.51 Real Estate Purchase Agreement dated October 3, 1996 by and between
VOL Properties Corporation and First Washington Realty Limited
Partnership.(9)
10.52 Real Estate Purchase Agreement dated September 23, 1996, by and
between Newtown Square Associates, L.P. and First Washington Realty
Limited Partnership.(9)
10.53 Contribution Agreement dated October 22, 1996 by and between Kings
Park Associates and First Washington Realty Limited Partnership.(9)
12 Computation of the Company's Ratio of Earnings to Fixed Charges(9)
21 List of Subsidiaries(9)
24.1 Consent of Latham & Watkins (included in Exhibit 8)(9)
24.2 Consent of Ballard Spahr Andrews & Ingersoll (included in
Exhibit 5)(9)
24.3 Consent of Coopers & Lybrand L.L.P.(9)
25 Power of Attorney(9)
27 Financial Data Schedule(9)
- ----------
(1) Previously filed with the Company's Registration Statement on Form S-11,
file No. 33-83960, and incorporated herein by reference.
(2) Previously filed with the Company's annual report on Form 10-K on March
31, 1995 and incorporated herein by reference.
(3) Previously filed with the Company's Registration Statement on Form S-11,
file No. 33-93188, and incorporated herein by reference.
(4) Previously filed with the Company's Quarterly Report on Form 10-Q on
November 11, 1995 and incorporated herein by reference.
(5) Previously filed with the Company's Current Report on Form 8-K on
January 19, 1996 and incorporated herein by reference.
(6) Previously filed with the Company's Current Report on Form 8-K on April 1,
1996 and incorporated herein by reference.
(7) Previously filed with the Company's Registration Statement on Form S-3,
file No. 333-4966, and incorporated herein by reference.
II-7
<PAGE>
(8) Previously filed with the Company's Registration Statement on Form S-11,
file No. 333-15423, and incorporated herein by reference.
(9) Filed herewith.
ITEM 36. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the consolidated financial statements of
First Washington Realty Trust, Inc. and Subsidiaries as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995,
which financial statements are included in the S-11, we have also audited the
financial statement schedules listed in Item 35(a)3 herein.
In our opinion, these financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
February 9, 1996
II-9
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
SCHEDULE II--VARIATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DEDUCTION
BEGINNING CHARGED TO BAD AMOUNTS BALANCE AT
DESCRIPTION OF YEAR DEBT EXPENSE WRITTEN OFF END OF YEAR
- ----------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year Ended December 31, 1995.................. $391 $483 $(456) $418
Year Ended December 31, 1994.................. $185 $941 $(735) $391
Year Ended December 31, 1993.................. $557 $318 $(690) $185
</TABLE>
II-10
<PAGE>
FIRST WASHINGTON REALTY TRUST
SCHEDULE III -- REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
CAPITALIZED GROSS AMOUNTS AT
INITIAL COST SUBSEQUENT WHICH CARRIED AT
-------------------- TO THE CLOSE OF PERIOD
BUILDINGS & ACQUISITION- ---------------------
PROPERTY LOCATION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS
- -------- -------- ------------ ---- ------------ ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail:
Brafferton(3) Garrisonville, VA -- $1,595 $6,385 $ 33 $ 1,595 $ 6,418
Bryans Road(1) Bryans Road, MD 150 1,214 3,314 3,692 1,230 7,006
Capital Corner Landover, MD 3,587 966 0 3,410 989 3,410
Chesapeake Bagel
Building Alexandria, VA 734 191 804 627 192 1,431
Clinton Square Clinton, MD 1,313 242 1,437 117 251 1,554
4483 Connecticut Washington, DC 626 91 932 140 95 1,072
Colonial Square York, PA 1,530 639 1,678 131 646 1,809
Davis Ford Crossing Manassas, VA 38,500 2,574 10,092 42 2,574 10,134
First Field Gaithersburg, MD 2,520 699 2,797 1 699 2,798
First State Plaza(1) New Castle, DE 4,308 2,575 10,358 415 2,575 10,773
Fox Mill Reston, VA 25,000 2,752 11,019 14 2,752 11,033
Georgetown Shops(4) Washington, D.C. 1,655 949 3,174 279 970 3,453
Glen Lea Richmond, VA 14,163 757 3,027 9 757 3,036
Hanover Village Mechanicsville, VA (5) 1,081 4,323 3 1,081 4,326
James Island(1) Charleston, SC -- 1,321 2,758 356 1,324 3,114
Kenhorst Plaza Reading, PA -- 2,253 9,013 0 2,253 9,013
Laburnum Park Richmond, VA (5) 1,194 4,774 0 1,194 4,774
Laburnum Square Richmond, VA (5) 1,104 4,418 4 1,104 4,422
Mayfair Philadelphia, PA 7,440 2,463 9,860 24 2,463 9,884
Penn Station(2) District Heights, MD 3,500 4,275 0 21,129 4,285 21,129
<CAPTION>
ACCUMULATED DATE OF DATE DEPRECIABLE
PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIVES
- -------- ----- ------------- ------------ -------- -----
<S> <C> <C> <C> <C> <C>
Retail:
Brafferton(3) $ 8,013 $ 306 1974 1994 31.5
Bryans Road(1) 8,236 1,024 1972 1990 31.5
Capital Corner 4,399 1,103 1987 1986 31.5
Chesapeake Bagel
Building 1,623 546 1800's 1983 31.5
Clinton Square 1,805 585 1979 1984 31.5
4483 Connecticut 1,167 314 1954 1986 31.5
Colonial Square 2,455 337 1955 1990 31.5
Davis Ford Crossing 12,708 484 1988 1994 31.5
First Field 3,497 11 1978 1995 31.5
First State Plaza(1) 13,348 522 1988 1994 31.5
Fox Mill 13,785 526 1988 1994 31.5
Georgetown Shops(4) 4,423 1,141 1800's 1983-1989 31.5
Glen Lea 3,793 48 1969 1995 31.5
Hanover Village 5,407 69 1971 1995 31.5
James Island(1) 4,438 578 1967 1990 31.5
Kenhorst Plaza 11,266 60 1990 1995 31.5
Laburnum Park 5,968 76 1988 1995 31.5
Laburnum Square 5,526 70 1975 1995 31.5
Mayfair 12,347 471 1988 1994 31.5
Penn Station(2) 25,414 4,206 1989 1986 31.5
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
P.G. Co. Comm & Tech Pk. Beltsville, MD 4,150 1,309 972 5,272 1,342 6,244
Potomac Plaza Woodbridge, VA 3,656 795 4,235 746 733 4,981
Rosecroft Temple Hills, MD 2,000 664 2,723 2,207 688 4,930
Shoppes of Kildaire Cary, NC 7,998 2,202 8,833 520 2,208 9,353
Thieves Market Alexandria, VA 734 246 1,065 111 247 1,176
Valley Center(1) Owings Mills, MD 0 4,719 18,937 153 4,719 19,090
Festival At Woodholme Baltimore, MD 11,671 2,915 11,660 80 2,915 11,740
Multi-family:
Branchwood Apts. Charleston, SC 2,121 142 2,521 161 144 2,682
Broadmoor Apts. Charleston, SC 3,826 387 4,396 491 395 4,887
----- --- ----- --- --- -----
$ 141,182 $ 42,314 $ 145,505 $ 40,167 $ 42,420 $ 185,672
========= ========= ========= ========= ========= =========
<CAPTION>
<S> <C> <C> <C> <C> <C>
P.G. Co. Comm & Tech Pk. 7,586 1,886 1985 1985 31.5
Potomac Plaza 5,714 1,335 1963 1985 31.5
Rosecroft 5,618 1,367 1963 1985 31.5
Shoppes of Kildaire 11,561 2,666 1986 1986 31.5
Thieves Market 1,423 268 1946 1986 31.5
Valley Center(1) 23,809 911 1987 1994 31.5
Festival At Woodholme 14,655 216 1986 1995 31.5
Multi-family:
Branchwood Apts. 2,826 618 1989 1989 27.5
Broadmoor Apts. 5,282 1,031 1990 1990 27.5
----- ----- ---- ---- ----
$ 228,092 $ 22,775
======= ======
</TABLE>
____________
(1) These properties are also encumbered by first deeds of trust as
collateral for the $38,500,000 Nomura mortgage loan.
(2) This property (phase 1 only) also serves as collateral for the
$25,000,000 Exchangeable Debentures.
(3) This property serves as collateral for the line of credit.
(4) Consists of five locations in the shopping district of Georgetown in
Washington, D.C.
(5) These properties are also encumbered by first deeds of trust as
collateral for a $14,163,000 mortgage loan.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Bethesda, State of Maryland on November , 1996.
FIRST WASHINGTON REALTY TRUST, INC.
By: /S/ WILLIAM J. WOLFE
------------------------------
William J. Wolfe
President and Chief Execuitve
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
STUART D. HALPERT* Chairman of the Board of Directors November , 1996
- ------------------------
Stuart D. Halpert
/s/ WILLIAM J. WOLFE President, Chief Executive Officer, November , 1996
- ------------------------ Director
William J. Wolfe
LESTER ZIMMERMAN* Executive Vice President, Director November , 1996
- ------------------------
Lester Zimmerman
JAMES G. BLUMENTHAL* Chief Financial Officer November , 1996
- ------------------------
James G. Blumenthal
STANLEY T. BURNS* Director November , 1996
- ------------------------
Stanley T. Burns
MATTHEW J. HART* Director November , 1996
- ------------------------
Matthew J. Hart
WILLIAM M. RUSSELL* Director November , 1996
- ------------------------
William M. Russell
HEYWOOD WILANSKY* Director November , 1996
- ------------------------
Heywood Wilansky
*By /s/ William J. Wolfe
- ------------------------
William J. Wolfe
Attorney-in-Fact
</TABLE>
II-12
Exhibit 1.1
1,500,000 Shares
FIRST WASHINGTON REALTY TRUST, INC.
(a Maryland corporation)
Common Stock
($.01 Par Value per share)
UNDERWRITING AGREEMENT
November __, 1996
ALEX. BROWN & SONS INCORPORATED
FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.
TUCKER ANTHONY INCORPORATED
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
First Washington Realty Trust, Inc., a Maryland corporation (the
"Company"), subject to the terms and conditions stated herein, proposes to sell
to the several Underwriters (the "Underwriters") named in Appendix I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
1,500,000 shares of the Company's Common Stock, $.01 par value per share (the
"Firm Shares"). The respective amounts of the Firm Shares to be so purchased by
the several Underwriters are set forth opposite their names in Appendix I
hereto. The Company also proposes to sell at the Underwriters' option an
aggregate of up to 225,000 additional shares of the Company's Common Stock (the
"Optional Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are acting severally and not jointly, to
purchase the number of Firm Shares set forth opposite their respective names in
Appendix I, plus their pro rata portion of the Optional Shares if you elect to
exercise the over-allotment option in whole or in part for the accounts of the
several
<PAGE>
Underwriters. The Firm Shares and the Optional Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "Shares."
On or immediately following the Closing Date (as hereinafter defined), the
Company expects to use approximately $18.8 million of the net proceeds of the
Offering to acquire the six shopping centers set forth in the Prospectus under
the caption "Prospectus Summary -- New Retail Properties"(the "New Retail
Properties" and together with the Company's 35 other properties, the
"Properties").
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company and the Operating
Partnership.
The Company and First Washington Realty Limited Partnership, a Maryland
limited partnership (the "Operating Partnership"), jointly and severally,
represent and warrant to, and agree with, the Representatives that:
(a) A registration statement on Form S-11 (File No. 333-15423) with respect
to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it became effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to any
Preliminary Prospectus or the Prospectus
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shall be deemed to refer to and include any supplements relating to the Shares
being issued and sold pursuant thereto filed with the Commission after the date
of filing of the Prospectus under Rules 424(b) and 430A and prior to the
termination of the offering of the Shares by the Underwriters.
(b) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains and
the Prospectus and any amendments or supplements thereto will contain all
statements which are required to be stated therein by, and will conform, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(c) The financial statements, together with related notes and
schedules included in the Registration Statement, present fairly the financial
position and the results of operations and cash flows of the respective entity
or entities presented therein, at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein and the books and records of the Company. The pro forma financial
statements and other pro forma financial information included in the
Registration Statement and the Prospectus present fairly the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, have been properly
compiled on the pro forma bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
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(d) Coopers & Lybrand L.L.P., who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(e) Since the respective dates as of which information is given in the
Registration Statement, except as otherwise stated therein, (i) there has been
no material adverse change in or affecting the condition, financial or
otherwise, or in the earnings, business, management, properties, assets, rights,
operations or prospects of the Company, the Operating Partnership, First
Washington Management, Inc. ("FWM"), the direct and indirect majority owned
subsidiaries of the Company and the Operating Partnership listed on Exhibit 22.1
to the Registration Statement (the "Subsidiaries") taken as a whole, whether or
not occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is probable
of being entered into by the Company, the Operating Partnership, FWM or the
Subsidiaries, other than transactions in the ordinary course of business and
changes and transactions described in the Registration Statement, as it may be
amended or supplemented. The Company, the Operating Partnership, FWM and the
Subsidiaries have no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(f) Each of the Company and the Operating Partnership has all
corporate or partnership power and authority to enter into this Agreement and to
perform its obligations hereunder; and (i) this Agreement has been duly and
validly authorized, executed and delivered by the Company and the Operating
Partnership and (assuming the due authorization, execution and delivery thereof
by the Underwriters) is a valid and binding obligation of each of the Company
and the Operating Partnership, enforceable against them in accordance with its
terms; and (ii) all of the agreements filed (excluding agreements incorporated
by reference from prior Company filings) as exhibits to the Registration
Statement (the "Material Agreements") to which the Company and/or the Operating
Partnership are parties (including by assignment) have been duly and validly
authorized, executed and delivered by the parties thereto, and are valid and
binding agreements, enforceable in accordance with their terms, and there are no
dissenters' rights or rights of first refusal or similar rights which have not
been waived with respect to the transfer of any of the New Retail Properties,
partnership interests or assets that are the subject of any Material Agreement;
provided, however, that the enforceability of the documents specified in clauses
(i)-(ii) is subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws, now or hereafter in effect,
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and except to the
extent that rights to indemnification and
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contribution hereunder may be limited by state or federal securities laws or the
public policy underlying such laws.
(g) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct; and all of the outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable and conform to all statements and descriptions relating
thereto contained in the Registration Statement. Except as disclosed in the
Prospectus, no shares of capital stock of the Company are, or as of the Closing
Date will be, reserved for any purpose. Except as described in the Registration
Statement, there are, and at the Closing Date there will be, no outstanding
securities convertible into or exchangeable for any shares of stock of the
Company and no outstanding options, rights (preemptive or otherwise) or warrants
to purchase or to subscribe for such shares or any other securities of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock.
(h) The Shares have been duly authorized and when issued and paid for
as contemplated herein, will be validly issued, fully paid and non-assessable;
no preemptive or similar rights of stockholders exist with respect to any of the
Shares or the issue and sale thereof; and the terms of the Shares conform to all
statements and descriptions related thereto contained in the Registration
Statement and comply with all applicable legal requirements (including, without
limitation, federal and state securities laws). The Shares and all other shares
of stock of the Company conform to the provisions of the charter of the Company.
The form of certificates for the Shares conforms to Maryland corporate law.
Sections 4.4 and 4.6 of the Charter comply with all applicable legal
requirements and are enforceable in accordance with their terms against holders
of shares of stock of the Company. The units of limited partnership interest
issued by the Operating Partnership ("Units") since its formation, including,
without limitation, the Units issued to the Company, have been duly authorized
for issuance by the Operating Partnership to the holders thereof, and are
validly issued and fully paid. Such Units were offered and sold, and any Units
to be issued in connection with the acquisitions of the New Retail Properties
have been offered, in compliance with all applicable laws (including, without
limitation, federal and state securities laws), and all applicable filings in
connection therewith were made.
(i) Neither the Company, the Operating Partnership, FWM nor any of the
Subsidiaries is or with the giving of notice or lapse of time or both, will be,
in violation of or in default under its charter or bylaws or partnership
agreement or under any agreement, lease, contract, indenture or other instrument
or obligation to which it is a party or by which it, or any of its properties,
is bound
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and which default would have a material adverse effect on the condition
(financial or otherwise) of the Company, the Operating Partnership, FWM and its
Subsidiaries taken as a whole or the business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company, the Operating Partnership, FWM and the Subsidiaries taken as a whole
("Material Adverse Effect"). The execution and delivery of this Agreement and
the consummation of the transactions therein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, (i) any indenture,
mortgage, deed of trust or other agreement or instrument to which the Company,
the Operating Partnership, FWM or any Subsidiary is a party, (ii) the charter,
bylaws or partnership agreement of the Company, the Operating Partnership, FWM
or any Subsidiary or (iii) any order, rule or regulation applicable to the
Company or any Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction, except in
the cases of clauses (i) and (iii) above for such conflicts, breaches or
defaults which would not have a Material Adverse Effect.
(j) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company and the Operating Partnership of this Agreement and the consummation of
the transactions herein contemplated (except such additional steps as may be
required by the Commission, the National Association of Securities Dealers, Inc.
(the "NASD") or such additional steps as may be necessary to qualify the Shares
for public offering by the Underwriters under state securities or Blue Sky laws)
has been obtained or made and is in full force and effect.
(k) Each of the Company and FWM is a corporation and the Operating
Partnership is a limited partnership, and each Subsidiary is either a
corporation, limited liability company or a limited partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization and has all requisite corporate, limited liability
company or partnership power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement.
Each of the Company, FWM, the Operating Partnership and each Subsidiary is duly
qualified or licensed to transact business as a foreign corporation, limited
liability company or partnership, as applicable, and is in good standing in each
jurisdiction in which it owns or leases properties or in which the conduct of
its business requires it to so qualify or be licensed, except to the extent that
the failure to so qualify or be in good standing would not have a Material
Adverse Effect. The outstanding shares of (i) stock or partnership interests, as
the case may be, of each of the Subsidiaries have been duly authorized and
validly issued, are fully paid and non-assessable and are owned by the Company
or the Operating Partnership, and
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(ii) capital stock of FWM have been duly authorized and validly issued, are
fully paid and non-assessable and are owned as described in the Registration
Statement; and, with respect to clauses (i) and (ii), except as described in the
Registration Statement, are free and clear of all liens, encumbrances and
equities and claims; and except as described in the Registration Statement, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into shares of stock or
ownership interests in FWM or the Subsidiaries are outstanding.
(l) The Company and the Operating Partnership do not have any
subsidiary companies or interests in any limited liability companies or
partnerships except as set forth in Exhibit 22.1 to the Registration Statement.
The Company is the sole general partner of the Operating Partnership and on the
Closing Date will own a ___% partnership interest therein.
(m) The Company, the Operating Partnership, FWM, and the Subsidiaries
have good and marketable title to all of the properties and assets reflected in
the financial statements (or described in the Registration Statement)
hereinabove described, and, if acquired, will acquire good and marketable title
to the New Retail Properties on or promptly following the Closing Date, subject
to no lien, mortgage, pledge, security interest, charge or encumbrance of any
kind ("Liens") except as described in the Registration Statement, or which are
not material in amount. Each lease of real property by the Company, the
Operating Partnership or any Subsidiary as lessor is the legal, valid and
binding obligation of the lessee in accordance with the terms of such lease
(except that the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought and to the
Bankruptcy Code of 1978, as amended (the "Bankruptcy Code")). The rents with
respect to the Properties which as of the date hereof are more than 30 days
overdue are not payable under leases such that, were no further rental payments
to be received from such tenants by the Operating Partnership or Subsidiaries
under those leases, there would be a Material Adverse Effect. The Company has no
reason to believe that any tenant which is responsible for aggregate annual
rental payments in excess of $200,000 under all of the leases at the Properties
is not financially capable of performing its obligations thereunder or intends
to terminate any of its leases prior to or upon expiration thereof, either as
the rejection of an executory contract under applicable bankruptcy laws
(including the Bankruptcy Code) or otherwise, except, with respect to each of
the foregoing, as set forth in the Registration Statement. The Company, the
Operating Partnership, FWM and the Subsidiaries occupy their leased properties
under valid and binding leases. Each of the management and leasing agreements to
which FWM is a party (the "Management Agreements") is in full force and effect,
except where the failure to be in full force and effect would not have a
Material Adverse Effect. There exist no defaults by FWM under any of the
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<PAGE>
Management Agreements or, to the Company's knowledge, by the other parties
thereto that would have a Material Adverse Effect; and no fees payable
thereunder are more than 30 days overdue, except such amounts which, in the
aggregate, would not have a Material Adverse Effect. The Company has no reason
to believe that any party to any Management Agreement intends to terminate its
agreement prior to or upon expiration thereof, either as the rejection of an
executory contract under applicable bankruptcy laws (including the Bankruptcy
Code) or otherwise, except as set forth in the Registration Statement or except
where such termination would not have a Material Adverse Effect.
(n) The Company, the Operating Partnership, FWM and the Subsidiaries
have filed all federal, state, local and foreign income tax returns which have
been required to be filed, or filed extension requests with respect thereto
within the required time periods, and have paid all taxes indicated by said
returns and all assessments received by them or any of them to the extent that
such taxes have become due (and are not being contested in good faith). All tax
liabilities have been adequately provided for in the financial statements of the
Company.
(o) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company, the Operating
Partnership, FWM or any of the Subsidiaries before any court or administrative
agency or otherwise (i) which if determined adversely to the Company, the
Operating Partnership, FWM or any of the Subsidiaries might result in a Material
Adverse Effect or (ii) to prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(p) The Company qualified as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended (the "Code") with respect to
its taxable years ended December 31, 1994 and December 31, 1995, and is
organized in conformity with the requirements for qualification as a REIT under
the Code, and it has operated and will continue to operate in such a manner as
to enable it to meet the requirements for taxation as a REIT in the future; all
statements in the Registration Statement regarding the Company's qualification
as a REIT are true, complete and correct in all material respects.
(q) (A) All Liens on or affecting any of the Properties or the assets
of the Company, which are required to be disclosed in the Registration Statement
are disclosed therein; (B) neither any landlord nor any tenant of any of the
Properties is in default under any of the leases pursuant to which any Property
is leased (and the Company does not know of any event which, but for the passage
of time or the giving of notice, or both, would constitute a default under any
of such leases) other than such defaults that would not have a Material Adverse
Effect; (C) no person has an option or right of first refusal to purchase all or
part of any New Retail Properties or any interest therein, (D) each of the
Properties complies
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with all applicable codes, laws and regulations (including, without limitation,
building and zoning codes, laws and regulations and laws relating to access to
the Properties), except if and to the extent disclosed in the Registration
Statement and except for such failures to comply that would not have a Material
Adverse Effect; (E) there is in effect for the assets of the Company, the
Operating Partnership, FWM, the Subsidiaries and the Properties insurance
coverages that are commercially reasonable, and none of the Company, the
Operating Partnership, FWM or any Subsidiary has received from any insurance
company notice of any material defects or deficiencies affecting the
insurability of any such assets; and (F) the Company does not have any knowledge
of any pending or threatened condemnation proceedings, zoning change, or other
similar proceeding or action that will in any material respect affect the size
of, use of, improvements on, construction on or access to the Properties.
(r) Except as disclosed in the Registration Statement, (A) each
Property, including, without limitation, the Environment (as defined below)
associated with such Property, is free of any Hazardous Substance (as defined
below), except for Hazardous Substances that would not have a Material Adverse
Effect, (B) none of the Company, the Operating Partnership, FWM or any
Subsidiary has caused or suffered to occur any Release (as defined below) of any
Hazardous Substance into the Environment on, in, under or from any Property, and
no condition exists on, in, under or, to the knowledge of the Company and the
Operating Partnership, adjacent to any Property that could result in the
incurrence of material liabilities or any material violations of any
Environmental Law (as defined below), give rise to the imposition of any Lien
(as defined below) under any Environmental Law, or, to the Company's knowledge,
cause or constitute a health, safety or environmental hazard to any property,
person or entity which hazard would have a Material Adverse Effect; (C) none of
the Company, the Operating Partnership, FWM or any Subsidiary is engaged in or
intends to engage in any manufacturing or any other operations at the Properties
that (1) require the use, handling, transportation, storage, treatment or
disposal of any Hazardous Substance (other than cleaning solvents and similar
materials and other than insecticides and herbicides that are used in the
ordinary course of operating the Properties and in compliance with all
applicable Environmental Laws) or (2) require permits or are otherwise regulated
pursuant to any Environmental Law; (D) none of the Company, the Operating
Partnership, FWM or any Subsidiary has received any notice of a claim under or
pursuant to any Environmental Law or under common law pertaining to Hazardous
Substances on or originating from any Property; (E) none of the Company, the
Operating Partnership, FWM or any Subsidiary has received any notice from any
Governmental Authority (as defined below) claiming any violation of any
Environmental Law that is uncured or unremediated as of the date hereof; (F) no
Property is included or, to the knowledge of the Company and the Operating
Partnership, proposed for inclusion on the National Priorities List issued
pursuant to CERCLA (as defined below) by the
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United States Environmental Protection Agency (the "EPA") or on the
Comprehensive Environmental Response, Compensation, and Liability Information
System database maintained by the EPA, and has not otherwise been identified by
the EPA as a potential CERCLA removal, remedial or response site or included or,
to the knowledge of the Company and the Operating Partnership, proposed for
inclusion on, any similar list of potentially contaminated sites pursuant to any
other Environmental Law and (G) except as disclosed in the environmental reports
furnished to the Underwriters, there are no underground storage tanks located on
or in any Property.
As used herein, "Hazardous Substance" shall include, without
limitation, any hazardous substance, hazardous waste, toxic or dangerous
substance, pollutant, solid waste or similarly designated materials, including,
without limitation, oil, petroleum or any petroleum-derived substance or waste,
asbestos or asbestos-containing materials, PCBs, pesticides, explosives,
radioactive materials, dioxins, urea formaldehyde insulation or any constituent
of any such substance, pollutant or waste, including any such substance,
pollutant or waste identified or regulated under any Environmental Law
(including, without limitation, materials listed in the United States Department
of Transportation Optional Hazardous Material Table, 49 C.F.R. ss. 172.101, as
currently in effect, or in the EPA's List of Hazardous Substances and Reportable
Quantities, 40 C.F.R. Part 302, as currently in effect); "Environment" shall
mean any surface water, drinking water, ground water, land surface, subsurface
strata, river sediment, buildings, structures, and ambient, workplace and indoor
air; "Environmental Law" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et seq.)
("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended (42
U.S.C. ss. 6901, et seq.), the Clean Air Act, as amended (42 U.S.C. ss. 7401, et
seq.), the Clean Water Act, as amended (33 U.S.C. ss. 1251, et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. ss. 2601, et seq.), the
Occupational Safety and Health Act of 1970, as amended (29 U.S.C. ss. 651, et
seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. ss.
1801, et seq.), and all other applicable federal, state and local laws,
ordinances, regulations, rules, orders, decisions and permits relating to the
protection of the environment or of human health from environmental effects;
"Governmental Authority" shall mean any applicable federal, state or local
governmental office, agency or authority having the duty or authority to
promulgate, implement or enforce any Environmental Law; for purposes of this
paragraph (s), "Lien" shall mean, with respect to any Property, any mortgage,
deed of trust, pledge, security interest, lien, encumbrance, penalty, fine,
charge, assessment, judgment or other liability in, on or affecting such
Property; and "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
emanating or disposing of any Hazardous Substance into the Environment,
including, without limitation, the abandonment or discard of barrels,
containers, tanks (including,
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without limitation, underground storage tanks) or other receptacles containing
or previously containing any Hazardous Substance or any release, emission,
discharge or similar term, as those terms are defined or used in any applicable
Environmental Law.
(s) None of the Company, the Operating Partnership, FWM or any of the
Subsidiaries is, or after giving effect to the issuance and sale of the Shares
by the Company will be, (i) an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "Investment Company Act"), or (ii) a "holding company" or
a "subsidiary company" of a "registered holding company," as defined in the
Public Utility Holding Company Act of 1938, as amended.
(t) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(u) The Company, the Operating Partnership, FWM and each of the
Subsidiaries holds all material licenses, certificates and permits from
governmental authorities which are necessary to the conduct of their businesses
except for such as the absence of which would not have a Material Adverse
Effect; and none of the Company, the Operating Partnership, FWM or any of the
Subsidiaries has infringed any patents, patent rights, trade names, trademarks
or copyrights, which infringement is material to the business of the Company,
the Operating Partnership, FWM and the Subsidiaries taken as a whole. The
Company knows of no material infringement by others of patents, patent rights,
trade names, trademarks or copyrights owned by or licensed to the Company, the
Operating Partnership, FWM or any Subsidiary which would have a Material Adverse
Effect.
(v) No statement, representation, warranty or covenant made by the
Company or the Operating Partnership in any certificate or document required by
this Agreement to be delivered to the Underwriters was or will be, when made,
inaccurate, untrue or incorrect in any material respect.
(w) Each of the Company, the Operating Partnership and FWM is in
compliance in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which any of the Company, the Operating Partnership or FWM
would have any liability; none of the Company, the Operating Partnership or FWM
has incurred or expects to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or
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(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company, the Operating Partnership or FWM
would have any liability that is intended to be qualified under Section 401(a)
of the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which could cause the loss of such
qualification.
(x) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of final statements
in conformity with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2. Purchase, Sale and Delivery of the Firm Shares.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters and each Underwriter
agrees, severally and not jointly, to purchase, at a price of $_____ per share,
the number of Firm Shares set forth opposite the name of each Underwriter in
Appendix I hereof, subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
Federal funds or by certified or bank cashier's checks drawn to the order of the
Company against delivery of certificates therefor to the Representatives for the
several accounts of the Underwriters. Such payment and delivery are to be made
at the offices of Hogan & Hartson L.L.P., 555 Thirteenth Street, N.W.,
Washington, D.C. 20004, at 9:00 a.m., local time, on the third business day
after the date of this Agreement or at such other time and date not later than
five business days thereafter as you and the Company shall agree upon, such time
and date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and are not
permitted by law or executive order to be closed.) The certificates for the Firm
Shares will be delivered in such denominations and in such registrations as the
Representatives request in writing not later than the second full business day
prior to the Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.
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(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Optional Shares at the price per share as set forth in the first paragraph of
this Section 2. The option granted hereby may be exercised in whole or in part
by giving written notice (i) at any time before the Closing Date and (ii) only
once thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Optional Shares as to which the several Underwriters are exercising
the option, the names and denominations in which the Optional Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Optional Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Optional Shares to be purchased
by each Underwriter shall be in the same proportion to the total number of
Optional Shares being purchased as the number of Firm Shares being purchased by
such Underwriters bears to 1,500,000 adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Optional Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel the option at any time prior to its expiration by giving written
notice of such cancellation to the Company. To the extent, if any, that the
option is exercised, payment for the Optional Shares shall be made on the Option
Closing Date in New York Clearing House funds by certified or bank cashier's
check drawn to the order of the Company against delivery of certificates
therefor at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore
Street, Baltimore, Maryland.
3. Offering by the Underwriters.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Optional Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with an
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Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company and the Operating Partnership.
The Company and the Operating Partnership each hereby covenants and agrees
with the Underwriters as follows:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (i) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (ii) of the receipt of any comments from the Commission, and (iii) of
any request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in endeavoring
to qualify the Shares for sale under the securities laws of such jurisdictions
as the Representatives may reasonably have designated in writing and will make
such applications, file such documents, and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
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(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, five signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities and Exchange Act of 1934 (the "Exchange Act")
and the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the shares as contemplated by this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus to
make the statements therein, in the light of the circumstances existing at the
time the Prospectus is delivered to a purchaser, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectus to comply with any
law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law.
(f) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earning statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earning statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations.
(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
securityholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or the
Exchange Act. The Company will, upon request, deliver to the Representatives
similar reports
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with respect to significant subsidiaries, as that term is defined in the Rules
and Regulations, which are not consolidated in the Company's financial
statements.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of Alex. Brown Sons Incorporated,
except that the Company may, without such consent, (i) grant options and issue
shares upon the exercise of options issued pursuant to the Company's employee
benefit plans, (ii) issue Shares or Units in acquisition transactions, (iii)
issue shares in exchange for Common Units and Exchangeable Preferred Units of
the Operating Partnership (as defined in the Prospectus) or upon conversion of
the FS Note or exchange of the Exchangeable Debentures, or (iv) issue shares in
accordance with any dividend reinvestment plan instituted by the Company or as
consideration for future acquisitions.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the New York Stock Exchange.
(j) The Company shall apply the net proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Prospectus.
(l) The Company has caused each officer and director of the Company to
furnish to you, on or prior to the date of this Agreement, a letter or letters,
in form and substance satisfactory to the Underwriters, pursuant to which each
such person shall agree not to offer, sell, short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock of the Company, or
any other securities convertible, exchangeable (including Units) or exercisable
for Common Shares or derivative of Common Shares owned by such person or request
the registration for the offer or sale of any of the foregoing (or as to which
such person has the right to direct the disposition of) for a period of 90 days
after the date of this Agreement, directly or indirectly, except with the prior
written consent of Alex. Brown & Sons Incorporated ("Lock-Up Agreements").
(m) The Company will not invest, reinvest or otherwise use the
proceeds received by the Company from the sale of the Shares in such a manner,
or take any action, that would cause the Company or the Operating Partnership to
become an "investment company," as that term is defined in the Investment
Company Act.
(n) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock.
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<PAGE>
(o) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(p) The Company will use its best efforts to continue to meet the
requirements to qualify as a REIT under the Code.
5. Costs and Expenses.
The Company and the Operating Partnership will pay all costs, expenses and
fees incident to the performance of the obligations of the Company and the
Operating Partnership under this Agreement, including, without limiting the
generality of the foregoing, the following: accounting fees of the Company; the
fees and disbursements of counsel for the Company; the cost of printing and
delivering to, or as requested by, the Underwriters copies of the Registration
Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the
Underwriters' Invitation Letter, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements) incident to securing any
required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of the New York
Stock Exchange; and the expenses, including the fees and disbursements of
counsel for the Underwriters, incurred in connection with the qualification of
the Shares under State securities or Blue Sky laws. The Company shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification under NASD regulation and State securities or
Blue Sky laws) except that, if this Agreement shall not be consummated because
the conditions in Section 6 hereof are not satisfied, or because this Agreement
is terminated by the Representatives pursuant to Section 11 hereof, or by reason
of any failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on its part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or omission of
any Underwriter, then the Company and the Operating Partnership shall reimburse
the several Underwriters for reasonable out-of-pocket expenses, including fees
and disbursements of counsel, reasonably incurred in connection with
investigating, marketing and proposing to market the Shares or in contemplation
of performing their obligations hereunder; but the Company and the Operating
Partnership shall not in any event be liable to any of the several Underwriters
for damages on account of loss of anticipated profits from the sale by them of
the Shares.
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6. Conditions of Obligations of the Underwriters.
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and the
Operating Partnership contained herein, and to the performance by them of their
covenants and obligations hereunder and to the following additional conclusions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order or order of any nature by a Federal or state court
of competent, jurisdiction shall have been issued as of the Closing Date which
would prevent the issuance of the Shares.
(b) The Representatives shall have received an opinion, dated the
Closing Date and any Option Closing Date and satisfactory in form and substance
to the Underwriters (and stating that it may be relied upon by counsel to the
Underwriters), from Latham & Watkins, counsel to FWM, the Company and the
Operating Partnership, to the effect that:
(i) The Registration Statement has become effective under
the Act and, to the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending
or threatened under the Act.
(ii) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder (except that such counsel need express no
opinion as to the financial statements, notes and related schedules
thereto included therein).
(iii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the Prospectus
which are not so filed or described as required.
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(iv) FWM has been duly incorporated and is validly existing
and in good standing under the laws of the District of Columbia, with
corporate power and authority to own, lease and operate its
properties, and to conduct its business as described in the
Prospectus. The outstanding shares of preferred stock of FWM are duly
authorized and validly issued, are fully paid and non-assessable, and
are owned as described in the Prospectus. The promissory notes of FWM
(the "FWM Notes") are duly authorized and validly issued by FWM and
are legally valid and binding obligations of FWM, and enforceable
against FWM in accordance with their terms. This opinion does not
include any opinion with respect to the perfection or priority of any
security interest or lien, and is further subject to the following
limitations, qualifications and exceptions: (a) the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights or
remedies of creditors, (b) enforceability of the FWM Notes is subject
to the effect of general principles of equity, whether considered in a
proceeding in equity or at law, and the discretion of the court before
which any proceeding therefor may be brought, (c) the unenforceability
under certain circumstances under law or court decisions of provisions
providing for the indemnification of or contribution to a party with
respect to a liability where such indemnification or contribution is
contrary to public policy, and (d) the unenforceability of any
provision requiring the payment of attorney's fees, except to the
extent that a court determines such fees to be reasonable.
(v) Based solely on certificates from public officials, we
confirm that (a) FWM is qualified to do business in the following
jurisdictions: Delaware, District of Columbia, Georgia, Maryland,
North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia;
(b) the Company is qualified to do business in the District of
Columbia; (c) the Operating Partnership is qualified to do business in
the following jurisdictions: District of Columbia, Maryland, North
Carolina, Pennsylvania, South Carolina and Virginia; and (d) JFD
Limited Partnership, a Maryland limited partnership, is qualified to
do business in South Carolina, Delaware and Virginia.
(vi) The statements set forth in the Prospectus under the
captions "Shares Available For Future Sale" and "Federal Income Tax
Considerations," insofar as such statements constitute matters of law,
summaries of legal matters or legal conclusions, including, without
limitation, with respect to federal tax consequences that are likely
to be material to purchasers of the Shares, and the description in the
Registration Statement of the contracts set forth on Schedule 1 have
been reviewed by us and are accurate in all material respects and with
respect to the information under "Federal Income Tax Considerations,"
fairly summarizes the federal
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income tax considerations that are likely to be material to purchasers
of the Shares.
(vii) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or constitute a breach of, or default under, any of
the Material Agreements (excluding the Company's charter and bylaws)
to which any of the Company, the Operating Partnership, FWM or any
Subsidiary (the "FWM Entities") is a party or by which any of the FWM
Entities is bound, which breach or default could reasonably be
expected to have a Material Adverse Effect. The issuance and sale of
the Shares being delivered on the Closing Date by the Company and the
execution, delivery and performance by the Company and the Operating
Partnership of their obligations under this Agreement do not, to such
counsel's knowledge, result in any violation of any federal or
District of Columbia statute, rule or regulation applicable to the FWM
Entities.
(viii) To such counsel's knowledge, no consent, approval,
authorization or order of, or filing with, any federal or District of
Columbia court or governmental agency or body is required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions herein contemplated, except such as
may be required under state securities laws in connection with the
purchase and distribution of such Shares by the Underwriters or real
estate syndication laws.
(ix) The Company has been organized and has operated in
conformity with the requirements for qualification as a REIT under the
Code, and its proposed method of operation has enabled and will enable
it to meet the requirements for qualification and taxation as a REIT
under the Code.
(x) None of the FWM Entities is, or after giving effect to
the consummation of the transactions contemplated by this Agreement,
and the application of the net proceeds therefrom as described in the
prospectus, will be required to register as an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(xi) To such counsel's knowledge, except as set forth in the
Prospectus there are no material legal or governmental proceedings
pending or threatened against any of the FWM Entities.
(xii) The Shares have been authorized for listing on New
York Stock Exchange.
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<PAGE>
(xiii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of
capital stock of the Company and there are no outstanding or
authorized options, warrants or rights obligating the Company to issue
any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for
any shares of such stock; and except as described in the Prospectus,
to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise,
which has not been satisfied or effectively waived, to cause the
Company to sell or otherwise issue to them, or the right to have any
Shares or other securities of the Company included in the Registration
Statement or the right, as a result of the filing of the Registration
Statement, to require registration under the Act of any Shares or
other securities of the Company.
(xiv) The Units to be issued in connection with the
acquisitions of the New Retail Properties have been offered in
compliance with all applicable laws (including, without limitation,
federal and state securities laws), and all applicable filings in
connection therewith were made.
In addition, such opinion shall also include a statement to the effect that
such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, and Representatives of the Underwriters, at which
the contents of the Prospectus and related matters were discussed and, although
such counsel need not pass upon, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Prospectus, and such counsel has made no independent check or verification
thereof, during the course of such participation (relying as to materiality, to
the extent such counsel deems appropriate, upon the statements of officers and
other representatives of the Company), no facts came to such counsel's attention
that caused them to believe that the (i) Registration Statement, at the time
such Registration Statement became effective (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act), and as
of the date of such opinion, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; it being understood that such counsel need express no belief with
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respect to the financial statements, schedules and other financial and
statistical data included in the Registration Statement or Prospectus.
(c) The Representatives shall have received an opinion,
dated the Closing Date and satisfactory in form and substance to the
Representatives (and stating that it may be relied upon by counsel for
the Underwriters), from Ballard Spahr Andrews & Ingersoll, Maryland
counsel to the Company and the Operating Partnership, to the effect
that:
(i) The Company is a corporation duly incorporated
and existing under the laws of the State of Maryland and is
in good standing with the Maryland State Department of
Assessments and Taxation (the "SDAT"), with corporate power
and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and
to enter into and perform its obligations under this
Agreement and the Material Agreements to which it is a
party.
(ii) The Operating Partnership is a limited
partnership duly formed and existing under the laws of the
State of Maryland and is in good standing with the SDAT,
with partnership power and authority to own, lease and
operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform
its obligations under this Agreement and the Material
Agreements to which it is a party. The Company is the sole
general partner of the Operating Partnership. The
outstanding Units of the Operating Partnership are fully
paid and the Certificate of Limited Partnership and
Agreement of Limited Partnership do not provide for any
assessments on the limited partnership interests of the
partners.
(iii) Each of Valley Center, Inc., a Maryland
corporation, JFD, Inc., a Maryland corporation, Bryans QRS,
Inc., a Maryland corporation, and Branchwood, Inc., a
Maryland corporation (collectively, the "QRSs"), is a
corporation duly incorporated and existing under the laws of
the State of Maryland and is in good standing with the SDAT,
with corporate power and authority to own, lease and operate
its properties and to conduct its business as described in
the Prospectus and to enter into and perform its obligations
under the Material Agreements to which it is a party. The
outstanding shares of stock of each of the QRSs have been
duly authorized and validly issued, are fully paid and
nonassessable and are owned by the Company, free and clear
of all liens, encumbrances and equities and claims, and no
options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership
interests in such Subsidiaries are outstanding.
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<PAGE>
(iv) Each of JFD Limited Partnership, a Maryland
limited partnership, Branchwood Limited Partnership, a
Maryland limited partnership, SP Associates Limited
Partnership, a Maryland limited partnership, FW-Bryans Road
Limited Partnership, a Maryland limited partnership,
Greenspring Associates Limited Partnership, a Maryland
limited partnership, Woodholme Properties Limited
Partnership, a Maryland limited partnership, Southside
Market Place Limited Partnership, Allenbeth Associates, L.P.
and Coppers Mill Village Center L.L.C. (together, the
"BRPs"), is a limited partnership or limited liability
company, as the case may be, duly formed and existing under
the laws of the State of Maryland and is in good standing
with the SDAT, with the partnership or limited liability
company power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations
under the Material Agreements to which it is a party. The
outstanding partnership or limited liability company
interests of each of the BRPs are owned by a wholly owned
subsidiary of the Company or the Operating Partnership, free
and clear of all liens, encumbrances, equities and claims,
and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to
convert any obligations into any partnership or limited
liability company interests or ownership interests in such
Subsidiaries are outstanding.
(v) The Company has the numbers of authorized
shares of stock as set forth under the caption
"Capitalization" in the Prospectus. The Charter and Bylaws
of the Company are in full force and effect as of the
Closing Date and comply with the Maryland General
Corporation Law. The authorized shares of the Company's
Common Stock have been duly authorized. The outstanding
shares of the Company's stock have been duly authorized and
validly issued and are fully paid and nonassessable. The
Shares have been duly authorized for issuance and sale to
the Underwriters pursuant to this Agreement, and, when
issued and delivered by the Company pursuant to this
Agreement against full payment of the consideration therefor
as provided in the resolutions authorizing issuance thereof
of the Board of Directors of the Company or a duly appointed
committee thereof, will be validly issued and fully paid and
nonassessable. The terms of the Shares conform in all
material respects to all statements and descriptions related
thereto contained in the Prospectus under the caption
"Description of Capital Stock." The certificates
representing the Shares comply with all applicable statutory
requirements of the Maryland General Corporation Law. The
Shares to be issued and sold by the Company pursuant to this
Agreement are not subject to preemptive rights or any
similar rights to purchase under the Charter of the Company,
the Bylaws of the Company, the Maryland General Corporation
Law or any agreement or instrument known to such counsel.
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(vi) The statements set forth in the Prospectus
under the caption "Certain Provisions of Maryland Law and
the Company's Charter and Bylaws" and "Description of
Capital Stock," insofar as such statements constitute a
summary of legal matters or legal conclusions, have been
reviewed and are accurate in all material respects.
(vii) The partnership agreement of the Operating
Partnership has been duly executed and is in full force and
effect as of the Closing Date and complies with the Maryland
Revised Uniform Limited Partnership Act. The Units issued by
the Operating Partnership to date, including without
limitation the Units issued to the Company, are fully paid.
(viii) The execution and delivery of the Agreement
and the Material Agreements and the consummation of the
transactions herein and therein contemplated will not result
in any violation of the Charter or Bylaws of the Company or
Agreement of Limited Partnership of the Operating
Partnership or, so far as is known to such counsel, any
statute, rule or regulation of the State of Maryland
applicable to the Company, the Operating Partnership or the
Subsidiaries.
(ix) The execution and delivery of this Agreement
and the Material Agreements have been duly authorized by all
necessary corporate or partnership action, as applicable, of
the FWM Entities that are parties thereto, and this
Agreement and the Material Agreements have been duly
executed and delivered by the FWM Entities that are parties
thereto. Assuming due authorization, execution and delivery
of the Material Agreements by each other party thereto, the
Material Agreements are valid and binding agreements of the
FWM Entities that are parties thereto, enforceable against
the FWM Entities in accordance with their terms. This
opinion does not include any opinion with respect to the
perfection or priority of any security interest or lien, and
is further subject to the following limitations,
qualifications and exceptions: (a) the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect
relating to or affecting the rights or remedies of
creditors, (b) the effect of general principles of equity,
whether considered in a proceeding in equity or at law, and
the discretion of the court before which any proceeding
therefor may be brought, (c) the doctrine of commercial
reasonableness, (d) the unenforceability under certain
circumstances under law or court decisions of provisions
providing for the indemnification of or contribution to a
party with respect to a liability where such indemnification
or contribution is contrary to public policy, and (d) the
unenforceability of any provision requiring the payment of
attorney's fees, except to the extent that a court
determines such fees to be reasonable.
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(d) The Representatives shall have received an opinion, dated the
Closing Date and any Option Closing Date and satisfactory in form and substance
to the Representatives (and stating that it may be relied upon by counsel to the
Underwriters), from Jeffrey S. Distenfeld, general counsel to the Company, FWM
and the Operating Partnership, to the effect that:
To such counsel's knowledge, except as set forth in the Prospectus
there are no material legal proceedings pending or threatened against the
Company, the Operating Partnership, FWM or any Subsidiary.
(e) The Representatives shall have received from Hogan & Hartson
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (i) and (ii) of Paragraph (b) of this Section 6, and that this
Agreement has been duly authorized, executed and delivered by the Company and
the Operating Partnership, the Company was incorporated and is existing under
the laws of the State of Maryland and that the Shares have been authorized and
will upon issuance be validly issued, fully paid and non-assessable. In
rendering such opinion, Hogan & Hartson L.L.P. may rely as to all matters
governed other than by the laws of the State of Maryland or federal laws on the
opinions of counsel referred to in paragraph (b) of this Section 6. In addition
to the matters set forth above, such opinion shall also include a statement to
the effect that no facts have come to the attention of such counsel which causes
them to believe that (i) the Registration Statement, as of the time it became
effective under the Act, as of the Closing Date or the Option Closing Date, as
the case may, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact,
necessary in order to make the statements, in the light of the circumstances
under which they are made, not misleading (except that such counsel need express
no view as to financial statements, notes and supporting schedules and other
financial and statistical information and data included in or omitted from the
Registration Statement or the Prospectus). With respect to such statement, Hogan
& Hartson L.L.P. may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(f) The Representatives shall have received at or prior to the Closing
Date from Hogan & Hartson L.L.P. a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the state securities
or
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"blue sky" laws of such jurisdictions as the Representatives may reasonably have
designated to the Company.
(g) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company in their
capacities as such, on behalf of the Company and the Operating Partnership, to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be:
(i) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purposes have been initiated or are, to his knowledge, contemplated by
the Commission.
(ii) The representations and warranties of the Company and
the Operating Partnership contained in Section 1 hereof are true and
correct as of the Closing Date or the Option Closing Date, as the case
may be.
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made.
(iv) He has carefully examined the Registration Statement
and the Prospectus and, in his opinion, as of the effective date of
the Registration Statement, the statements contained in the
Registration Statement and Prospectus were true and correct in all
material respects, and such Registration Statement and Prospectus did
not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading and,
since the effective date of the Registration Statement, no event has
occurred which should have been set forth in a supplement to or an
amendment of the Prospectus which has not been so set forth in such
supplement or amendment.
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been
any material adverse change in or affecting the condition, financial
or otherwise, of the Company, the Operating Partnership, FWM and the
Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, the Operating Partnership, FWM
and the taken as a whole, whether or not arising in the ordinary
course of business.
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<PAGE>
(h) The Shares shall be qualified for sale in such jurisdictions as
the Representatives may reasonably request, each such qualification shall be in
effect and not subject to any order or other proceeding on the Closing Date.
(i) The Representatives shall have received, on each of the dates
hereof, the Closing Date and the Option Closing Date, as the case may be, a
letter dated the date hereof, the Closing Date or the Option Closing Date, as
the case may be, in form and substance satisfactory to you, of Coopers & Lybrand
LLP confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the related
published Rules and Regulations; and containing such other statements and
information as is ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial and
statistical information contained in the Registration Statement and Prospectus.
(j) The Lock-Up Agreements described in Section 4(1) are in full force
and effect.
(k) Prior to the Closing Date, the Company shall have furnished to you
such further information, certificates and documents, confirming the
representations and warranties, covenants and conditions contained herein, the
performance of obligations hereunder and related matters as the Representatives
may reasonably have requested.
(l) The Firm Shares and Option Shares, if any have been approved for
listing upon notice of issuance on the New York Stock Exchange.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and counsel for the Underwriters.
If any of the conditions herein above provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
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<PAGE>
7. Condition of the Obligations of the Company.
The obligations of the Company to sell and deliver the Shares required to
be delivered as and when specified in this Agreement are subject to the
condition that at the Closing Date or the Option Closing Date, as the case may
be, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect or proceedings therefor initiated or
threatened.
8. Indemnification.
(a) The Company and the Operating Partnership, jointly and severally
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the Act against any losses,
claims, damages or liabilities to which such Underwriter or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of any material fact contained in any Preliminary Prospectus or the Prospectus
or any supplement thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company and the Operating Partnership agree to
reimburse each Underwriter and each such controlling person upon demand for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not such
Underwriter or controlling person is a party to any action or proceeding;
provided, however, that the Company and the Operating Partnership will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company or the Operating Partnership by or through the Representatives
specifically for use in the preparation thereof.
The foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement, alleged untrue statement,
omission or alleged omission made in a Preliminary Prospectus but eliminated or
remedied in the Prospectus, such indemnity agreement shall not inure to the
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<PAGE>
benefit of any Underwriter from whom the person asserting any loss, liability,
claim or damage purchased the Shares (or to the benefit of any person who
controls such Underwriter) if a copy of the Prospectus was not furnished to such
person at or prior to the time such action is required by the Act.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company and the Operating Partnership, each of their directors,
each of their officers who have signed the Registration Statement and each
person, if any, who controls the Company or the Operating Partnership within the
meaning of the Act, against any losses, claims, damages or liabilities to which
the Company and the Operating Partnership or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company and the Operating Partnership or any such director,
officer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; provided, however,
that each Underwriter will be liable in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company or the Operating
Partnership by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the
- 29 -
<PAGE>
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred (or within 30 days of presentation) the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of the counsel retained by the indemnified party if (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate, in the reasonable determination of the indemnified party or
its counsel, due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company or the Operating Partnership in the
case of parties indemnified pursuant to Section 8(b); the indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there is a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the prior
written consent of the indemnified party, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
of which indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action
or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company or the
Operating Partnership on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the
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<PAGE>
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under Section 8(c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company or the Operating Partnership on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company or the Operating
Partnership on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company or the Operating Partnership bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Operating Partnership on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Operating Partnership and the Underwriters agree
that it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8
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<PAGE>
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company or the Operating Partnership, the Company's
directors or officers or any persons controlling the Company or the Operating
Partnership, (ii) acceptance of any Shares and payment therefor hereunder, and
(iii) any termination of this Agreement. A successor to any Underwriter, or to
the Company or the Operating Partnership, the Company's directors or officers,
or any person controlling the Company or the Operating Partnership, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. Default by Underwriters.
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company), you, as Representatives of
the Underwriters, shall use your reasonable efforts to procure within 36 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Optional Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Optional Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Optional
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Optional Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Optional Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Optional Shares, as the case
may be, with
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<PAGE>
respect to which such default shall occur exceeds 10% of the Firm Shares or
Optional Shares, as the case may be, covered hereby, the Company or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company except to the extent provided in Section 8 hereof. In the
event of a default by any Underwriter or Underwriters, as set forth in this
Section 9, the Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as Representatives
may determine in order that the required changes in the Registration Statement
or in the Prospectus or in any other documents or arrangements may be effected.
The term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. Notice.
All communications hereunder, except as may be otherwise specifically
provided herein, shall be in writing and shall be mailed, delivered or
transmitted by any standard form of telecommunication, and confirmed in writing,
as follows: if to the Underwriters, to Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland 21202, Attention: William C. Byrnes,
Managing Director, with a copy to Hogan & Hartson L.L.P., 555 Thirteenth Street,
N.W., Washington, D.C. 20004, Attention: J. Warren Gorrell, Jr., Esq.; if to the
Company or the Operating Partnership, to First Washington Realty Trust, Inc.,
4350 East-West Highway, Suite 400, Bethesda, Maryland 20814, Attention: Stuart
D. Halpert with a copy to Latham & Watkins, 1001 Pennsylvania Avenue, N.W.,
Suite 1300, Washington, D.C. 20004-2505, Attention: R. Ronald Hopkinson, Esq.
11. Termination.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in or
affecting the condition, financial or otherwise, of the Company, the Operating
Partnership, FWM and the Subsidiaries taken as a whole or the earnings,
business, management, properties, assets, rights, operations, condition
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<PAGE>
(financial or otherwise) or prospects of the Company, the Operating Partnership,
FWM and the Subsidiaries taken as a whole, whether or not arising in the
ordinary course of business, (ii) any outbreak or escalation or hostilities or
declaration of war or national emergency, calamity, crisis or change on the
financial markets of the United States would, in your reasonable judgment, make
it impracticable to market the Shares or to enforce contracts for the sale of
the Shares, or (iii) suspension of trading in securities generally on the New
York Stock Exchange or the American Stock Exchange or limitation on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such Exchange, (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company,
the Operating Partnership, FWM and the Subsidiaries taken as a whole, (v)
declaration of a banking moratorium by United States or New York State
authorities, (vi) any downgrading in the rating of the Company's debt securities
by any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Exchange Act), (vii) the suspension of trading
of the Company's common stock by the Commission on the New York Stock Exchange
or (viii) the taking of any action by any governmental body or agency in respect
of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and the Operating Partnership and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. Information Provided by Underwriters.
The Company, the Operating Partnership and the Underwriters acknowledge and
agree that only information furnished or to be furnished by any Underwriter to
the Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last paragraph of the front cover
page (insofar as such information relates to the Underwriters), legends required
by Item 502(d) of Regulation S-K under the Act and the information under the
caption "Underwriting" in the Prospectus.
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<PAGE>
14. Miscellaneous.
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
the Operating Partnership or their directors or officers and (c) delivery of and
payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
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<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Operating
Partnership and the several Underwriters in accordance with the terms.
Very truly yours,
FIRST WASHINGTON REALTY FIRST WASHINGTON REALTY
TRUST, INC., LIMITED PARTNERSHIP,
a Maryland corporation a Maryland limited partnership
By By: First Washington Realty
--------------------- Trust, Inc.,
William J. Wolfe its general partner
President
By
--------------------------
William J. Wolfe
President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
ALEX. BROWN & SONS INCORPORATED
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
TUCKER ANTHONY INCORPORATED
As Representatives of the Several
Underwriters listed on Appendix I
By: ALEX. BROWN & SONS INCORPORATED
By _______________________________
________________, Authorized Officer
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<PAGE>
APPENDIX I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
Alex. Brown & Sons Incorporated
Friedman, Billings, Ramsey & Co., Inc.
Tucker Anthony Incorporated
TOTAL 1,500,000
<PAGE>
SCHEDULE 1
[TO BE PROVIDED]
EXHIBIT 5
FILE NUMBER
824100
November 22, 1996
First Washington Realty Trust, Inc.
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Re: Registration Statement on Form S-11
(No. 333-15423)
---------------
Ladies and Gentlemen:
We have served as Maryland counsel to First Washington Realty Trust,
Inc., a Maryland corporation (the "Company"), in connection with certain matters
of Maryland law arising out of the registration of up to 1,500,000 shares (the
"Shares") of Common Stock, $.01 par value per share (the "Common Stock"), of the
Company (plus up to an additional 225,000 shares of Common Stock which the
Underwriters have the option to purchase solely to cover over-allotments),
covered by the above-referenced Registration Statement (the "Registration
Statement"), filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "1933
Act"). Unless otherwise defined herein, capitalized terms used herein shall have
the meanings assigned to them in the Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
<PAGE>
First Washington Realty Trust, Inc.
November 20, 1996
Page 2
1. The Registration Statement and the related form of prospectus
included therein in the form in which it was transmitted to the Commission under
the 1933 Act;
2. The charter of the Company (the "Charter"), certified as of a
recent date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
3. The Second Amended and Restated Bylaws of the Company, certified as
of a recent date by its Secretary;
4. Resolutions adopted by the Board of Directors of the Company (the
"Board") relating to the sale, issuance and registration of the Shares,
certified as of a recent date by the Secretary of the Company (the
"Resolutions");
5. The form of certificate representing a share of Common Stock,
certified as of a recent date by the Secretary of the Company;
6. A certificate of the SDAT as to the good standing of the Company,
dated as of a recent date;
7. A certificate executed by Jeffrey S. Distenfeld, Secretary of the
Company, dated as of a recent date; and
8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
<PAGE>
First Washington Realty Trust, Inc.
November 20, 1996
Page 3
3. Each individual executing any of the Documents, whether on behalf
of such individual or another person, is legally competent to do so.
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All public
records reviewed or relied upon by us or on our behalf are true and complete.
All statements and information contained in the Documents are true and complete.
There are no oral or written modifications of or amendments to the Documents,
and there has been no waiver of any of the provisions of the Documents, by
actions or conduct of the parties or otherwise.
5. In accordance with the Resolutions, the Board, or a duly
authorized committee thereof, will duly adopt resolutions including all terms
and conditions required by the Maryland General Corporation Law, as amended,
prior to the issuance of the Shares.
6. The Shares will not be issued or transferred in violation of any
restriction or limitation contained in the Charter.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing with
the SDAT.
2. The Shares have been duly authorized and, when and if delivered
against payment therefor in accordance with the resolutions of the Board, or any
duly authorized committee thereof, authorizing their issuance, the Shares will
be duly and validly issued, fully paid and nonassessable.
<PAGE>
First Washington Realty Trust, Inc.
November 20, 1996
Page 4
The foregoing opinion is limited to the laws of the State of Maryland
and we do not express any opinion herein concerning any other law. The opinion
expressed herein is subject to the effect of judicial decisions which may permit
the introduction of parol evidence to modify the terms or the interpretation of
agreements. We express no opinion as to compliance with the securities (or "blue
sky") laws of the State of Maryland.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for submission to the
Commission as an exhibit to the Registration Statement and, accordingly, may not
be relied upon by, quoted in any manner to, or delivered to any other person or
entity without, in each instance, our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
EXHIBIT 8
November 22, 1996
First Washington Realty Trust, Inc.
4350 East/West Highway, Suite 400
Bethesda, MD 20814
Re: Federal Income Tax Consequences
-------------------------------
Ladies and Gentlemen:
We have acted as tax counsel to First Washington Realty Trust, Inc., a
Maryland corporation (the "Company"), in connection with its sale of up to
1,725,000 shares of common stock of the Company pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, filed with
the Securities and Exchange Commission on November 1, 1996, as amended as of the
date it became effective (the "Registration Statement").
You have requested our opinion concerning certain of the federal income
tax consequences to the Company and the purchasers of the securities described
above in connection with the sale described above. This opinion is based on
various facts and assumptions, including the facts set forth in the Registration
Statement concerning the business, properties and governing documents of the
Company and First Washington Realty Limited Partnership (the "Operating
Partnership"). We have also been furnished with, and with your consent have
relied upon, certain representations made by the Company and the Operating
Partnership with respect to certain factual matters through a certificate of an
officer of the Company (the "Officer's Certificate"). With respect to matters of
Maryland law, we have relied exclusively upon the opinion of Ballard Spahr
Andrews & Ingersoll, counsel for the Company, dated November 22, 1996.
In our capacity as tax counsel to the Company, we have made such legal
and factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for purposes of this opinion. In our examination, we have assumed
the authenticity of all documents submitted to us as originals, the genuineness
of all signatures thereon, the legal capacity of natural persons executing such
documents and the conformity to authentic original documents of all documents
submitted to us as copies.
We are opining herein as to the effect on the subject transaction only
of the federal income tax laws of the United States and we express no opinion
with respect to the applicability thereto, or the effect thereon, of other
federal laws, the laws of any state or other jurisdiction or as to any matters
of municipal law or the laws of any other local agencies within any state.
Based on such facts, assumptions and representations, it is our opinion
that:
1. Commencing with the Company's taxable year ending December 31, 1994,
the Company has been organized in conformity with the requirements for
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qualification as a "real estate investment trust," and its proposed method of
operation, as described in the representations of the Company and the Operating
Partnership referred to above, will enable the Company to meet the requirements
for qualification and taxation as a "real estate investment trust" under the
Internal Revenue Code of 1986, as amended (the "Code").
2. The statements in the Registration Statement set forth under the
caption "Federal Income Tax Consequences" to the extent such information
constitutes matters of law, summaries of legal matters, or legal conclusions,
have been reviewed by us and are accurate in all material respects.
No opinion is expressed as to any matter not discussed herein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein. Moreover,
the Company's qualification and taxation as a real estate investment trust
depends upon the Company's ability to meet, through actual annual operating
results, distribution levels and diversity of stock ownership, the various
qualification tests imposed under the Code, the results of which have not been
and will not be reviewed by Latham & Watkins. Accordingly, no assurance can be
given that the actual results of the Company's operation for any one taxable
year will satisfy such requirements.
This opinion is rendered only to you, and is solely for your use in
connection with the sale of common stock by the Company pursuant to the
Registration Statement. This opinion may not be relied upon by you for any other
purpose, or furnished to, quoted to, or relied upon by any other person, firm or
corporation, for any purpose, without our prior written consent. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Registration Statement.
Very truly yours,
Latham & Watkins
EXHIBIT 10.11
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT is made as of June
30, 1996, by and between First Washington Realty Trust, Inc. a Maryland
corporation (the "REIT"), and Stuart D. Halpert ("Employee").
Recitals
A. The REIT and Employee executed an Executive Employment Agreement dated
as of June 26, 1994 (the "Original Agreement").
B. The REIT and Employee mutual desire to amend and restate the Original
Agreement pursuant to the terms set forth herein. This Agreement shall supersede
the terms set forth in the Original Agreement, and the Original Agreement shall
have no further force or effect.
C. The REIT wishes to contract for the managerial and business skills
possessed by the Employee and Employee desires to be employed by the REIT upon
the terms and subject to the conditions herein provided.
D. Employee will be hired by the REIT as its Chairman of the Board. In this
capacity, he will develop policy, supervise staff, direct day-to-day operations
and shall have such other duties as the Board of Directors of the REIT (the
"Board") prescribes.
Terms and Conditions
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants and conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment and Duties.
a. Position and Duties. Employee shall serve as Chairman of the Board
of the REIT. Employee shall have such duties and authority as are customary for,
and commensurate with such position, including developing policy, supervising
staff, directing day-to-day operations, and such other duties as the Board
prescribes. Employee shall have such other duties and authority as may from time
to time be delegated or assigned to him by the Board.
b. Preclusion of Outside Business Activities. During his employment,
Employee shall devote substantially all of his professional energies, interest,
abilities and productive work time to the performance of this Agreement.
Employee shall not, without the prior written consent of the REIT, perform other
professional services of any kind or engage in any other business activity, with
or without compensation; provided, however, that Employee shall be allowed (i)
to continue to engage in the development of First Washington Management, Inc., a
Maryland corporation ("FWM"), at a level consistent with past duties; (ii) to
engage in administering the business and activities of the First Washington
Realty Limited Partnership, a Maryland limited partnership (the "Operating
Partnership"); (iii) to serve as a Director on Boards of up to three (3)
non-competing companies; and (iv) to engage in passive investments that Employee
may make from time to time for his personal account; so long as the activities
described in clauses (i) - (iv) do not detract or adversely affect Employee's
duties and responsibilities under this
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Agreement. Employee shall not, without the prior written consent of the REIT,
engage in any activity adverse to the REIT's interests.
2. Term of Employment.
a. Term. This Agreement shall continue in full force and effect until
December 31, 1999, unless sooner terminated or extended as hereinafter provided
(the "employment term").
b. Extension of Term. The employment term set forth in a paragraph
2(a) above may be extended by written amendment to this Agreement signed by both
parties. The parties agree that they will use their best efforts to negotiate
the extension of this Agreement, if there is to be an extension, not later than
twelve months before the end of the employment term.
c. Termination by the REIT.
(i) Without Cause. The REIT may terminate this Agreement and
Employee's employment at any time for any reason or for no reason at all upon
two weeks prior written notice to Employee. Following notice of termination, the
REIT may elect to require Employee to continue to perform his duties under this
Agreement for an additional sixty (60) days. In connection with the termination
of Employee's employment pursuant to this Section 2(c)(i), Employee shall (A) be
paid his salary and any bonus payable to him in accordance with Sections 3(a)
and 3(b) hereof and shall be entitled to the benefits set forth in Sections 3(d)
- - 3(h) hereof up to the effective date of such termination, (B) receive the
Termination Compensation specified in Section 5(a) hereof, (C) retain the right
to receive the Contingent Shares for the three year period after the date hereof
in accordance with the terms of Annex B, (D) have the Restrictions on the
Restricted Stock lapse in accordance with the provisions of the Restricted Stock
Agreement set forth as Annex "D" hereto, and (E) receive the Contingent Stock in
accordance with the provisions of the Contingent Stock Agreement set forth as
Annex "E" hereto.
(ii) With Cause. Prior to the expiration of the employment term,
Employee's employment may be terminated for Cause by the Board, immediately upon
delivery of notice thereof. For purposes of this Agreement, "Cause" shall mean
Employee's termination only upon: (A) material incompetence in the performance
of his duties or obligations hereunder, including, without limitation; those
duties and obligations specified in Section 1(a) hereof; (B) Employee's engaging
in any act which is materially injurious to the REIT; (C) personal dishonesty,
willful misconduct, or breach of fiduciary duty involving personal profit; (C)
intentional and material failure to perform his stated duties; (E) willful
violation of any law which materially adversely affects his ability to discharge
his duties or has an adverse effect on the REIT's interests; or (F) Employee's
breaching in any material respect the terms of this Agreement or any
confidentiality or proprietary information agreement between Employee and FWM,
the Operating Partnership or the REIT; provided, however that "Cause" shall not
exist unless and until the REIT provides Employee with (Y) at least 15 days
prior written notice of its intention to terminate his employment for Cause,
together with a certified copy of the resolution of the Board reasonably
approving the termination of Employee's employment for Cause by the affirmative
vote of not less than a majority of the Board and a written statement describing
the nature of the Cause, and (Z) a reasonable opportunity and a reasonable
period of time to cure any curable acts or omissions on which the finding of
Cause is based. If the Employee cures the acts or omissions on which the finding
of Cause is based, the REIT shall not have Cause to terminate Employee's
employment hereunder.
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d. Termination by Employee.
With Good Reason or After Change of Control. Employee may
terminate this Agreement (i) with good reason or (ii) with good reason within
twenty-four (24) months following any change of control of the REIT upon written
notice to the REIT. Employee shall continue to perform, at the election of the
REIT, his duties under this Agreement for an additional thirty (30) days
following notice of termination. In such event, Employee shall (A) be paid his
salary and any bonus otherwise payable to him in accordance with Sections 3(a)
and 3(b) hereof and be entitled to the benefits set forth in Sections 3(d)- 3(h)
hereof up to the effective date of such termination, (B) receive the Termination
Compensation specified in Section 5(a) hereof, and (C) retain the right to
receive the Contingent Shares in accordance with the terms of Annex B, (D) have
the Restrictions on the Restricted Stock lapse in accordance with the provisions
of the Restricted Stock Agreement set forth as Annex "D" hereto, and (E) receive
the Contingent Stock in accordance with the provisions of the Contingent Stock
Agreement set forth as Annex "E" hereto.
For purposes of this Section 2(d), "good reason" shall mean (A)
the breach by the REIT of any of its obligations hereunder and the failure of
the REIT to cure such breach within sixty (60) days after receipt by the REIT of
a written notice of the Employee specifying in the reasonable detail the nature
of the breach, or (B) any material diminution in the scope of Employee's
responsibilities and duties.
For purposes of this Section 2(d), a "change of control" shall be
deemed to have occurred if (1) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the REIT, a corporation owned directly or indirectly by the stockholders of
the REIT in substantially the same proportions as their ownership of stock of
the REIT, Employee, or William J. Wolfe, or any of their respective affiliates,
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the REIT representing 50% or more of
the total voting power represented by the REIT's then outstanding securities
which vote generally in the election of directors (referred to herein as "Voting
Securities"); (2) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board and any new directors whose
election by the Board or nomination for election by the REIT's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board; or (3) the stockholders of the
REIT approve a merger or consolidation of the REIT with any other corporation,
other than a merger or consolidation which would result in the Voting Securities
of the REIT outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 50% of the total voting power represented by the
Voting Securities of the REIT or such surviving entity outstanding immediately
after such merger or consolidation, or (4) the stockholders of the REIT approve
a plan of complete liquidation of the REIT or an agreement for the sale or
disposition by the REIT of (in one transaction or a series of transactions) all
or substantially all of the REIT's assets.
e. Termination Due to Death or Disability. Employee's employment
hereunder shall terminate immediately upon his death. In the event that by
reason of injury, illness or other physical or mental impairment Employee shall
be: (A) completely unable to perform his services hereunder for more than six
consecutive months, or (B) unable to perform his services hereunder for fifty
percent or more of the normal working day throughout twelve consecutive months,
then the REIT may terminate Employee's
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employment hereunder. In the event of the termination of Employee's employment
pursuant to this Section 2(e), Employee or Employee's beneficiaries, estate,
heirs, representatives, or assigns, as appropriate, shall be entitled to receive
(U) Employee's salary and any other bonus otherwise payable to him in accordance
with Sections 3(a) and 3(b) hereof until the effective date of such termination;
(V) receive the Termination Compensation specified in Section 5(a) hereof; (W)
the proceeds, if any, due under any REIT-paid life insurance policy held by
Employee, as determined by and in accordance with the terms of any such policy;
(X) any vested benefits in Employee's stock options and the right to receive
Contingent Shares in accordance with the terms of Annex B; (Y) have the
Restrictions on the Restricted Stock lapse in accordance with the provisions of
the Restricted Stock Agreement set forth as Annex "D" hereto, and (Z) receive
the Contingent Stock in accordance with the provisions of the Contingent Stock
Agreement set forth as Annex "E" hereto.
f. Removal as Director. Notwithstanding any other provision of this
Agreement, if Employee shall be removed from office as a director of the REIT at
any time during the employment term, then Employee may notify the REIT in
writing of his election to terminate this Agreement with good reason upon
written notice to the REIT and such notice shall be effective immediately upon
receipt by the REIT. In such event, Employee shall (A) be paid his salary and
any bonus otherwise payable to him in accordance with Sections 3(a) and 3(b)
hereof and be entitled to the benefits set forth in Sections 3(d) - 3(h) hereof
up to the effective date of such termination, (B) receive the Termination
Compensation specified in Section 5(a) hereof, and (C) retain the right to
receive the Contingent Shares in accordance with the terms of Annex B (provided
that Employee shall not be entitled to the Termination Compensation or the
Contingent Shares pursuant to this Section 2(f) if he is removed as a director
for cause under the corporation law of the State of Maryland).
3. Compensation and Related Matters.
a. Salary. Employee's annual base salary during the employment term
shall be $250,000 per annum. Such salary shall be reviewed by the Board annually
during the first quarter of the REIT's fiscal year, and Employee shall receive
such salary increases, if any, as the Board, in its sole discretion, shall
determine. Such salary shall be payable in accordance with the REIT's normal
payment practices, but in no event shall such salary be payable less frequently
than monthly in equal installments.
b. Bonus. In addition to the salary set forth in paragraph 3(a) above,
Employee shall be eligible to receive such bonus, if any, as the Board shall
determine, in accordance with the criteria set forth in Annex A hereto.
c. Options. Substantially concurrent with the transactions pursuant to
which the REIT was formed (the "Formation Transactions"), the REIT granted
Employee options to purchase 146,475 shares of the REIT's Common Stock under the
REIT's 1994 Stock Option Plan on the terms and conditions set forth therein. If
Employee leaves his employment with the REIT for any reason set forth in Section
2(c)(i) or 2(d), all his unvested options shall automatically and fully vest. If
Employee leaves his employment with the REIT for any reason other than as set
forth in 2(c)(i) or 2(d) all unvested options shall be forfeited. Upon
Employee's termination of employment, Employee (in the case of his death,
Employee's personal representative or heirs) shall be entitled to exercise all
options vested as of the date of termination of employment at any time during
the applicable unexpired exercise period set forth in the Stock Option Plan.
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d. Restricted Stock. Employee shall be entitled to receive 39,200
shares of Restricted Stock pursuant to the terms and additions set forth in the
form of Restricted Stock Agreement set forth as Annex "D" hereto; provided,
however, that the grant of such Restricted Stock shall be subject to the
approval of the REIT's stockholders.
e. Contingent Stock. Employee shall be entitled to receive 30,000
shares of Contingent Stock pursuant to the terms and conditions set forth in the
form of Contingent Stock Agreement set forth as Annex "E" hereto; provided,
however, that the grant of such Contingent Stock shall be subject to the
approval of the REIT's stockholders.
f. Benefits. The Employee shall be entitled to:
(i) participate in or receive benefits under any employee benefit
plan or other arrangement including, but not limited to, any medical, dental,
retirement, disability, life insurance, sick leave and vacation plans or
arrangements made available by the REIT to any of its employees, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans or arrangement; and
(ii) participate in the REIT's executive deferred compensation
plan and 401(k) plan.
g. Contingent Shares. Employee shall be entitled to receive the
Contingent Shares (as defined in Annex B), upon the satisfaction of certain
performance thresholds as specified in Annex B.
h. Expenses. The REIT shall promptly pay directly or reimburse
Employee for all reasonable travel and other business expenses incurred by
Employee in the performance of his duties to the Company under this Agreement.
i. Vacation. Employee shall be entitled to vacation benefits in
accordance with the REIT's normal vacation policies, but in no event less than
four weeks of paid vacation each calendar year.
j. Professional Memberships. The REIT shall promptly pay directly or
reimburse Employee for all reasonable expenses incurred by Employee with respect
to professional memberships.
k. Automobile Allowance. The REIT shall provide Employee with an
automobile allowance for a company automobile of comparable quality as
automobiles customarily provided to executive officers in the industry. Expenses
relating to such automobile will be paid in accordance with the normal and
customary practice of the REIT.
l. Deductions and Withholdings. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by Employee and any deductions and withholdings required by law.
4. Covenant Not to Compete or Solicit.
a. Non-Competition. Employee agrees that during the term of this
Agreement he will not directly or indirectly engage in (whether as an employee,
consultant, proprietor, partner, director or otherwise), or have any ownership
interest in, or participate in the financing, operation, management or control
of, any person, firm, corporation or business that engages in or intends to
engage in a Restricted Business. "Restricted Business" shall mean any business
that is engaged in or (to Employee's knowledge after due inquiry) preparing to
engage in the real estate business of the acquisition, development, management
and operation of principally retail shopping centers, provided, however, that
"Restricted Business" shall not include the ownership or the participation in
the operation and management of those properties listed on Annex C hereto.
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Employee further agrees that for the eighteen (18) month period
following the end of the employment term, he will not directly or indirectly
engage in (whether as an employee, consultant, proprietor, partner, director or
otherwise), or have any ownership interest in, or participate in the financing,
operation, management or control of, any person, firm, corporation or business
that engages in or intends to engage in a Post-Employment Restricted Business.
"Post-Employment Restricted Business" shall mean any business that is engaged in
or (to Employee's knowledge after due inquiry) preparing to engage in the real
estate business of the acquisition, development, management and operation of
principally, retail shopping centers within twenty-five (25) miles of a retail
property owned, directly or through one or more subsidiaries or otherwise, by
the REIT, the Operating Partnership or FWM at the end of the employment term,
provided, however, that "Post-Employment Restricted Business" shall not include
the ownership or the participation in the operation and management of those
properties listed on Annex C hereto.
Ownership of (i) no more than one percent (1%) of the outstanding
voting stock of a publicly traded entity, or (ii) any stock presently owned by
Employee, shall not constitute a violation of this Section 4(a).
This Section 4(a) shall not prohibit Employee from working for a
division or subsidiary of a company which division or subsidiary does not engage
in a Restricted Business or a Post-Employment Restricted Business, even though
other divisions or subsidiaries of such company do engage in a Restricted
Business or Post-Employment Restricted Business, provided that the REIT receives
adequate assurances as it may request that Employee has no involvement with the
divisions or subsidiaries engaged in the Restricted Business or Post-Employment
Restricted Business.
b. Non-Solicitation. Employee agrees that during the term of this
Agreement, he will not (i) solicit, encourage, or take any other action which is
intended to induce any other employee of the REIT to terminate his or her
employment with the REIT, or (ii) interfere in any manner with the contractual
or employment relationship between the REIT and any such employee of the REIT.
c. Severability. The parties intend that the covenants contained in
the preceding paragraphs shall be construed as a series of separate covenants,
one for each county of Maryland, Virginia, Pennsylvania, North Carolina, South
Carolina, and Delaware, and to the District of Columbia, each state of the
Union, and each nation. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in the
preceding paragraphs. If, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants (or any part thereof) deemed included in
said paragraphs, then such unenforceable covenant (or such part) shall be deemed
eliminated from this Agreement for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants (or portions
thereof) to be enforced. In the event that the provisions of this Section 4
should ever be deemed to exceed the time or geographic limitations, or the scope
of this covenant, permitted by applicable law, then such provisions shall be
reformed to the maximum time or geographic limitations, as the case may be,
permitted by applicable laws.
5. Severance.
a. Termination. If Employee's employment is terminated (i) during the
employment term by the REIT other than for Cause pursuant to Section 2(c)(ii)
hereof, (ii) during the employment term by Employee with good reason or with
good reason after a change in control pursuant to Section 2(d) hereof, (iii)
during the employment term due to Employee's removal as a director pursuant to
Section 2(f) hereof, or (iv) during the employment term due to Employee's death
or disability pursuant to Section 2(e) hereof, or (v) if this Agreement
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expires and is not renewed pursuant to Section 2(b); then Employee shall be paid
a lump sum amount equal to the greater of:
(A) 200% of the sum of (x) Employee's annual base salary at the time
of such termination (as determined pursuant to Section 3(a)) plus (y) the
average annual bonus (if any) paid to Employee during the employment term; or
(B) the sum of (x) the annual base salary (as determined pursuant to
Section 3(a)) Employee would otherwise be entitled to receive from the time of
such termination through the end of the employment term (as determined pursuant
to Section 2(a)) plus (y) the average annual bonus (if any) paid to Employee
during the employment term, annualized from the time of such termination through
the end of the employment term (the "Termination Compensation").
No Termination Compensation shall be paid if the Employee's employment
is terminated during the employment term (i) by the REIT for Cause pursuant to
Section 2(c)(ii) hereof or (ii) by Employee without good reason. If Employee's
employment is terminated prior to the expiration of this Agreement for any
reason whatsoever, the REIT will continue to provide whatever medical,
disability, life or insurance benefits were in effect at the time of termination
until such time as this Agreement would have expired if Employee had not been
terminated (but in no event for a period less than twenty-four months). No
severance benefits shall be paid if the Employee's employment is terminated by
the REIT for Cause.
b. Survival. The expiration or termination of the employment term
shall not impair the rights or obligations of any party hereto which shall have
accrued hereunder prior to such expiration.
c. Mitigation of Damages. In the event of any termination of
Employee's employment, Employee shall not be required to seek other employment
to mitigate damages, and any income earned by Employee from other employment or
self-employment shall not be offset against any obligations of the REIT to the
Employee under this Agreement.
6. Employee's Representations. Employee represents and warrants to the REIT
as follows:
a. Employee is familiar with and approves the covenants not to compete
and not to solicit set forth in Section 4, including, without limitation, the
reasonableness of the length of time, scope and geographic coverage of these
covenants.
b. Notwithstanding any "what-if" scenarios of the future results of
operations and stock prices of the REIT under certain assumptions which the
parties may have discussed, Employee has not relied on any such scenarios or any
forecasts or projections provided by the REIT and understands that neither the
REIT nor FWM has made any representation or warranty whatsoever regarding any
forecasts or projections to Employee.
7. Miscellaneous.
a. Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing to both parties and shall be
deemed given on the date of delivery, if delivered, or three days after mailing,
if mailed first-class mail, postage prepaid, to the following addresses:
i) If to Employee:
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4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Attn: Stuart D. Halpert
ii) If to the REIT:
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Attn: General Counsel
or to such other address as any party hereto may designate by notice given as
herein provided.
b. Entire Agreement. This Agreement contains the entire understanding
and sole and entire agreement between the parties with respect to the subject
matter hereof, and supersedes any and all prior agreements, negotiations and
discussions between the parties hereto with respect to the subject matter
covered hereby. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement shall be valid or binding. This Agreement may not be modified
or amended by oral agreement, but only by an agreement in writing signed by the
REIT and by Employee, and which states the intent of the parties to amend this
Agreement.
c. Assignment and Binding Effect. Neither this Agreement nor the
rights or obligations hereunder shall be assignable by Employee. The REIT may
assign this Agreement to any successor of the REIT, and upon such assignment any
such successor shall be deemed substituted for the REIT upon the terms and
subject to the conditions hereof, provided, that substantially all of the assets
of the REIT are also transferred to the same party.
d. Successor to the REIT. The REIT will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of the REIT,
as the case may be, by agreement in form and substance reasonably satisfactory
to Employee, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the REIT
would be required to perform it if no such succession or assignment had taken
place. Any failure of the REIT to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. This Agreement shall inure to the benefit of and be enforceable
by Employee's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Employee should die
while any amounts are still payable to Employee hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee or other designee or, if there be
no such designee, to Employee's estate.
e. Arbitration. The parties agree that any and all disputes
(contract, tort, or statutory, whether under federal, state or local law)
between Employee and the REIT (including other REIT employees, officers,
directors and representatives) arising out of Employee's employment with the
REIT, the termination of that employment, or this Agreement, shall be submitted
to final and binding arbitration. The arbitration shall take place in the County
of Montgomery, and may be compelled and enforced according to the Maryland
Arbitration Act. Unless the parties mutually agree otherwise, the arbitration
shall be conducted before the American Arbitration Association, according to its
Commercial Arbitration Rules. Judgment on the award the arbitrator renders may
be entered in any court having jurisdiction over the parties. Arbitration shall
be initiated in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
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f. Amendments; Waivers. This Agreement may not be modified,
amended, or terminated except by an instrument in writing, approved by the Board
and signed by Employee and the REIT. By an instrument in writing similarly
executed, the Employee or the REIT may waive compliance by the other party or
parties with any provision of this Agreement that such other party was or is
obligated to comply with or perform; provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy or
power hereunder shall preclude any other or further exercise of any other right,
remedy or power provided herein or by law or equity.
g. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Maryland as applied to
agreements made and performed in Maryland by residents of Maryland.
h. Effectiveness. This Agreement shall become effective on June 30,
1996. Notwithstanding any provision herein to the contrary, if (i) this
Agreement is executed by the parties prior to June 30, 1996 and (ii) prior to
June 30, 1996 the Company's stockholders have failed to approve the grant of
Restricted Stock described in Section 3(d) herein or the grant of Contingent
Stock described in Section 3(e) herein, then at any time prior to June 30, 1996
Employee shall have the option to rescind this Agreement, and the terms of the
Original Agreement shall continue in full force and effect.
i. Attorneys' Fees. In the event of any arbitration or legal action or
proceeding to enforce or interpret the provisions hereof, the prevailing party
shall be entitled to reasonable attorneys' fees, whether or not the proceeding
results in a final judgment.
j. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
k. Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
l. Severability. The provisions of this Agreement are severable. If
any provision of this Agreement shall be held to be invalid or otherwise
unenforceable in whole or in part, the remainder of the provisions or
enforceable parts hereof shall not be affected thereby and shall be enforced to
the fullest extent permitted by law.
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Executive Employment Agreement as of the date first written above.
FIRST WASHINGTON REALTY TRUST, INC.
a Maryland Corporation
By:_______________________________
William J. Wolfe
President
Attest:
- -----------------------------------
Jeffrey S. Distenfeld, Secretary
EMPLOYEE
---------------------------------
Stuart D. Halpert
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ANNEX A
Bonus Payments
Employee shall be eligible for a bonus payment pursuant to Section
3(b) (the "Bonus") in accordance with the following:
1. Amount. The amount of the Bonus shall range from 0 to 100% of
Employee's annual salary, determined pursuant to Section 3(a), for the most
recent fiscal year. If, during a given year, the REIT achieves targeted
performance and the employee performs at an acceptable level, then the targeted
Bonus for any such year shall be fifty percent (50%). Notwithstanding the
foregoing, the maximum Bonus payable for the time periods set forth in paragraph
3(a)(i) and 3(a)(ii), together, shall not exceed $77,500.
2. Criteria.
a. The Board's determination regarding Bonus grants for Bonuses
based on the Company's performance from July 1, 1995 - December 31, 1996 shall
be based upon the performance criteria set forth below:
(i) Measure Target Weight
------- ------ ------
FFO growth 6% 15%
Total Return 15% 15%
Portfolio Growth 10% 20%
Board's Discretion n/a 50%
(ii) FFO Growth shall be calculated as the annual
growth rate in funds from operations per share
(calculated on a fully diluted basis).
(iii) Total Return shall be calculated as the sum of (x)
the annual dividend and (y) the increase in the
appreciation in the REIT's stock, measured as the
annual change in the market price of the REIT's
common stock.
(iv) Portfolio Growth shall be calculated as the
increase in the aggregate value of real property
in the REIT's portfolio, based upon the original
cost of such properties.
The Board shall have the discretion to amend the performance criteria
in future years, provided, however, that the Board shall advise Employee of the
criteria for a given year at the beginning of such year.
3. Timing.
a. As described in paragraph 2 above, the Bonus shall be based
upon the REIT's performance during a given period. The Board shall determine
Employee's Bonus, if any, within the following time periods:
(i) for the period from June 30, 1995 to June 30, 1996
the Board shall make its determination during the
third calendar quarter of 1996, and such Bonus, if
any, shall be paid to Employee no later than
September 30, 1996;
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(ii) for the period from July 1, 1996 to December 31,
1996, the Board shall make its determination
during the first calendar quarter of 1997, and
such Bonus, if any, shall be paid to Employee no
later than March 31, 1997. Because this Bonus
determination will be calculated upon performance
during a partial year period, the target criteria
for determining the bonus (as specified in
paragraph 2(a)(i) above) shall be pro rated
accordingly; and
(iii) for subsequent fiscal years during the term of
employment (i) the Board shall make its
determination during the first quarter of the
following fiscal year, and such Bonus, if any,
shall be paid to Employee, no later than March
31st of the following fiscal year.
b. Except as provided in 3(iii) below, Employee must be
actively employed as the end of the REIT's fiscal year to be eligible to receive
a Bonus for such year.
c. Notwithstanding Section 3(ii), Employee shall be eligible
for a prorated Bonus if Employee is not actively employed by the REIT due to one
of the following reasons:
(i) if Employee terminates employment for good reason
pursuant to Section 2(c)(ii) of the Agreement or
as a result of a Change of Control pursuant to
Section 2(d) of the Agreement.
(ii) if Employee is terminated due to death or total
disability pursuant to Section 2(e) of the
Agreement.
(iii) if this Agreement expires and is not renewed
pursuant to Section 2(b).
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ANNEX "B"
The Company has reserved 100,000 shares of Common Stock ("Contingent
Shares") for issuance to employee (or his designee) during the three year period
following the date hereof upon the achievement of the following performance
based objectives as follows:
(i) one-third of the Contingent Shares shall be issued as of
June 27, 1995 (the end of the first year following
consummation of the REIT's offering of certain shares of
Series A Convertible Preferred Stock and Common Stock (the
"Offering")), if the annual growth rate in funds from
operations per share (calculated on a fully diluted basis)
between July 1, 1994 and June 30, 1995 equals or exceeds 7.0%;
(ii) one-third of the Contingent Shares shall be issued as of
June 27, 1996 (the end of the second year following the
Offering) if the annual growth rate in funds from operations
per share (calculated on a fully diluted basis) between July
1, 1995 and June 30, 1996 equals or exceeds 7.0%;
(iii) one-third of the Contingent Shares shall be issued as of
June 27, 1997 (at the end of the third year following
consummation of Offering), if the annual growth rate in funds
from operations per share (calculated on a fully diluted
basis) between July 1, 1996 and June 30, 1997 equals or
exceeds 7.0%; and
(iv) if as of June 27, 1997 (at the end of the third year
following consummation of the Offering), less than 100% of the
Contingent Shares have been issued, Employee shall be issued a
number of additional Contingent Shares such that the aggregate
amount of Contingent Shares issued to Employee (including all
previously issued Contingent Shares) is as follows:
(A) Employee shall have received one-third of the
Contingent shares if funds from operations per share
(calculated on a fully diluted basis) increased by
7.0% or more (but less than 14.0%) between July 1,
1994 and June 30, 1997;
(B) Employee shall have received two-thirds of the
Contingent Shares if funds from operations per share
(calculated on a fully diluted basis) increased by
14.0% or more (but less than 21.0%) between July 1,
1994 and June 30, 1997; and
(C) Employee shall have received 100% of the
Contingent Shares if funds from operations per share
(calculated on a fully diluted basis) increased by
21.0% or more between July 1, 1994 and June 30, 1997.
Employee shall have the right to cause the Company to grant any portion of the
Contingent Shares to Employee's designee who is an employee of the Company.
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ANNEX "C"
LIST OF PROPERTIES AND ENTITIES EMPLOYEE MAY CONTINUE TO OWN AND
PARTICIPATE IN THE OPERATION AND MANAGEMENT OF:
1. 727 15th Street
2. Deale, Maryland land parcel
3. Properties currently owned by Mid-Atlantic Centers Limited
Partnership
a. Woodlawn Village
b. Lynnwood Place
c. Highlandtown Village
d. Jackson Heights
e. Holiday
f. Orchard Square
g. Cloister
h. Edgewood
i. Tarrytown Mall
j. Berkeley Square
k. Quality Center
14
EXHIBIT 10.12
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT is made as of
June 30, 1996, by and between First Washington Realty Trust, Inc. a Maryland
corporation (the "REIT"), and William J. Wolfe ("Employee").
Recitals
A. The REIT and Employee executed an Executive Employment Agreement dated
as of June 26, 1994 (the "Original Agreement").
B. The REIT and Employee mutual desire to amend and restate the Original
Agreement pursuant to the terms set forth herein. This Agreement shall supersede
the terms set forth in the Original Agreement, and the Original Agreement shall
have no further force or effect.
C. The REIT wishes to contract for the managerial and business skills
possessed by the Employee and Employee desires to be employed by the REIT upon
the terms and subject to the conditions herein provided.
D. Employee will be hired by the REIT as its President and Chief Executive
Officer. In this capacity, he will develop policy, supervise staff, direct
day-to-day operations and shall have such other duties as the Board of Directors
of the REIT (the "Board") prescribes.
Terms and Conditions
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants and conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment and Duties.
a. Position and Duties. Employee shall serve as President and Chief
Executive Officer of the REIT. Employee shall have such duties and authority as
are customary for, and commensurate with such position, including developing
policy, supervising staff, directing day-to-day operations, and such other
duties as the Board prescribes. Employee shall have such other duties and
authority as may from time to time be delegated or assigned to him by the Board.
b. Preclusion of Outside Business Activities. During his employment,
Employee shall devote substantially all of his professional energies, interest,
abilities and productive work time to the performance of this Agreement.
Employee shall not, without the prior written consent of the REIT, perform other
professional services of any kind or engage in any other business activity, with
or without compensation; provided, however, that Employee shall be allowed (i)
to continue to engage in the development of First Washington Management, Inc., a
Maryland corporation ("FWM"), at a level consistent with past duties; (ii) to
engage in administering the business and activities of the First Washington
Realty Limited Partnership, a Maryland limited partnership (the "Operating
Partnership"); (iii) to serve as a Director on Boards of up to three (3)
non-competing companies; and (iv) to engage in passive investments that Employee
may make from time to time for his personal account; so long as the activities
described in clauses (i) - (iv) do not detract or adversely affect Employee's
duties and responsibilities under this
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Agreement. Employee shall not, without the prior written consent of the REIT,
engage in any activity adverse to the REIT's interests.
2. Term of Employment.
a. Term. This Agreement shall continue in full force and effect until
June 30, 1999, unless sooner terminated or extended as hereinafter provided (the
"employment term").
b. Extension of Term. The employment term set forth in a paragraph
2(a) above may be extended by written amendment to this Agreement signed by both
parties. The parties agree that they will use their best efforts to negotiate
the extension of this Agreement, if there is to be an extension, not later than
twelve months before the end of the employment term.
c. Termination by the REIT.
(i) Without Cause. The REIT may terminate this Agreement and
Employee's employment at any time for any reason or for no reason at all upon
two weeks prior written notice to Employee. Following notice of termination, the
REIT may elect to require Employee to continue to perform his duties under this
Agreement for an additional sixty (60) days. In connection with the termination
of Employee's employment pursuant to this Section 2(c)(i), Employee shall (A) be
paid his salary and any bonus payable to him in accordance with Sections 3(a)
and 3(b) hereof and shall be entitled to the benefits set forth in Sections 3(d)
- - 3(h) hereof up to the effective date of such termination, (B) receive the
Termination Compensation specified in Section 5(a) hereof, (C) retain the right
to receive the Contingent Shares for the three year period after the date hereof
in accordance with the terms of Annex B, (D) have the Restrictions on the
Restricted Stock lapse in accordance with the provisions of the Restricted Stock
Agreement set forth as Annex "D" hereto, and (E) receive the Contingent Stock in
accordance with the provisions of the Contingent Stock Agreement set forth as
Annex "E" hereto.
(ii) With Cause. Prior to the expiration of the employment term,
Employee's employment may be terminated for Cause by the Board, immediately upon
delivery of notice thereof. For purposes of this Agreement, "Cause" shall mean
Employee's termination only upon: (A) material incompetence in the performance
of his duties or obligations hereunder, including, without limitation; those
duties and obligations specified in Section 1(a) hereof; (B) Employee's engaging
in any act which is materially injurious to the REIT; (C) personal dishonesty,
willful misconduct, or breach of fiduciary duty involving personal profit; (C)
intentional and material failure to perform his stated duties; (E) willful
violation of any law which materially adversely affects his ability to discharge
his duties or has an adverse effect on the REIT's interests; or (F) Employee's
breaching in any material respect the terms of this Agreement or any
confidentiality or proprietary information agreement between Employee and FWM,
the Operating Partnership or the REIT; provided, however that "Cause" shall not
exist unless and until the REIT provides Employee with (Y) at least 15 days
prior written notice of its intention to terminate his employment for Cause,
together with a certified copy of the resolution of the Board reasonably
approving the termination of Employee's employment for Cause by the affirmative
vote of not less than a majority of the Board and a written statement describing
the nature of the Cause, and (Z) a reasonable opportunity and a reasonable
period of time to cure any curable acts or omissions on which the finding of
Cause is based. If the Employee cures the acts or omissions on which the finding
of Cause is based, the REIT shall not have Cause to terminate Employee's
employment hereunder.
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d. Termination by Employee.
With Good Reason or After Change of Control. Employee may
terminate this Agreement (i) with good reason or (ii) with good reason within
twenty-four (24) months following any change of control of the REIT upon written
notice to the REIT. Employee shall continue to perform, at the election of the
REIT, his duties under this Agreement for an additional thirty (30) days
following notice of termination. In such event, Employee shall (A) be paid his
salary and any bonus otherwise payable to him in accordance with Sections 3(a)
and 3(b) hereof and be entitled to the benefits set forth in Sections 3(d)- 3(h)
hereof up to the effective date of such termination, (B) receive the Termination
Compensation specified in Section 5(a) hereof, and (C) retain the right to
receive the Contingent Shares in accordance with the terms of Annex B, (D) have
the Restrictions on the Restricted Stock lapse in accordance with the provisions
of the Restricted Stock Agreement set forth as Annex "D" hereto, and (E) receive
the Contingent Stock in accordance with the provisions of the Contingent Stock
Agreement set forth as Annex "E" hereto.
For purposes of this Section 2(d), "good reason" shall mean (A)
the breach by the REIT of any of its obligations hereunder and the failure of
the REIT to cure such breach within sixty (60) days after receipt by the REIT of
a written notice of the Employee specifying in the reasonable detail the nature
of the breach, or (B) any material diminution in the scope of Employee's
responsibilities and duties.
For purposes of this Section 2(d), a "change of control" shall be
deemed to have occurred if (1) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the REIT, a corporation owned directly or indirectly by the stockholders of
the REIT in substantially the same proportions as their ownership of stock of
the REIT, Employee, or William J. Wolfe, or any of their respective affiliates,
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the REIT representing 50% or more of
the total voting power represented by the REIT's then outstanding securities
which vote generally in the election of directors (referred to herein as "Voting
Securities"); (2) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board and any new directors whose
election by the Board or nomination for election by the REIT's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board; or (3) the stockholders of the
REIT approve a merger or consolidation of the REIT with any other corporation,
other than a merger or consolidation which would result in the Voting Securities
of the REIT outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 50% of the total voting power represented by the
Voting Securities of the REIT or such surviving entity outstanding immediately
after such merger or consolidation, or (4) the stockholders of the REIT approve
a plan of complete liquidation of the REIT or an agreement for the sale or
disposition by the REIT of (in one transaction or a series of transactions) all
or substantially all of the REIT's assets.
e. Termination Due to Death or Disability. Employee's employment
hereunder shall terminate immediately upon his death. In the event that by
reason of injury, illness or other physical or mental impairment Employee shall
be: (A) completely unable to perform his services hereunder for more than six
consecutive months, or (B) unable to perform his services hereunder for fifty
percent or more of the normal working day throughout twelve consecutive months,
then the REIT may terminate Employee's employment hereunder. In the event of the
termination of Employee's employment pursuant to this Section 2(e), Employee or
Employee's beneficiaries, estate, heirs, representatives, or assigns, as
appropriate, shall be entitled to receive (U) Employee's salary and any other
bonus otherwise payable to him in accordance with Sections 3(a) and 3(b) hereof
until the effective date of such termination; (V) receive the Termination
Compensation specified in Section 5(a) hereof; (W) the proceeds, if any, due
under any REIT-paid life insurance policy held by Employee, as determined by and
in accordance with the terms of any such policy; (X) any vested benefits in
Employee's stock options and the right to receive Contingent Shares in
accordance with the terms of Annex B; (Y) have the Restrictions on the
Restricted Stock lapse in accordance with the provisions of the Restricted Stock
Agreement set forth as Annex "D" hereto, and (Z) receive the Contingent Stock in
accordance with the provisions of the Contingent Stock Agreement set forth as
Annex "E" hereto.
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f. Removal as Director. Notwithstanding any other provision of this
Agreement, if Employee shall be removed from office as a director of the REIT at
any time during the employment term, then Employee may notify the REIT in
writing of his election to terminate this Agreement with good reason upon
written notice to the REIT and such notice shall be effective immediately upon
receipt by the REIT. In such event, Employee shall (A) be paid his salary and
any bonus otherwise payable to him in accordance with Sections 3(a) and 3(b)
hereof and be entitled to the benefits set forth in Sections 3(d) - 3(h) hereof
up to the effective date of such termination, (B) receive the Termination
Compensation specified in Section 5(a) hereof, and (C) retain the right to
receive the Contingent Shares in accordance with the terms of Annex B (provided
that Employee shall not be entitled to the Termination Compensation or the
Contingent Shares pursuant to this Section 2(f) if he is removed as a director
for cause under the corporation law of the State of Maryland).
3. Compensation and Related Matters.
a. Salary. Employee's annual base salary during the employment term
shall be $250,000 per annum. Such salary shall be reviewed by the Board annually
during the first quarter of the REIT's fiscal year, and Employee shall receive
such salary increases, if any, as the Board, in its sole discretion, shall
determine. Such salary shall be payable in accordance with the REIT's normal
payment practices, but in no event shall such salary be payable less frequently
than monthly in equal installments.
b. Bonus. In addition to the salary set forth in paragraph 3(a) above,
Employee shall be eligible to receive such bonus, if any, as the Board shall
determine, in accordance with the criteria set forth in Annex A hereto.
c. Options. Substantially concurrent with the transactions pursuant to
which the REIT was formed (the "Formation Transactions"), the REIT granted
Employee options to purchase 146,475 shares of the REIT's Common Stock under the
REIT's 1994 Stock Option Plan on the terms and conditions set forth therein. If
Employee leaves his employment with the REIT for any reason set forth in Section
2(c)(i) or 2(d), all his unvested options shall automatically and fully vest. If
Employee leaves his employment with the REIT for any reason other than as set
forth in 2(c)(i) or 2(d) all unvested options shall be forfeited. Upon
Employee's termination of employment, Employee (in the case of his death,
Employee's personal representative or heirs) shall be entitled to exercise all
options vested as of the date of termination of employment at any time during
the applicable unexpired exercise period set forth in the Stock Option Plan.
d. Restricted Stock. Employee shall be entitled to receive 39,200
shares of Restricted Stock pursuant to the terms and additions set forth in the
form of Restricted Stock Agreement set forth as Annex "D" hereto; provided,
however, that the grant of such Restricted Stock shall be subject to the
approval of the REIT's stockholders.
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e. Contingent Stock. Employee shall be entitled to receive 30,000
shares of Contingent Stock pursuant to the terms and conditions set forth in the
form of Contingent Stock Agreement set forth as Annex "E" hereto; provided,
however, that the grant of such Contingent Stock shall be subject to the
approval of the REIT's stockholders.
f. Benefits. The Employee shall be entitled to:
(i) participate in or receive benefits under any employee benefit
plan or other arrangement including, but not limited to, any medical, dental,
retirement, disability, life insurance, sick leave and vacation plans or
arrangements made available by the REIT to any of its employees, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans or arrangement; and
(ii) participate in the REIT's executive deferred compensation
plan and 401(k) plan.
g. Contingent Shares. Employee shall be entitled to receive the
Contingent Shares (as defined in Annex B), upon the satisfaction of certain
performance thresholds as specified in Annex B.
h. Expenses. The REIT shall promptly pay directly or reimburse
Employee for all reasonable travel and other business expenses incurred by
Employee in the performance of his duties to the Company under this Agreement.
i. Vacation. Employee shall be entitled to vacation benefits in
accordance with the REIT's normal vacation policies, but in no event less than
four weeks of paid vacation each calendar year.
j. Professional Memberships. The REIT shall promptly pay directly or
reimburse Employee for all reasonable expenses incurred by Employee with respect
to professional memberships.
k. Automobile Allowance. The REIT shall provide Employee with an
automobile allowance for a company automobile of comparable quality as
automobiles customarily provided to executive officers in the industry. Expenses
relating to such automobile will be paid in accordance with the normal and
customary practice of the REIT.
l. Deductions and Withholdings. All amounts payable or which become
payable under any provision of this Agreement shall be subject to any deductions
authorized by Employee and any deductions and withholdings required by law.
4. Covenant Not to Compete or Solicit.
a. Non-Competition. Employee agrees that during the term of this
Agreement he will not directly or indirectly engage in (whether as an employee,
consultant, proprietor, partner, director or otherwise), or have any ownership
interest in, or participate in the financing, operation, management or control
of, any person, firm, corporation or business that engages in or intends to
engage in a Restricted Business. "Restricted Business" shall mean any business
that is engaged in or (to Employee's knowledge after due inquiry) preparing to
engage in the real estate business of the acquisition, development, management
and operation of principally retail shopping centers, provided, however, that
"Restricted Business" shall not include the ownership or the participation in
the operation and management of those properties listed on Annex C hereto.
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Employee further agrees that for the eighteen (18) month period
following the end of the employment term, he will not directly or indirectly
engage in (whether as an employee, consultant, proprietor, partner, director or
otherwise), or have any ownership interest in, or participate in the financing,
operation, management or control of, any person, firm, corporation or business
that engages in or intends to engage in a Post-Employment Restricted Business.
"Post-Employment Restricted Business" shall mean any business that is engaged in
or (to Employee's knowledge after due inquiry) preparing to engage in the real
estate business of the acquisition, development, management and operation of
principally, retail shopping centers within twenty-five (25) miles of a retail
property owned, directly or through one or more subsidiaries or otherwise, by
the REIT, the Operating Partnership or FWM at the end of the employment term,
provided, however, that "Post-Employment Restricted Business" shall not include
the ownership or the participation in the operation and management of those
properties listed on Annex C hereto.
Ownership of (i) no more than one percent (1%) of the outstanding
voting stock of a publicly traded entity, or (ii) any stock presently owned by
Employee, shall not constitute a violation of this Section 4(a).
This Section 4(a) shall not prohibit Employee from working for a
division or subsidiary of a company which division or subsidiary does not engage
in a Restricted Business or a Post-Employment Restricted Business, even though
other divisions or subsidiaries of such company do engage in a Restricted
Business or Post-Employment Restricted Business, provided that the REIT receives
adequate assurances as it may request that Employee has no involvement with the
divisions or subsidiaries engaged in the Restricted Business or Post-Employment
Restricted Business.
b. Non-Solicitation. Employee agrees that during the term of this
Agreement, he will not (i) solicit, encourage, or take any other action which is
intended to induce any other employee of the REIT to terminate his or her
employment with the REIT, or (ii) interfere in any manner with the contractual
or employment relationship between the REIT and any such employee of the REIT.
c. Severability. The parties intend that the covenants contained in
the preceding paragraphs shall be construed as a series of separate covenants,
one for each county of Maryland, Virginia, Pennsylvania, North Carolina, South
Carolina, and Delaware, and to the District of Columbia, each state of the
Union, and each nation. Except for geographic coverage, each such separate
covenant shall be deemed identical in terms to the covenant contained in the
preceding paragraphs. If, in any judicial proceeding, a court shall refuse to
enforce any of the separate covenants (or any part thereof) deemed included in
said paragraphs, then such unenforceable covenant (or such part) shall be deemed
eliminated from this Agreement for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants (or portions
thereof) to be enforced. In the event that the provisions of this Section 4
should ever be deemed to exceed the time or geographic limitations, or the scope
of this covenant, permitted by applicable law, then such provisions shall be
reformed to the maximum time or geographic limitations, as the case may be,
permitted by applicable laws.
5. Severance.
a. Termination. If Employee's employment is terminated (i) during the
employment term by the REIT other than for Cause pursuant to Section 2(c)(ii)
hereof, (ii) during the employment term by Employee with good reason or with
good reason after a change in control pursuant to Section 2(d) hereof, (iii)
during the employment term due to Employee's removal as a director pursuant to
Section 2(f) hereof, or (iv) during the employment term due to Employee's death
or disability pursuant to Section 2(e) hereof, or (v) if this Agreement expires
and is not renewed pursuant to Section 2(b); then Employee shall be paid a lump
sum amount equal to the greater of:
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(A) 200% of the sum of (x) Employee's annual base salary at the time
of such termination (as determined pursuant to Section 3(a)) plus (y) the
average annual bonus (if any) paid to Employee during the employment term;
or
(B) the sum of (x) the annual base salary (as determined pursuant to
Section 3(a)) Employee would otherwise be entitled to receive from the time
of such termination through the end of the employment term (as determined
pursuant to Section 2(a)) plus (y) the average annual bonus (if any) paid
to Employee during the employment term, annualized from the time of such
termination through the end of the employment term (the "Termination
Compensation").
No Termination Compensation shall be paid if the Employee's employment
is terminated during the employment term (i) by the REIT for Cause pursuant to
Section 2(c)(ii) hereof or (ii) by Employee without good reason. If Employee's
employment is terminated prior to the expiration of this Agreement for any
reason whatsoever, the REIT will continue to provide whatever medical,
disability, life or insurance benefits were in effect at the time of termination
until such time as this Agreement would have expired if Employee had not been
terminated (but in no event for a period less than twenty-four months). No
severance benefits shall be paid if the Employee's employment is terminated by
the REIT for Cause.
b. Survival. The expiration or termination of the employment term
shall not impair the rights or obligations of any party hereto which shall have
accrued hereunder prior to such expiration.
c. Mitigation of Damages. In the event of any termination of
Employee's employment, Employee shall not be required to seek other employment
to mitigate damages, and any income earned by Employee from other employment or
self-employment shall not be offset against any obligations of the REIT to the
Employee under this Agreement.
6. Employee's Representations. Employee represents and warrants to the REIT
as follows:
a. Employee is familiar with and approves the covenants not to compete
and not to solicit set forth in Section 4, including, without limitation, the
reasonableness of the length of time, scope and geographic coverage of these
covenants.
b. Notwithstanding any "what-if" scenarios of the future results of
operations and stock prices of the REIT under certain assumptions which the
parties may have discussed, Employee has not relied on any such scenarios or any
forecasts or projections provided by the REIT and understands that neither the
REIT nor FWM has made any representation or warranty whatsoever regarding any
forecasts or projections to Employee.
7. Miscellaneous.
a. Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing to both parties and shall be
deemed given on the date of delivery, if delivered, or three days after mailing,
if mailed first-class mail, postage prepaid, to the following addresses:
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i) If to Employee:
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Attn: William J. Wolfe
ii) If to the REIT:
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Attn: General Counsel
or to such other address as any party hereto may designate by notice given as
herein provided.
b. Entire Agreement. This Agreement contains the entire understanding
and sole and entire agreement between the parties with respect to the subject
matter hereof, and supersedes any and all prior agreements, negotiations and
discussions between the parties hereto with respect to the subject matter
covered hereby. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement shall be valid or binding. This Agreement may not be modified
or amended by oral agreement, but only by an agreement in writing signed by the
REIT and by Employee, and which states the intent of the parties to amend this
Agreement.
c. Assignment and Binding Effect. Neither this Agreement nor the
rights or obligations hereunder shall be assignable by Employee. The REIT may
assign this Agreement to any successor of the REIT, and upon such assignment any
such successor shall be deemed substituted for the REIT upon the terms and
subject to the conditions hereof, provided, that substantially all of the assets
of the REIT are also transferred to the same party.
d. Successor to the REIT. The REIT will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of the REIT,
as the case may be, by agreement in form and substance reasonably satisfactory
to Employee, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the REIT
would be required to perform it if no such succession or assignment had taken
place. Any failure of the REIT to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. This Agreement shall inure to the benefit of and be enforceable
by Employee's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Employee should die
while any amounts are still payable to Employee hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee or other designee or, if there be
no such designee, to Employee's estate.
e. Arbitration. The parties agree that any and all disputes (contract,
tort, or statutory, whether under federal, state or local law) between Employee
and the REIT (including other REIT employees, officers, directors and
representatives) arising out of Employee's employment with the REIT, the
termination of that employment, or this Agreement, shall be submitted to final
and binding arbitration. The arbitration shall take place in the County of
Montgomery, and may be compelled and enforced according to the Maryland
Arbitration Act. Unless the parties mutually agree otherwise, the arbitration
shall be conducted before the American Arbitration Association, according to its
Commercial Arbitration Rules. Judgment on the award the arbitrator renders may
be entered in any court having jurisdiction over the parties. Arbitration shall
be initiated in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
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f. Amendments; Waivers. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, approved by the Board and
signed by Employee and the REIT. By an instrument in writing similarly executed,
the Employee or the REIT may waive compliance by the other party or parties with
any provision of this Agreement that such other party was or is obligated to
comply with or perform; provided, however, that such waiver shall not operate as
a waiver of, or estoppel with respect to, any other or subsequent failure. No
failure to exercise and no delay in exercising any right, remedy or power
hereunder shall preclude any other or further exercise of any other right,
remedy or power provided herein or by law or equity.
g. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Maryland as applied to
agreements made and performed in Maryland by residents of Maryland.
h. Effectiveness. This Agreement shall become effective on June 30,
1996. Notwithstanding any provision herein to the contrary, if (i) this
Agreement is executed by the parties prior to June 30, 1996 and (ii) prior to
June 30, 1996 the Company's stockholders have failed to approve the grant of
Restricted Stock described in Section 3(d) herein or the grant of Contingent
Stock described in Section 3(e) herein, then at any time prior to June 30, 1996
Employee shall have the option to rescind this Agreement, and the terms of the
Original Agreement shall continue in full force and effect.
i. Attorneys' Fees. In the event of any arbitration or legal action or
proceeding to enforce or interpret the provisions hereof, the prevailing party
shall be entitled to reasonable attorneys' fees, whether or not the proceeding
results in a final judgment.
j. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
k. Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
l. Severability. The provisions of this Agreement are severable. If
any provision of this Agreement shall be held to be invalid or otherwise
unenforceable in whole or in part, the remainder of the provisions or
enforceable parts hereof shall not be affected thereby and shall be enforced to
the fullest extent permitted by law.
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Executive Employment Agreement as of the date first written above.
FIRST WASHINGTON REALTY TRUST, INC.
a Maryland Corporation
By:_______________________________
Stuart D. Halpert
Chairman
Attest:
- -----------------------------------
Jeffrey S. Distenfeld, Secretary
EMPLOYEE
----------------------------------
William J. Wolfe
10
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ANNEX A
Bonus Payments
Employee shall be eligible for a bonus payment pursuant to Section
3(b) (the "Bonus") in accordance with the following:
1. Amount. The amount of the Bonus shall range from 0 to 100% of
Employee's annual salary, determined pursuant to Section 3(a), for the most
recent fiscal year. If, during a given year, the REIT achieves targeted
performance and the employee performs at an acceptable level, then the targeted
Bonus for any such year shall be fifty percent (50%). Notwithstanding the
foregoing, the maximum Bonus payable for the time periods set forth in paragraph
3(a)(i) and 3(a)(ii), together, shall not exceed $77,500.
2. Criteria.
a. The Board's determination regarding Bonus grants for Bonuses
based on the Company's performance from July 1, 1995 - December 31, 1996 shall
be based upon the performance criteria set forth below:
(i) Measure Target Weight
------- ------ ------
FFO growth 6% 15%
Total Return 15% 15%
Portfolio Growth 10% 20%
Board's Discretion n/a 50%
(ii) FFO Growth shall be calculated as the annual growth
rate in funds from operations per share (calculated on
a fully diluted basis).
(iii) Total Return shall be calculated as the sum of (x) the
annual dividend and (y) the increase in the
appreciation in the REIT's stock, measured as the
annual change in the market price of the REIT's common
stock.
(iv) Portfolio Growth shall be calculated as the increase
in the aggregate value of real property in the REIT's
portfolio, based upon the original cost of such
properties.
The Board shall have the discretion to amend the performance criteria
in future years, provided, however, that the Board shall advise Employee of the
criteria for a given year at the beginning of such year.
3. Timing.
a. As described in paragraph 2 above, the Bonus shall be based
upon the REIT's performance during a given period. The Board shall determine
Employee's Bonus, if any, within the following time periods:
(i) for the period from June 30, 1995 to June 30, 1996 the
Board shall make its determination during the third
calendar quarter of 1996, and such Bonus, if any,
shall be paid to Employee no later than September 30,
1996;
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<PAGE>
(ii) for the period from July 1, 1996 to December 31, 1996,
the Board shall make its determination during the
first calendar quarter of 1997, and such Bonus, if
any, shall be paid to Employee no later than March 31,
1997. Because this Bonus determination will be
calculated upon performance during a partial year
period, the target criteria for determining the bonus
(as specified in paragraph 2(a)(i) above) shall be pro
rated accordingly; and
(iii) for subsequent fiscal years during the term of
employment (i) the Board shall make its determination
during the first quarter of the following fiscal year,
and such Bonus, if any, shall be paid to Employee, no
later than March 31st of the following fiscal year.
b. Except as provided in 3(iii) below, Employee must be actively
employed as the end of the REIT's fiscal year to be eligible to receive a Bonus
for such year.
c. Notwithstanding Section 3(ii), Employee shall be eligible for
a prorated Bonus if Employee is not actively employed by the REIT due to one of
the following reasons:
(i) if Employee terminates employment for good reason
pursuant to Section 2(c)(ii) of the Agreement or as a
result of a Change of Control pursuant to Section 2(d)
of the Agreement.
(ii) if Employee is terminated due to death or total
disability pursuant to Section 2(e) of the Agreement.
(iii) if this Agreement expires and is not renewed pursuant
to Section 2(b).
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ANNEX "B"
The Company has reserved 100,000 shares of Common Stock ("Contingent
Shares") for issuance to employee (or his designee) during the three year period
following the date hereof upon the achievement of the following performance
based objectives as follows:
(i) one-third of the Contingent Shares shall be issued as of June 27,
1995 (the end of the first year following consummation of the REIT's
offering of certain shares of Series A Convertible Preferred Stock and
Common Stock (the "Offering")), if the annual growth rate in funds
from operations per share (calculated on a fully diluted basis)
between July 1, 1994 and June 30, 1995 equals or exceeds 7.0%;
(ii) one-third of the Contingent Shares shall be issued as of June 27,
1996 (the end of the second year following the Offering) if the annual
growth rate in funds from operations per share (calculated on a fully
diluted basis) between July 1, 1995 and June 30, 1996 equals or
exceeds 7.0%;
(iii) one-third of the Contingent Shares shall be issued as of June
27, 1997 (at the end of the third year following consummation of
Offering), if the annual growth rate in funds from operations per
share (calculated on a fully diluted basis) between July 1, 1996 and
June 30, 1997 equals or exceeds 7.0%; and
(iv) if as of June 27, 1997 (at the end of the third year following
consummation of the Offering), less than 100% of the Contingent Shares
have been issued, Employee shall be issued a number of additional
Contingent Shares such that the aggregate amount of Contingent Shares
issued to Employee (including all previously issued Contingent Shares)
is as follows:
(A) Employee shall have received one-third of the Contingent
shares if funds from operations per share (calculated on a fully
diluted basis) increased by 7.0% or more (but less than 14.0%)
between July 1, 1994 and June 30, 1997;
(B) Employee shall have received two-thirds of the Contingent
Shares if funds from operations per share (calculated on a fully
diluted basis) increased by 14.0% or more (but less than 21.0%)
between July 1, 1994 and June 30, 1997; and
(C) Employee shall have received 100% of the Contingent Shares if
funds from operations per share (calculated on a fully diluted
basis) increased by 21.0% or more between July 1, 1994 and June
30, 1997.
Employee shall have the right to cause the Company to grant any portion of the
Contingent Shares to Employee's designee who is an employee of the Company.
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ANNEX "C"
LIST OF PROPERTIES AND ENTITIES EMPLOYEE MAY CONTINUE TO OWN AND
PARTICIPATE IN THE OPERATION AND MANAGEMENT OF:
1. 727 15th Street
2. Deale, Maryland land parcel
3. Properties currently owned by Mid-Atlantic Centers Limited
Partnership
a. Woodlawn Village
b. Lynnwood Place
c. Highlandtown Village
d. Jackson Heights
e. Holiday
f. Orchard Square
g. Cloister
h. Edgewood
i. Tarrytown Mall
j. Berkeley Square
k. Quality Center
14
EXHIBIT 10.48
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT is made and entered as the 21st day of
October, 1996, by and between (I) CONTINENTAL REALTY INVESTORS CORP., JHP
DEVELOPMENT COMPANY, INC., J. MARK SCHAPIRO, JOHN A. LUETKEMEYER, JR., JAMES
STONE TRUSTEE for MARY LUETKEMEYER, JAMES STONE TRUSTEE for JULIA LUETKEMEYER,
JAMES STONE TRUSTEE for ANNE LUETKEMEYER, TRIPEC ASSOCIATES, L.P., HERBERT
ROCHLIN and JHJ INVESTMENT LIMITED PARTNERSHIP, who are (or will be as of the
Closing) all of the general and limited partners (collectively, the "Partners")
of Northway Limited Partnership, a Maryland limited partnership (the
"Partnership") (the Partners sometimes hereinafter referred to collectively as
"Contributors" and Continental Realty Investors Corp. and JHP Development
Company, Inc. are hereinafter referred to collectively as the "General
Partners"), and (ii) FIRST WASHINGTON REALTY LIMITED PARTNERSHIP, a Maryland
limited partnership (hereinafter referred to as "FWRLP").
W I T N E S S E T H:
WHEREAS, the Partners own, or will own as of the Closing, all of the
partnership interests (the "Partnership Interests") of the Partnership, and
WHEREAS, the Partnership is the record and beneficial owner of that
certain parcel of real property containing approximately 9.596 acres of land as
more particularly described on Exhibit A hereto (collectively, the "Land"),
together with the shopping center known as Northway Shopping Center located in
Millersville, Maryland, and containing approximately 91,000 square feet of
leasable area and all other buildings and improvements situated thereon
(collectively, the "Building"), and all personal property and fixtures located
therein (other than that owned by tenants) (the "Personalty"), and all
appurtenances, rights, easements, rights-of-way, tenements and hereditaments
incident thereto (the "Additional Property") (the Land, Building, Personalty and
Additional Property are hereinafter collectively referred to as the "Property");
and
WHEREAS, Contributors and FWRLP desire to enter into this Agreement
relating to the contribution by certain Contributors to FWRLP of their
Partnership Interests in exchange for certain interests in FWRLP and by other
contributors of their Partnership Interests in exchange for cash.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Contribution. Subject to the terms and conditions set forth in this
Agreement, Contributors and FWRLP agree to the contribution by Contributors to
FWRLP (the "Contribution") of all of the Partnership Interests.
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2. Consideration.
(a) In consideration of the Contribution of the Partnership
Interests, FWRLP shall pay cash and issue common partnership units of FWRLP (the
"Units") in an aggregate amount calculated as follows: Nine Million Dollars
($9,000,000.00) less the outstanding and unpaid principal balance of the Crown
Life Loan (as defined below) at the Closing ,with the number of Units determined
by dividing the consideration payable to the Contributors receiving Units by a
price per Unit (the "Unit Price") equal to $21.50, rounded to the nearest one
(1). FWRLP will pay the cash and issue the Units to the Contributors in
accordance with the schedule set forth as Exhibit Q attached hereto.
(b) At Closing, the Partnership Interests shall be contributed
to FWRLP with the Property then being subject to the indebtedness, lien and
operation of the Crown Life Loan, including without limitation the Mortgage (as
defined below).
(c) (i) The Property is presently encumbered by a Deed of
Trust and Security Agreement ("Mortgage") from the Partnership, as debtor, for
the benefit of Crown Life Insurance Company, as secured party (the "Lender"),
which Mortgage secures an original principal indebtness of $7,900,000.00 with
interest thereon payable over the term thereof (which ends on August 1, 1999) at
a fixed interest rate of 10.25% per annum, as evidenced by a Note from the
Partnership to Lender ("Note"). The Mortgage and Note and all documents and
instruments executed in connection therewith are collectively referred to as the
"Crown Life Loan." The Crown Life Loan requires equal monthly installments of
principal and interest in the amount of the $70,457.00 per month. The
outstanding principal balance under the Crown Life Loan as of the date hereof is
approximately $7,770,000.00. Copies of the Mortgage and Note are attached hereto
as Exhibits N and O, respectively.
(ii) FWRLP's obligations under this Agreement shall
be expressly contingent on the condition that FWRLP receive by Closing a letter
(the "Letter") from Lender (i) consenting to the Contribution of the Partnership
Interests and such modifications to the Loan as FWRLP shall determine are
necessary, (ii) confirming that the Crown Life Loan is as described above, (iii)
certifying that, to the best knowledge of the Lender, there is no default or
event which with notice or lapse of time, or both, would constitute a default
under the Crown Life Loan. At Closing, the General Partners shall execute an
estoppel certificate in favor of FWRLP certifying that, to the best knowledge of
the General Partners, there is no default, or event of default which with notice
or lapse of time, or both, would constitute a default under the Crown Life Loan.
The General Partners shall reasonably cooperate with FWRLP in its efforts to
obtain such Letter from Lender before the end of the Feasibility Period (as
defined below). FWRLP shall be responsible for all costs charged by the Lender
in connection with such consents. If such Letter is not received by FWRLP by
Closing, FWRLP shall have the right to terminate this Agreement, in which event
the Deposit (defined below),
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together with interest thereon, shall be returned to FWRLP. If Lender does not
consent or if Lender's Letter is other than as set forth above and is not
acceptable to FWRLP, FWRLP shall have the right, at its sole election, to
terminate this Agreement by giving written notice thereof to Contributors,
whereupon the Deposit, together with interest thereon, shall be returned to
Contributors and neither party shall have any further liability to the other.
(iii) Contributor's obligations under this Agreement
shall be expressly contingent on the condition that the Lender, on or before the
Closing, shall have released the General Partners from all obligations and
liabilities under the Crown Life Loan pursuant to a release document(s)
reasonably acceptable to the General Partners.
(d) The Contributors and FWRLP will settle any pro rations and
closing adjustments as provided in this Agreement as follows: (i) if
Contributors owe the same, on a net basis, to FWRLP, through a reduction in
Units in an amount equal to the net adjustment divided by the Unit Price,
rounded to the nearest one (1), to be delivered at the Closing, and (ii) if
FWRLP owes the same, on a net basis, to Contributors, through additional Units
in an amount equal to the net adjustment divided by the Unit Price, rounded to
the nearest one (1), to be delivered at the Closing. Contributors acknowledge
that the Units will not be redeemable for cash or exchangeable for common stock
of the REIT for a period of thirteen (13) months after their issuance, all as
more fully discussed in the Confidential Information Statement (as hereinafter
defined), as supplemented through the date hereof.
(e) Notwithstanding any provision hereof to the contrary, the
Contribution of the Partnership Interests to FWRLP by the Contributors who
receive Units as set forth herein shall constitute a "Capital Contribution"
within the meaning of the FWRLP Partnership Agreement and is intended, to the
fullest extent possible, to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and all parties to this Agreement
will report the transaction evidenced hereby consistently with this Section
2(e). Since the Contribution of the Partnership Interests to FWRLP will
terminate the Partnership for federal income tax purposes, FWRLP agrees that the
Contributors shall have the right and obligation to file final tax returns for
the Partnership as of the Closing Date.
3. Deposit.
(a) Within two (2) business days after the date of delivery to
FWRLP of an original of this Agreement executed by Contributors together with
completed Exhibits hereto (the date of such delivery by Contributors being the
"Acceptance Date"), FWRLP shall deliver to the Title Company, as escrow agent, a
deposit (together with interest earned thereon, the "Deposit") of Fifty Thousand
Dollars ($50,000.00 ) by check
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payable to the Commercial Settlements, Inc., 1413 K Street, N.W., Washington, DC
20005 (the "Title Company").
(b) Within two (2) business days after the end of the
Feasibility Period (as defined in Section 14(b)), Purchaser shall deliver to the
Title Company, as escrow agent, an additional deposit (the "Additional Deposit")
of Fifty Thousand Dollars ($50,000.00) by check payable to the Title Company.
(c) The Initial Deposit and Additional Deposit and all accrued
interest thereon are hereinafter referred to collectively as the "Deposit." The
Title Company will immediately provide Contributors with written evidence of
receipt of such Deposit. The Title Company shall place the Deposit in an
interest-bearing account within two (2) business days after the date of receipt
thereof, and interest on the Deposit shall accrue to the benefit of the party
entitled to the Deposit pursuant to this Agreement. The Deposit shall be held by
the Title Company pursuant to the terms and conditions of this Agreement.
(d) In the event that, at any time prior to Closing, either of
the General Partners or FWRLP provides Title Company with a certification (a
copy of which shall be delivered contemporaneously to the other party) that the
Contributors or FWRLP, as the case may be, is entitled to the Deposit pursuant
to the terms of this Agreement, Title Company shall deliver the Deposit to such
party within seven (7) business days after receipt of said notice, unless the
other party disputes such certification by written notice to Title Company (a
copy of which shall be delivered contemporaneously to the other party) delivered
within five (5) business days of Title Company's receipt of the initial
certification. In such event, Title Company shall hold the Deposit pending
resolution of such dispute. Any payment of the Deposit to the Contributors shall
be made by certified check payable to the General Partners or wire transfer.
(e) The parties acknowledge that Title Company is acting
solely as a stakeholder at their request and for their convenience, that Title
Company shall not be deemed to be the agent of either of the parties, and Title
Company shall not be liable to either of the parties for any act or omission on
its part unless taken or suffered in bad faith, in willful disregard to this
Agreement or involving gross negligence. The General Partners and FWRLP shall
jointly and severally indemnify and hold Title Company harmless from and against
all costs, claims and expenses, including reasonable attorneys' fees, incurred
in connection with the performance of Title Company's duties hereunder, except
with respect to actions or omissions taken or suffered by Title Company in bad
faith, in willful disregard of this Agreement or involving gross negligence on
the part of Title Company.
4. Closing. Except as otherwise provided in this Agreement, the
Contribution contemplated herein shall be consummated at the "Closing"
(sometimes hereinafter referred to as the "Closing"), which shall take place on
the date (the "Closing
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Date") specified by FWRLP on not less than ten (10) days notice to Contributors,
provided that the Closing Date shall not be later than forty-five (45) days
after the end of the Feasibility Period. The Closing shall take place at the
offices of First Washington Realty Limited Partnership, 4350 East-West Highway,
Suite 400, Bethesda, Maryland 20814, or at such other place as may mutually
agreed upon by Contributors and
FWRLP.
5. Representations and Warranties of Contributors. In order to induce
FWRLP to enter into this Agreement and to issue the Units in consideration for
the Partnership Interests, each Contributor for such Contributor only and for no
other Contributor makes the following representations and warranties, each of
which is material and shall survive Closing without limitation, notwithstanding
any investigation at any time made by or on behalf of FWRLP:
(a) Authority. Such Contributor has the rights, power and
authority to enter into this Agreement and to contribute its Partnership
Interests in accordance with the terms and conditions of this Agreement. Except
for the consents required under the Crown Life Loan, no consents of any persons
other than those executing this Agreement as a Contributor are required for such
execution or to cause such Contributor to consummate the transactions
contemplated by this Agreement. This Agreement is the valid and binding
obligation of such Contributor, enforceable against such Contributor in
accordance with its terms.
(b) No Defaults. Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will: (i) subject to
any approval required under the Crown Life Loan, conflict with, or result in a
breach of, the terms, conditions, or provisions of or constitute a default under
any agreement or instrument to which such Contributor is a party or by which
such Contributor is bound, or (ii) subject to any approval required under the
Crown Life Loan, violate any restriction, requirement, covenant or condition to
which such Contributor is subject or by which such Contributor is bound.
(c) Ownership of Interests. Such Contributor owns, or will own
as of the Closing, the Partnership Interest owned by such Contributor, as set
forth in Exhibit P hereto, free and clear of all liens, charges, encumbrances,
restrictive agreements and assessments other than the provisions of the
Partnership Agreement (J. Mark Schapiro will own as of the Closing the
Partnership Interest presently owned by the Trust U/A Lorraine G. Schapiro dated
June 24, 1974 (Trust 112) free and clear of such liens, charges, etc.) Upon the
contribution of such Contributor's Partnership Interest to FWRLP or its
designee(s), FWRLP will receive good and absolute title thereto, free from all
liens, charges, encumbrances, restrictive agreements and assessments whatsoever
other than the provisions of the Partnership Agreement. Such Contributor hereby
waives, with respect to the contribution contemplated by this Agreement, any
"right of refusal" or other restriction on transfer set forth in the Partnership
Agreement.
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There are no outstanding options, contracts, calls, commitments or demands of
any nature relating to the Partnership Interest of such Contributor, except as
set forth in the Partnership Agreement.
(d) Securities Law Matters.
(i) Such Contributor who shall receive the Units is
now or, at the time of Closing, will be, an "accredited investor" as such term
is defined under Rule 501 promulgated under the Securities Act of 1933, as
amended (the "Securities Act");
(ii) Such Contributor's primary residence or
principal place of business is in the State of Maryland;
(iii) Such Contributor is acquiring the Units for
such Contributor's account for investment purposes only and not with a present
view to distribution;
(iv) Taking into account the information and
resources such Contributor can practically bring to bear on the acquisition of
the Units in FWRLP contemplated hereby, such Contributor is knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions with
respect to investments in securities presenting an investment decision like that
involved in the acquisition of the Units, including investments in securities
issued by FWRLP, and has requested, received, reviewed and considered all
information such Contributor deems relevant in making an informed decision to
acquire the Units (including the Confidential Information Statement attached
hereto which contains the First Amended and Restated Agreement of Limited
Partnership of FWRLP and any Amendments thereto (the "Partnership Agreement"),
except that the Partnership Agreement has been further amended solely to reflect
exchanges of Units for shares of the REIT's common stock (the "Common Stock") by
holders of such Units in accordance with the terms of the Partnership
Agreement);
(v) Such Contributor will not, directly or
indirectly, voluntarily offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge of
) any of the Units except in compliance with the Securities Act and the rules
and regulations promulgated thereunder and with the terms and conditions of the
Partnership Agreement;
(vi) Such Contributor acknowledges that the Units to
be issued must be held unless and until they are subsequently registered under
the Securities Act and under applicable state securities or blue sky laws,
unless exemptions from such registrations are available at the time of resale;
(vii) Prior to the issuance of the Units, such
Contributor will execute all such other documents and instruments as may be
reasonably necessary to
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allow FWRLP to comply with federal and state securities law requirements with
respect to the issuance of the Units and to comply with the terms of the
Partnership Agreement; and
(viii) Such Contributor acknowledges and agrees that
the Units to be issued hereunder shall not be exchangeable and shall not be
exchanged for Common Stock for a period of thirteen (13) months from and after
the date of issuance to such Contributor.
(e) No Contributor is a person other than a United States
person within the meaning of the Internal Revenue Code of 1986, as amended (the
"Code"). The transaction contemplated herein is not subject to the tax
withholding provisions of Section 3406 of the Code, or Subchapter A of Chapter 3
of the Code or of any other provision of law.
6. Representations and Warranties of the General Partners. In order to
induce FWRLP to enter into this Agreement and to issue the Units in
consideration for the Partnership Interests, the General Partners, jointly and
severally, hereby make the following representations and warranties as of the
date hereof, each of which is material and shall (except as otherwise set forth
in Section 6(s)), survive Closing for a period of one (1) year (unless expressly
provided that it will survive Closing without such limitation), notwithstanding
any investigation at any time made by or on behalf of FWRLP:
(a) Authority. The Partnership is a limited partnership duly
organized and in good standing under the laws of the State of Maryland. The copy
of the Partnership' s Partnership Agreement and all Amendments thereto
(collectively, the "Partnership Agreement") including all Certificates of
Limited Partnership and all Amendments thereto and the list of all the Partners
along with their individual Partnership Interests, attached hereto an Exhibit P
, is a true, correct and complete copy thereof. Notwithstanding anything to the
contrary, the representations and warranties contained in this Section 6(a)
shall survive Closing without being subject to the one year limitation.
(b) Title. The Partnership is the sole owner of fee simple
title to the Property.
(c) Compliance with Existing Laws. To the best of the General
Partners' knowledge and except as set forth on Exhibit D attached hereto, (i)
the Partnership is not in violation of, and has materially complied with, any
and all applicable building, zoning, environmental or other ordinances, statutes
or regulations of any governmental agency, in respect to the ownership, use,
maintenance, condition and operation of the Property or any part thereof, and
(ii) the Partnership possesses all licenses, certificates, permits and
authorizations necessary for the use and operation of the Property in the manner
in which it is currently being operated by the Partnership, and the requisite
certificates of the fire marshalls or board of fire underwriters have
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been issued for the Property, if applicable. The Property is zoned C-3. To the
best of the General Partners' knowledge, the Building and all related facilities
are now in conformance with all applicable zoning laws, and no variance,
exception or other modification of such laws was necessary in order to authorize
the use or occupancy of any portion thereof, or if necessary it was obtained.
(d) Leases. True, correct and complete copies of all of the
leases of the Property and any amendments thereto (collectively, the "Leases"),
have been delivered to FWRLP. Attached hereto as Exhibit B is a description of
all of the Leases and a current rent schedule ("Rent Schedule") covering the
Leases, which is true and correct in all material respects. There are no leases
or tenancies of any space in the Property other than those set forth in Exhibit
B or, to the General Partners' knowledge, any subleases or subtenancies unless
otherwise noted therein. Except as otherwise set forth in Exhibit B or elsewhere
in this Agreement:
(i) The Leases are in full force and effect and to
the best of the General Partners' knowledge constitute a
legal, valid and binding obligation of the respective tenants;
(ii) no tenant has an option to purchase the Property
or any portion thereof;
(iii) no renewal or expansion options have been
granted to the tenants, except as provided in the Leases;
(iv) to the best of the General Partners' knowledge,
the Partnership is not in default under any of the Leases;
(v) the rents set forth on the Rent Schedule are
being collected on a current basis and there are no arrearages
in excess of one month, except as indicated in Exhibit B
hereto, nor has any tenant paid any rent, additional rent or
other charge of any nature for a period of more than thirty
(30) days in advance;
(vi) all work for tenant alterations and other work
or materials contracted for by the Partnership and any tenant
has been completed by the Partnership, and all work and
materials have been fully paid for or will be paid for by
Closing except as indicated on Exhibit B;
(vii) the Partnership has not sent written notice to
any tenant claiming that such tenant is in default, which
default remains uncured, and to the best of the General
Partners' knowledge, no tenant is in default under its Lease,
except as indicated in Exhibit B hereto;
(ix) no action or proceeding instituted against the
Partnership by any tenant is presently pending in any court;
and
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(x) there are no security deposits other than those
set forth in Exhibit B.
(e) Service Contracts. Attached hereto as Exhibit C is a
complete and correct list of all contracts or agreements relating to the
management, leasing, operation, maintenance or repair of the Property (the
"Service Contracts"). True and correct copies of all of the Service Contracts
have been delivered to FWRLP. Except in the case of a default by the vendor
under a specific Service Contract, no Service Contract will be terminated,
amended, modified or supplemented prior to the Closing Date without FWRLP's
prior written approval, which approval shall not be unreasonably withheld,
conditioned or delayed.
(f) Tax Bills. The General Partners have delivered true and
correct copies of tax bills issued by any applicable federal, state or local
governmental authority to the Partnership with respect to the Property for the
most recent past and current tax years, and any new assessment received with
respect to a current or future tax year.
(g) Insurance. The Property is insured for its replacement
cost against loss or damage sustained as a result of fire or other casualty and
the Partnership has rent loss insurance in place for the Property. Attached
hereto as Exhibit E is a list of all hazard, liability and other insurance
policies presently affording coverage with respect to the Property. The General
Partners shall maintain in full force and effect all such policies until the
Closing Date, and shall cause the Partnership's insurer to name FWRLP as an
additional insured as a contract party on its rent loss policy with respect to
the Property.
(h) Possession of Property. Possession of the Property shall
be delivered to FWRLP at Closing in its "as is, where is" condition as of the
date of FWRLP's execution of this Agreement, subject to normal wear and tear and
damage by fire or other casualty and the effect of condemnation (subject to
Section 13 herein) excepted.
(i) Tenant Estoppels. The General Partners represent and
warrant that they shall use reasonable good faith efforts (without cost to the
Contributors or the Partnership) to obtain and deliver to FWRLP a tenant
estoppel letter from each tenant in substantially the form attached hereto as
Exhibit F (or in such form or containing such information as may be required by
the lease of such tenant) from each of the tenants of the Property confirming
the information set forth in the Rent Schedule attached as Exhibit B hereto.
(j) Condemnation Proceedings. No condemnation or eminent
domain proceedings are pending or, to the best of the General Partners'
knowledge, threatened against the Property or any part thereof, and neither the
Partnership nor the General Partners has made any commitments to or received any
written notice, of the desire of
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any public authority or other entity to take or use the Property or any part
thereof whether temporarily or permanently, for easements, rights-of-way, or
other public or quasi-public purposes.
(k) Litigation. Except as set forth on Exhibit G hereto, no
litigation is pending or, to the best of the General Partners' knowledge,
threatened against the Partnership, including administrative actions or orders
against the Partnership relating to governmental regulations, affecting the use,
operation or ownership of the Property or any part thereof as contemplated
herein, other than those being defended by the Partnerships' liability insurers.
(l) No Defaults. Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will: (i) subject to
any approval required under the Crown Life Loan, conflict with, or result in a
breach of, the terms, conditions or provisions of, or constitute a default
under, any agreement or instrument to which the Partnership is a party or by
which the Partnership or the Property is bound, (ii) subject to the approval
required under the Crown Life Loan, violate any restriction, requirement,
covenant or condition to which the Partnership is subject or by which the
Partnership or the Property is bound, or (iii) result in the cancellation of any
contract or lease pertaining to the Property. The representations and warranties
set forth in this Section 6(l) shall survive Closing without being subject to
the one year limitation.
(m) Intentionally Omitted.
(n) Separate Tax Lot and Subdivision. To the best of the
General Partners' knowledge, the Land is the subject of a separate subdivision,
and the Land is assessed for tax purposes as a separate and distinct parcel.
(o) Hazardous Waste. The General Partners have no knowledge of
any discharge, spillage, uncontrolled loss, seepage or filtration (a "Spill") of
oil, petroleum or chemical liquids or solids, liquid or gaseous products or any
hazardous waste or hazardous substance (as those terms are used in the
Comprehensive Environmental Response, Compensation and Liability Act of 1986, as
amended, the Resource Conservation and Recovery Act of 1976, as amended, or in
any other applicable federal, state or local laws, ordinances, rules or
regulations relating to protection of public health, safety or the environment,
as such laws may be amended from time to time) at, upon, under or within the
Land or any contiguous real estate. To the best of the General Partners'
knowledge, there is no proceeding or action pending or threatened by any person
or governmental agency regarding the environmental condition of the Property. To
the General Partners' knowledge, the Building is totally free of friable
asbestos requiring remediation.
(p) Certificates of Occupancy. The Partnership will not amend
any certificates of occupancy for the Property and will maintain them in full
force and effect to the extent that the Partnership is responsible for them. .
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<PAGE>
(q) Licenses and Permits. The General Partners have received
no notice, nor have any knowledge, that the Partnership is lacking any required
permit or license issued by applicable governmental authorities for operation,
maintenance or ownership of the Property ("Licenses").
(r) Operating Statements. Attached hereto as Exhibit H are
true and correct operating statements of the Property for 1994 and 1995. Also
attached as Exhibit H is a copy of the 1996 operating budget for the Property.
(s) Utilities. To the best of General Partners' knowledge,
adequate, usable public sewers, public water facilities, gas and/or electrical
facilities necessary to the operation of the Property are installed in and are
duly connected to the Property . Notwithstanding anything to the contrary, the
representations and warranties set forth in this Section 6(s) shall not survive
Closing.
(t) Personal Property. Attached hereto as Exhibit I is a true,
correct and complete inventory of all personal property ("Personal Property")
owned by the Partnership, if any, used in the management, maintenance and
operation of the Property (other than trade fixtures or personal property of
tenants).
(u) Leasing Commissions. A t Closing there shall be, no
outstanding or contingent leasing commissions or fees payable with respect to
the Property
(v) Partnership Liabilities. Except for (i) the obligations
and liabilities of the Partnership which FWRLP is taking the Partnership
Interests subject to under Section 2 (c) above, and (ii) any accrued liabilities
and obligations of the Partnership which are being adjusted at Closing pursuant
to Section 12 of this Agreement, the Partnership shall not have any liabilities
o r obligations, either accrued, absolute or contingent or otherwise, which will
not be paid or discharged on or before the Closing Date. In addition, the
Partnership has not received notice of any, and to the best of the knowledge of
the General Partners, there is, as of the date of execution of this Agreement,
no basis for any, claim against (or liability of ) the Partnership arising from
the business done, transactions entered into or other events occurring prior to
the Closing Date other than the obligations and liabilities described in the
preceding sentence.
(w) Partnership for Tax Purposes. The Partnership is, and at
all times has been, properly treated as a partnership for Federal Income Tax
purposes, and not as an "association" or "publicly traded partnership" taxable
as a corporation. The foregoing representation shall survive Closing without
being subject to the one year limitation.
(x) Taxes. The Partnership has timely filed with the
appropriate taxing authorities all returns (including without limitation
information returns and other material information) in respect of Federal, State
and local taxes (collectively "Taxes")
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required to be filed by it through the date hereof and will timely file any such
returns required to be filed by it on or prior to the Closing Date. The returns
and other information filed (or to be filed) are complete and accurate in all
material respects. All Taxes of the Partnership in respect of periods beginning
before the Closing Date have been timely paid, or will be timely paid prior to
the Closing Date, and the Partnership has no material liability for Taxes in
excess of the amounts so paid. All Taxes that the Partnership has been required
to collect or withhold have been duly collected or withheld and, to the extent
required when due, have been or will be (prior to Closing Date) duly paid to the
proper taxing authority. No audits of any of the Partnership's federal, state or
local returns for Taxes by the relevant taxing authorities have occurred, and no
material deficiencies for Taxes of the Partnership have been claimed, proposed
or assessed by any taxing or other governmental authority against the
Partnership. There are no pending or, to the best of knowledge of the
Contributors, threatened audits, investigations or claims for or relating to any
material additional liability to the Partnership in respect of Taxes, and there
are no matters under discussion with any governmental authorities with respect
to Taxes that in reasonable judgement of the General Partners or their counsel,
is likely to result in a material additional liability for Taxes. There are no
liens for taxes (other than for current taxes not yet due and payable) on any of
the assets of the Partnership. The foregoing representations and covenants
contained in this Section 6(x) shall survive Closing without being subject to
the one year limitation.
7. Obligations of General Partners Pending Closing. From and after the
date of this Agreement through the Closing Date, General Partners covenant and
agree as follows:
(a) Maintenance and Operation of Premises. The General
Partners will cause the Property to be maintained in its present order and
condition, normal wear and tear, and damage by fire or other casualty (subject
to Section 12) excepted and will cause the continuation of the normal operation
thereof, including the purchase and replacement of fixtures and equipment, and
the continuation of the normal practice with respect to maintenance and repairs
so that the Property will, except for normal wear and tear and damage by fire or
other casualty (subject to Section 12), be in substantially the same physical
condition on the Closing Date as on the date hereof.
(b) Licenses. The General Partners shall use their
commercially reasonable efforts to preserve in force all Licenses and to cause
those expiring to be renewed.
(c) Changes in Representations. The General Partners shall
notify FWRLP promptly, and FWRLP shall notify the General Partners promptly, if
either becomes aware of any occurrence prior to the Closing Date which would
make any of its representations, warranties or covenants contained herein not
true in any material respect.
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<PAGE>
(d) Obligations as to Leases. From the Acceptance Date to the
expiration of the Feasibility Period provided for in Section 14, Contributors
shall have the right to enter into new leases for space at the Property ("New
Lease(s)") or to amend, modify, renew, supplement or extend any Lease in any
respect or approve any assignment of leases or subletting of leased space, or
terminate any Lease (with respect to any provision amending, modifying,
renewing, supplementing or extending, etc. above, "Amended Lease(s)"), and as to
any Amended or new Leases entered into by the General Partners during this
period, the General Partners shall give FWRLP notice (including therewith copies
of the Amended and New Leases and all relevant data related to the particular
Amended or New Lease) of such Amended and/or New Leases within three (3) days
after the entry into any Amended or New Lease, but, in any event, not later than
seven (7) days prior to the expiration of the Feasibility Period. After the
expiration of the Feasibility Period, the General Partners shall not, without
FWRLP's prior written consent (which consent shall not be unreasonably
withheld), amend, modify, renew or extend any Lease in any respect unless
required by law, or enter into new leases or approve any assignment of leases or
subletting of leased space, or terminate any Lease. If FWRLP does not respond
within five (5) business days of written request for consent from the General
Partners, FWRLP shall be deemed to have consented to such request. The General
Partners hereby further agree that if any space is vacant on the Closing Date,
FWRLP shall accept the Property subject to any vacancy as of the Closing Date,
provided that the vacancy was not permitted or created by the General Partners
in violation of any restrictions contained in this Section 7(d). The General
Partners shall not be responsible for vacancy caused by a breach by tenant under
its lease. After the end of the Feasibility Period and prior to Closing,
Contributors shall not apply all or any part of the security deposit of any
tenant unless such tenant has vacated the Property.
(e) Obligations as to Crown Life Loan. The General Partners
shall not, without FWRLP's prior written consent, (i) prepay, or permit the
Partnership to prepay, the Crown Life Loan, or (ii) modify or amend, or permit
the Partnership to modify or amend, any of the documents evidencing or securing
the Crown Life Loan or otherwise entered into in connection with the Crown Life
Loan. the General Partners shall make, or cause the Partnership to make, all
payments required to be made under the Crown Life Loan when due, shall perform,
or cause the Partnership to perform, all obligations under the Crown Life Loan
and shall keep, and cause the Partnership to keep, the Crown Life Loan free from
default.
8. Representations and Warranties of FWRLP. In order to induce
Contributors to enter into this Agreement and to contribute the Partnership
Interests to FWRLP, FWRLP, and, as to Sections 8(a), 8(b), 8(e), 8(f) and 8(g),
First Washington Realty Trust, Inc ("REIT") hereby make the following
representations and warranties as of the date hereto, each of which is material
and shall survive Closing, notwithstanding any investigation at any time made by
or on behalf of Contributors or the General Partners:
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(a) Authority of FWRLP and the REIT. FWRLP is a limited
partnership duly organized and existing and in good standing under the laws of
the State of Maryland subject to the approval of the Board of Directors of the
REIT, as set forth in Section 9(a)(ix), FWRLP and the REIT have all necessary
power and authority to execute, deliver and perform this Agreement and
consummate all of the transactions contemplated by this Agreement, including
without limitation the Registration Rights Agreement referred to in Section 18
and attached hereto as Exhibit K. Subject to the approval of the Board of
Directors of the REIT as set forth in Section 9(a)(ix), this Agreement is the
valid and binding obligation of FWRLP and the REIT, enforceable against each of
them in accordance with its terms.
(b) No Defaults. Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will: (i) conflict
with, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, any agreement or instrument to which FWRLP or the
REIT is a party, (ii) violate any restriction, requirement, covenant or
condition to which the FWRLP or the REIT is subject, and (iii) constitute a
violation of any applicable code, resolution, law, statute, regulation,
ordinance, rule, judgment, decree or order.
(c) Disclosure Documents. Attached hereto as Exhibit L is a
true and correct copy of the Confidential Information Statement, as supplemented
through the date hereof. The FWRLP Partnership Agreement, as contained in the
Confidential Information Statement, as supplemented through the date hereof, has
not been amended or modified except as set forth in Exhibit L, and, to the
knowledge of FWRLP, no default or condition which, with the passage of time or
the giving of notice could become a default, exists on the part of any party
thereunder.
(d) Disclosure. The Confidential Information Statement, as
supplemented through the date hereof, and including the Appendices thereto, on
the date hereof, does not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(e) Financial Information. The financial statements of FWRLP
and the REIT (including the notes thereto) included in the Confidential
Information Statement, as supplemented through the date hereof, present fairly
the financial position of the respective entity or entities presented therein at
the respective dates indicated and the results of their operations for the
respective periods specified, and except as otherwise stated in any such
registration statement or periodic report, such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis.
(f) Issuance of Units. The FWRLP Partnership Agreement
provides, or prior to Closing will provide, for the issuance of the Units. The
Units to be issued in connection with the transactions herein contemplated have
been, or prior to their
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issuance will have been, duly authorized for issuance by FWRLP to Contributors,
and on the date of their issuance will be validly issued, fully paid and
non-assessable. The Units conform to the description thereof contained in the
Confidential Information Statement, as supplemented through the date hereof, and
such description conforms to the rights set forth in the FWRLP Partnership
Agreement. All issued and outstanding Units were issued in compliance with or in
transactions exempt from the registration provisions of applicable federal and
state securities laws. Any and all shares of Common Stock of the REIT
exchangeable for Units issued in connection with the transactions herein
contemplated will be duly authorized, validly issued, fully paid and
non-assessable. All issued and outstanding shares of Common Stock of the REIT
were issued in compliance with or in transactions exempt from the registration
provisions of applicable federal and state securities laws.
(g) Litigation. There is no action or proceeding pending or,
to the knowledge of FWRLP, threatened against FWRLP, the REIT or any subsidiary
before any court or administrative agency which would result in any material
adverse change in the business or financial condition of FWRLP, the REIT and
their subsidiaries, taken as a whole.
(h) Sale of the Property. Except in connection with a sale of
all or substantially all of FWRLP's assets or a merger or consolidation of
FWRLP, in no event shall FWRLP permit the Partnership to voluntarily sell the
Property for a period of five (5) years following the Closing Date, unless FWRLP
indemnifies and agrees to hold harmless the Contributors who receive Units from
any adverse Federal and state income tax consequences attributable to such sale.
In the event of a condemnation of a material part of the Property, FWRLP shall
use reasonable efforts to cause the Partnership to reinvest the condemnation
proceeds in such property or properties, and within such time periods, as are
required by the Internal Revenue Code to avoid Federal income tax being payable
by Contributors who received Units with respect to such condemnation proceeds.
FWRLP recognizes that the Contributors may incur adverse tax consequences in the
event of a breach by FWRLP of the covenant not to sell the Property as set forth
above in this Section 8(h). In the event of a breach by FWRLP of the covenant
not to sell the Property as set forth above in this Section 8(h), FWRLP agrees
that it shall pay to the Contributors liquidated damages in the amount of
$1,500,000.00, it being recognized that the actual amount of damages sustained
by the Contributors is not susceptible of a precise amount, and the amount of
liquidated damages shall compensate the Contributors for the damages resulting
from a breach by FWRLP; provided, however, that if the number of Units held by
Contributors (i.e., those Units received at Closing) at the time of settlement
of any such sale of the Property is less than the number of Units issued to such
Contributors at Closing, then the foregoing amount of liquidated damages shall
be reduced to an amount equal to $1,500,000 multiplied by a fraction, the
numerator of which is the aggregate number of Units then held by Contributors
and the denominator of which shall be the aggregate number of Units issued to
such Contributors at Closing.
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9. Conditions Precedent to Closing.
(a) It shall be a condition precedent of FWRLP's obligation to
make a full settlement hereunder that each and every one of the following
conditions shall exist on the Closing Date:
(i) Representations and Warranties. Contributors'
representations and warranties hereunder shall be true and
correct in all material respects the same manner and with the
same effect as though such representations and warranties had
been made on and as of the Closing.
(ii) Zoning. No proceedings shall have occurred or be
pending to change, redesignate or redefine the zoning
classification of the Property to a more restrictive
classification than presently exists on the date of FWRLP's
execution of this Agreement.
(iii) Title. Title to the Property shall be
marketable, good of record, and insurable by the Title Company
at standard rates or less, pursuant to a full coverage ALTA
Form-B (Rev. 1970 and 1984) owner's title insurance policy (or
an unconditional commitment therefor) without any exceptions
("Printed form" or otherwise) other than the Permitted
Exceptions, and in addition, without exception for mechanic's
or materialmen's lien arising from goods, labor or materials
provided to the Property prior to the Closing Date. The
"Permitted Exceptions" are:
(A) the lien of current real estate taxes and special
assessments not yet due and payable; and
(B) such other matters which are listed on Exhibit J
attached hereto. Notwithstanding anything to the
contrary contained in this paragraph (B), the General
Partners, at or prior to Closing, shall cause to be
satisfied and released of record all mortgages, deeds
of trust, financing statements, judgments or liens ,
other than the Crown Life Mortgage.
(iv) Existing Mortgages. Seller shall have delivered
to the Title Company such releases or other instruments
necessary to release of record and beneficially any and all
existing mortgages, deeds of trust, financing statements or
other security documents affecting the Property, other than
the Crown Life Loan (collectively, the "Existing Mortgages").
(v) [Intentionally Omitted].
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(vi) Leasing Brokerage/Property Management
Agreements. The General Partners shall have terminated any and
all leasing brokerage agreements and property management
agreements with respect to each Property effective as of the
Closing. All responsibility for dealings with any such brokers
and agents, including the payment of any claims (if deemed
warranted by the General Partners), shall be the sole
responsibility of the General Partners. The General Partners
agree that they will indemnify and hold FWRLP, its successors,
assigns, partners, agents and employees, harmless against any
such claims and/or losses which might be incurred by such
indemnitees or by the Partnership in connection with any
outstanding and/or contingent leasing commissions or fees or
management fees. Notwithstanding anything to the contrary, the
indemnity set forth in this subsection 9(a)(vi) shall survive
Closing without limitation.
(vii) Performance by Contributor. Contributors shall
have complied with and not be in breach of any of their
covenants or obligations under this Agreement.
(viii) Tenant Estoppels. FWRLP shall have received
(a) a tenant estoppel letter in substantially the form
attached hereto as Exhibit F (or in such form as required by
the lease to which a specific tenant is subject) from, at a
minimum, tenants satisfying the requirements described on
Exhibit F-1, confirming the information set forth in the Rent
Schedule attached as Exhibit B hereto for such tenants and
containing no material changes from the Rent Schedule, and (b)
any subordination and attornment agreements required by the
mortgage lender of FWRLP from at least those tenants on
Exhibit F-1.
(ix) FWRT Board Approval. The Board of Directors of
FWRT shall have approved this Agreement and the transactions
contemplated hereby. In the event that the aforesaid condition
is not satisfied by the end of the Feasibility Period,
Purchaser may elect to terminate this Agreement by giving
Seller written notice thereof within one (1) day after the end
of the Feasibility Period in which event the Deposit and any
interest thereon shall be returned to Purchaser and neither
party shall have any further obligations nor liabilities to
the other.
(b) Failure of Condition. In the event of the failure by the
Closing Date of any condition precedent set forth above, then FWRLP, at its sole
election, may (a) terminate this Agreement, in which event the Deposit and any
interest thereon shall be returned to FWRLP and, neither party shall have any
further obligations or liabilities to the other; or (b) proceed to Closing which
shall be deemed a waiver of any such condition precedent; or (c) extend the
Closing Date for such reasonable time period as may be determined by FWRLP (but
in no event for more than three (3) months from the
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Closing Date then in effect) in order to permit the satisfaction of any
condition precedent not so fulfilled.
(c) It shall be a condition precedent of Contributors'
obligation to make a full settlement hereunder that (i) FWRLP's and REIT's
representations and warranties hereunder shall be true and correct in all
material respects as of the Closing Date and FWRLP will deliver a certification
thereof to Contributors at Closing, and (ii) the substantive terms of the FWRLP
Partnership Agreement, and the amendments thereto (which shall exclude, among
other things, issuance and/or exchange of any units thereunder), as attached to
the Confidential Information Statement set forth in Exhibit L hereto, have not
been modified prior to Closing in a manner materially adverse to the interests
of the Contributors as incoming additional limited partners of FWRLP.
10. Contributors' Deliveries. At the Closing the following documents,
each dated on the Closing Date, shall be delivered to FWRLP:
(a) a Contribution and Assumption Agreement ("Assignment") and
an Amendment to the Partnership Agreement ("Amendment") and Limited Partnership
Certificate, in a recordable from, reasonably satisfactory to FWRLP and the
Contributors, setting forth the assignment by each of the Contributors of their
Partnership Interest and its withdrawal from the Partnership and the
substitution of FWRLP and /or its designee(s) as partners of the Partnership,
which Amendment shall be executed and acknowledged by all the Contributors; at
FWRLP's option, such Assignment and Amendment may contain such other amendments
of the Partnership Agreement as shall be determined by FWRLP, provided that the
Contributors shall execute such Assignment and Amendment solely for the purpose
of (a) assigning their respective Partnership Interests to FWRLP or its
designee(s), and (b) withdrawing from the Partnership.
(b) a release from each Contributor releasing the Partnership
and FWRLP (and its designee(s)) as partners of the Partnership from any
obligations and liabilities with respect to the original formation of the
Partnership, and any other matter arising from business done, transactions
entered into or events occurring prior to the Closing Date (including, without
limitation, liability arising from any breach by any of the Contributors).
(c) An opinion of counsel for Contributors, in from and
substance reasonably acceptable to counsel for FWRLP, to the effect that:
(i) The Partnership is a duly organized and validly
existing in good standing under the laws of the State of
Maryland:
(ii) The execution and delivery of this Agreement and
all other agreements delivered in connection herewith or at
the Closing, the consummation of the transactions herein
contemplated, and compliance with the terms of this Agreement
and all other agreements delivered in
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connectionherewith or at the Closing will not conflict with,
or result in a breach of, any of the terms, conditions or
provisions of, or constitute a default under, any note,
indenture, mortgage, deed of trust, contract or other
agreement or instrument to which the Partnership is a party or
by which the Partnership is bound (and of which counsel has
knowledge) (other than the Crown Life Loan), or any law or
order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality or court, domestic or
foreign;
(iii) Contributors have complete and unrestricted
power to contribute, transfer, assign and deliver to FWRLP and
its designee(s) all of the Partnership Interests to be
contributed and assigned hereunder which are owned and /or
controlled by them, and the Assignment and the Amendment
delivered pursuant to this Section 10 are in form legally
sufficient to vest in FWRLP and its designee(s) good title to
the Partnership Interests described therein; and
(iv) To the best of counsel's knowledge, there is no
litigation or investigation pending or threatened against the
Partnership, or the Property, or any part thereof, which might
result in any material, adverse change pertaining to the
Property or the Partnership, or the operations thereof, or
which questions the validity of any action taken in, under or
in connection with any of the provisions of this Agreement.
(d) a schedule from the General Partners updating the Rent
Schedule for the Property and setting forth all arrearages in rents and all
prepayments of rents;
(e) originally executed Leases and Service Contracts and
copies of books, records, operating reports, files and other materials related
to the ownership, use and operation of the Property, to the extent that any
exist and are in the possession of the General Partners, which obligation shall
survive Closing;
(f) [Intentionally Omitted]
(g) an original letter executed by the General Partners
advising the tenants of the Property of the contribution of the Partnership
Interests to FWRLP and directing that rents and other payments thereafter be
sent to FWRLP or as FWRLP may direct;
(h) possession of the Property from the General Partners in
the condition required by this Agreement, and the keys therefore;
(i) from each Contributor, the Certification of Non-foreign
Status as provided in Treas. Reg. 1.1445-2(b)(2)(iii)(B) or in any other form as
may be required by the Internal Revenue Code or the regulations issued
thereunder;
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(j) such other items and instruments from the General Partners
as shall be required by the Title Company in connection with the issuance of its
title insurance policy to FWRLP pursuant to Section 9(a)(iii) (including
customary General Partners' or owner's affidavit), except that Contributors
shall not be obligated to undertake any financial obligation, indemnities,
escrows or guarantee in favor of the Title Company;
(k) any and all documents from the General Partners necessary
to release the Deposit from escrow with the Title Company and to have said
Deposit returned to FWRLP;
(l) any other documents required by this Agreement to be
delivered by Contributors; and
(m) An amendment to the Partnership Agreement of FWRLP, in a
form reasonably acceptable to FWRLP and Contributors, admitting the Contributors
who receive Units as limited partners of FWRLP and issuing such Units as
computed in accordance with Exhibit Q hereto .
11. FWRLP's Performance. At the Closing, simultaneously with the
deliveries of Contributors pursuant to the provisions of Section 10 above, FWRLP
shall issue to Contributors the Units and cash in the manner specified in
Section 2 and FWRLP and REIT shall execute and deliver those documents and take
such other actions required to be taken by FWRLP and REIT at Closing as required
under this Agreement, whereupon the Deposit, and any interest accrued thereon,
shall be returned to FWRLP by the Title Company.
12. Settlement Charges; Prorations and Adjustments. FWRLP shall pay for
the title examination, the title insurance premium, notary fees and other such
charges incident to Closing. Any real estate transfer and recording fees and
taxes and documentary stamps in connection with this transaction, if any, shall
be borne by FWRLP; provided, however, that the number of Units issued to
Contributors at the Closing under Section 2(a) hereof shall be reduced by an
amount equal to one-half (1/2) of the real estate transfer and recording fees
and taxes payable by FWRLP divided by the Unit Price. Although Contributors and
FWRLP believe that no real estate transfer or recording taxes will be due in
connection with the transactions contemplated hereby, if it is finally
determined that such taxes are due and payable in connection herewith, then
Contributors shall either (at FWRLP's election) (i) reimburse to FWRLP one-half
(1/2) of such sum paid by FWRLP, or (ii) return/relinquish to FWRLP the number
of Units equal to one-half (1/2) of the taxes paid by FWRLP divided by the Unit
Price. FWRLP and Contributors shall each pay its own legal fees related to the
preparation of this Agreement and all documents required to settle the
transaction contemplated hereby. In addition to the foregoing, at the Closing,
the following adjustments and prorations shall be computed as of the Closing
Date, as if the transaction contemplated by this Agreement was a sale of the
Property by the Partnership to FWRLP:
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(a) Taxes. Real estate and personal property taxes shall be
apportioned (based on the fiscal periods for which such taxes are assessed) as
of the Closing Date.
(b) Assessments. All special assessments and other similar
charges which have become a lien upon the Property or any part thereof on or
before the Closing Date and are due and payable through the Closing Date, shall
be paid in full by the Partnership or the Contributors on or prior to the
Closing. All other special assessments or similar charges shall be adjusted as
of the Closing Date.
(c) Rent. Rent for the month of , and any month after, Closing
collected by the Partnership prior to Closing shall be apportioned as of the
Closing Date. If any tenant is in arrears in the payment of rent on the Closing
Date, rents received from such tenant after the Closing shall be applied in the
following order of priority: (a) first to the payment of current rent then due;
(b) second, to delinquent rent for any period after the Closing Date; and (c)
third to delinquent rent for any period prior to the Closing Date. FWRLP shall
either use reasonable efforts to collect (at no cost to FWRLP), or if
Contributors so elect shall assign to Contributors the right to collect,
arrearages in rents due from tenants as of the Closing Date. If rents or any
portion thereof received by Contributors or FWRLP after the Closing Date are
payable to the other party by reason of this allocation, the appropriate sum,
less a proportionate share of any reasonable attorneys' fee, costs and expenses
of collection thereof, shall be promptly paid to the other party, which
obligation shall survive the Closing.
If any tenants are required to pay percentage rents,
escalation charges for real estate taxes, operating expenses, cost-of-living
adjustments or other charges of a similar nature ("Additional Rents") and any
Additional Rents are collected by FWRLP after the Closing which are attributable
in whole or in part to any period prior to the Closing, then FWRLP shall
promptly pay to Contributors their proportionate share thereof, less a
proportionate share of any reasonable attorneys' fees, costs and expenses of
collection thereof, and deliver to Contributors a statement therefor, if and
when the tenant paying the same has made all payments of rents and Additional
Rent then due to FWRLP pursuant to the tenant's Lease, which obligation shall
survive the Closing. Upon written request of Contributors (but only until the
time of the first reconciliation), FWRLP shall provide Contributors with the
then current periodic report of the status of collection of such Additional
Rents from such tenants.
(d) Distributions. The quarterly distributions payable to
Contributors on the Common Units for the first record date after any issuance to
Contributors shall be pro rated based upon the number of days within the quarter
occurring after such issuance to Contributors .
(e) Debt Service on the Crown Life Loan. The amount of
interest payable under the Crown Life Loan shall be apportioned as of the
Closing Date.
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(f) Miscellaneous. All other charges and fees customarily
prorated and adjusted in similar transactions, including utilities, insurance
premiums and charges for Service Contracts to be assumed by FWRLP, shall be
prorated as of the Closing Date. In the event that accurate prorations and other
adjustments cannot be made at Closing because current bills are not obtainable
or the amount to be adjusted is not yet ascertainable (as, for example, in the
case of utility bills) the parties shall prorate on the best available
information, subject to further adjustment promptly upon receipt of the final
bill or upon completion of final computations. To the extent that water
consumption or other utility charges may constitute a lien against the Property,
Contributors agree that an appropriate amount in respect of water consumption or
other utility charges may be held in escrow by the Title Company in connection
with its issuance of a title insurance policy to FWRLP. The General Partners
shall use their reasonable efforts to have all utility meters read on the
Closing Date so as to accurately determine its share of current utility bills.
If any claims or liabilities are asserted at any time subsequent to Closing
against the Property or FWRLP, which were not taken into consideration for
adjustment hereunder, including without limitation, claims by governmental
agencies, and if such claims or liabilities are based upon or arise out of any
occurrence prior to Closing or any act or omission by Contributors, General
Partners shall satisfy such claims or liabilities and shall indemnify and hold
FWRLP harmless therefrom.
(g) Immediately prior to the Closing, Contributors shall have
the right to cause the Partnership to withdraw from the Partnership's bank
account(s) and distribute to the Contributors an amount equal to all cash within
such bank account(s) as of 11:59 p.m. on the day immediately preceding the
Closing Date.
13. Risk of Loss. The risk of loss or damage to the Property by fire or
other casualty until the Closing shall be borne by the Contributors. If prior to
Closing (i) condemnation proceedings are commenced against all or any portion of
the Property, or (ii) if the Property is damaged by fire or other casualty to
the extent that the cost of repairing such damage shall be Two Hundred Thousand
Dollars ($200,000.00) or more based on the good faith estimate of an independent
contractor selected by the General Partners and reasonably approved by FWRLP, or
(iii) if the Property is damaged by an uninsured risk, or (iv) if the Property
becomes subject to litigation which may deprive FWRLP of any material benefit to
which it would become entitled pursuant to this Agreement, then FWRLP shall have
the right, upon notice in writing to the Contributors delivered within thirty
(30) days after actual notice of such condemnation or fire or other casualty or
litigation, to terminate this Agreement, and thereupon the parties shall be
released and discharged from any further obligations to each other and the
Deposit shall be refunded to FWRLP. If FWRLP does not elect to terminate this
Agreement or in the event of fire or other casualty not giving rise to a right
to terminate this Agreement by FWRLP, FWRLP shall be entitled to an assignment
of all of the proceeds of fire or other casualty insurance proceeds and the rent
insurance proceeds payable with respect to the period after Closing or of the
condemnation award, as the case may be (i.e., such proceeds shall remain in the
Partnership for the benefit of FWRLP), and
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Contributors shall have no obligation to repair or restore the Property;
provided, however, that the Unit portion of the Consideration shall be reduced
(based on the Unit Price per Unit) by an amount equal to the sum of (a) the
"deductible" applied by the Partnership's insurance policy, or (c) if the
Partnership is self-insured, the cost of repairing such damage. FWRLP shall have
the right to participate in the negotiation and settlement of any casualty or
condemnation-related claim if FWRLP does not elect to terminate this Agreement.
14. Inspection of Property.
(a) FWRLP's Right of Inspection. Subject to the rights of
tenants under the Leases, FWRLP shall have the right, at its own risk, cost and
expense, at any time or times prior to Closing, to enter, or cause its agents or
representatives to enter, upon the Property for the purpose of making surveys,
or any tests, investigations and/or studies relating to the Property or FWRLP's
intended acquisition thereof which FWRLP deems appropriate, in its sole
discretion, during reasonable hours and upon reasonable notice to the General
Partners. FWRLP shall further have complete access to all documentation,
agreements and other information in the possession of Contributors related to
the ownership, use and operation of the Property, to the extent it is readily
available to Contributors, and shall have the right to make copies of same.
FWRLP shall not have the right during the Feasibility Period to contact tenants
(other than Metro Foods, Rite Aid and Trak Auto) without the prior consent of
the General Partners. FWRLP agrees to repair any damage to the Property that may
be caused by its inspections and to indemnify and defend Contributors and hold
Contributors harmless against any injury, loss or damage suffered upon the
Property as a result of such inspections.
(b) Feasibility Period. Any other provisions of this Agreement
to the contrary notwithstanding, FWRLP may cause at FWRLP's sole cost and
expense, such boring, engineering, economic, water, sanitary and storm sewer,
utilities, topographic, structural, environmental and other tests,
investigations, market studies and other studies as FWRLP shall elect, subject
to the rights of tenants under the Leases. FWRLP agrees to use all reasonable
efforts to minimize disruption to business operations within the Property during
the course of any entries thereon. In the event that any of the tests,
investigations, market studies and other studies indicate, in FWRLP's sole
discretion, that FWRLP's plans for the Property would not be feasible for any
reason, then FWRLP shall have the right, at its sole election on or before the
later of (i) the date which is forty-five (45) days after the Acceptance Date,
or (ii) December 6, 1996 (such period herein referred to as the "Feasibility
Period"), to terminate this Agreement by giving written notice thereof to the
General Partners in which event this Agreement shall terminate, the Deposit
shall be returned to FWRLP and neither party shall have any further liabilities
or obligations to each other. If FWRLP does not terminate this Agreement before
the end of the Feasibility Period as aforesaid, this contingency shall
automatically lapse.
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(c) Audit. The General Partners hereby agree to allow books
and records related to each Property to be audited (at FWRLP's sole expense) by
an independent, certified public accounting firm selected by FWRLP, and the
General Partners will cooperate and cause its employees and other agents to
cooperate in such auditing process. FWRLP shall provide the General Partners
with prior notice of such audit.
15. Indemnifications.
(a) Indemnification by Contributors. Each Contributor for such
Contributor only, and for no other Contributor, hereby indemnifies and agrees to
defend and hold harmless FWRLP and its partners and subsidiaries and any
officer, director, employee, agent of any of them, and their respective
successors and assigns from and against any and all claims, expenses, costs,
damages, losses and liabilities (including reasonable attorneys' fees) which may
be asserted against or suffered by any indemnitee, the Partnership or the
Property, or any part thereof, whether before or after the Closing Date, as a
result of, on account of or arising from any breach of any representation,
warranty, covenant or agreement on the part of such Contributor set forth in
Section 5 herein or in any instrument or document related thereto delivered
pursuant to this Agreement. The indemnification set forth in this Section 15(a)
shall survive Closing without limitation.
(b) Indemnification by the General Partners. Except for the
indemnifications set forth in Section 15(a) above, the General Partners, jointly
and severally, hereby indemnify and agree to defend and hold harmless FWRLP and
its partners and subsidiaries and any officer, director, employee, agent of any
of them, and their respective successors and assigns from and against any and
all claims, expenses, costs, damages, losses and liabilities (including
reasonable attorneys' fees) which may at any time be asserted against or
suffered by, any indemnitee the Partnership or the Property, or any part
thereof, whether before or after the Closing Date, as a result of, on account of
or arising from (i) any breach of any representation, warranty, covenant or
agreement on the part of the General Partners made herein or in any instrument
or document delivered by the General Partners pursuant to this Agreement, and/or
(ii) any obligation, claims, suit, liability, contract, agreement, debt or
encumbrance or other occurrence (other than obligations under the Crown Life
Loan accruing after the Closing, obligations accruing after the Closing Date
under the Leases and Service Contracts, items adjusted as of the Closing Date
under Section 12 above and other obligations, claims or agreements expressly
assumed by FWRLP in writing) created, arising or accruing prior to the Closing
Date, regardless of when asserted, and relating to the Partnership, or the
Property, or its operations. Claims within the scope of the indemnity set forth
in clause (ii) shall include, without limitation, any and all liabilities for
federal and state income and other taxes due and payable with respect to any
period (or portion thereof) prior to the Closing Date. Any indemnification of
FWRLP or the Partnership or other indemnitee under this Section 15(b) shall
survive Closing for a period of three (3) years (other than indemnification for
breach of representations or warranties pursuant to clause (i) of the first
sentence of this Section 15(b), which are
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subject to a survival period described in Section 6 or elsewhere in this
Agreement, but shall cease and expire with respect to any claim not raised by
FWRLP, by written notice to Contributors, within such limited survival period).
(c) Indemnification by FWRLP. FWRLP hereby indemnifies and
agrees to defend and hold harmless Contributors and their respective, heirs,
personal representatives, successors and assigns from and against any and all
claims, expenses, costs, damages, losses and liabilities (including reasonable
attorneys' fees) which may at any time be asserted against or suffered by
Contributors as a result of, on account of or arising from (i) any breach of any
representation, warranty, covenant or agreement on the part of FWRLP or the REIT
made herein or in any instrument or document delivered pursuant to this
Agreement, and/or (ii) any obligation, claims, suit, liability, contract,
agreement, debt or encumbrance or other occurrence created, arising or accruing
after the Closing Date and relating to the Property the Partnership or its
operations. The foregoing obligations set forth in this Section 15(c) shall
survive Closing without time limitation.
16. Brokerage Commission. Contributors and FWRLP represent and warrant
to each other that no brokerage fee or real estate commission is or shall be due
or owing in connection with this transaction other than that payable to First
Capital Realty, Inc., which shall be payable by Contributors at the Closing
pursuant to a separate agreement. Contributors and FWRLP hereby indemnify and
hold the other harmless from any and all claims of any other broker or agent so
claiming based on action or alleged action of the other.
17. Default Provisions; Remedies.
(a) FWRLP's Default. If FWRLP fails to consummate the
Contribution contemplated herein when required to do so pursuant to the
provisions hereof, then the Title Company shall deliver the Deposit to
Contributors as full and complete liquidated damages, and as the exclusive and
sole right and remedy of Contributors, whereupon this Agreement shall terminate
and neither party shall have any further obligations or liabilities to any other
party.
(b) Contributors Default. Except for any breaches waived in
writing by FWRLP, if Contributors have breached any of their covenants or
obligations under this Agreement or have failed, refused or are unable to
consummate the Contribution contemplated herein by the Closing Date or if any of
the representations and warranties made by Contributors under this Agreement
shall be inaccurate or incorrect in any material respect, then FWRLP shall be
entitled, as FWRLP's sole and exclusive right and remedy, to (i) waive such
breach, default or failure and proceed to Closing without abatement of
consideration under Section 2(a), (ii) extend the Closing for such reasonable
time or times as may be necessary in order to enable Contributors to remedy such
breach, default or failure (not to exceed thirty (30) days), (iii) terminate
this Agreement and obtain the return of the Deposit, and/or (iv) pursue an
action for specific
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performance. In the event that FWRLP elects to pursue specific performance and
FWRLP prevails in such litigation, in addition to any damages or other relief
awarded to FWRLP, Contributors shall be obligated to pay all reasonable legal
fees, costs and expenses incurred by FWRLP.
(c) The provisions of Sections 17(a) and (b) above shall not
be applicable to any breach or default by a party occurring or first becoming
actually known to the other party after Closing, and, as to any said breach or
default, the non-defaulting party may exercise any and all remedies available at
law or in equity, subject, however, to any applicable limitations on survival
expressly provided for in this Agreement.
18. Registration Rights. Contributors receiving Units and the REIT
hereby agree to execute at Closing the Registration Rights Agreement attached
hereto as on Exhibit K.
19. Miscellaneous Provisions.
(a) Completeness and Modification. This Agreement (together
with Exhibits A to Q attached hereto), with respect to the transactions
contemplated herein, and it supersedes all prior discussions, understandings or
agreements between the parties. This Agreement shall not be modified or amended
except by an instrument in writing signed by all of the parties hereto.
(b) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
assigns.
(c) Assignment. This Agreement shall not be assignable by
FWRLP without the consent of Contributor, provided that, notwithstanding
anything to the contrary contained in this Agreement, FWRLP shall be entitled to
transfer or, at Closing, cause the Partnership to issue a 1% limited partnership
interest in the Partnership to the REIT or to an entity controlled by,
controlling or under common control with the FWRLP, as long as the Units are
issued to Contributors as required herein. This Agreement shall not be
assignable by Contributors.
(d) Waiver; Modification. Failure by FWRLP or Contributors to
insist upon or enforce any of its rights hereto shall not constitute a waiver or
modification thereof.
(e) Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Maryland.
(f) Headings. The headings are herein used for convenience or
reference only and shall not be deemed to vary the content of this Agreement or
the covenants, agreements, representations and warranties herein set forth, or
the scope of any provision hereof.
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(g) Continuing Documentation and Access. From and after
Closing, the General Partners shall afford FWRLP reasonable access to any and
all information in their possession concerning the ownership, use and operation
of the Property (including the right to copy same at the expense of FWRLP) for
purposes of any tax examination or audit or other similar purpose, subject to
the agreements of the Contributors, the Partnership or FWRLP concerning
confidentiality set forth herein. FWRLP and the REIT agree and acknowledge that
the information provided to them by the General Partners, the Contributors or
the Partnership regarding the Property or the Partnership is confidential, and
that they will not disclose such information to any other person, other than to
their employees, attorneys, accountants and other consultants, or use such
information for any purpose other than the transaction described herein without
the prior written consent of the General Partners. If this Agreement is
terminated or if the Contribution at the Closing is not consummated, all
information provided to FWRLP and the REIT, and all copies thereof, shall be
returned to the General Partners.
(h) Counterparts. To facilitate execution, this Agreement may
be executed in as many counterparts as may be required; it shall be sufficient
that the signature of, or on behalf of, each party, or that the signatures of
the persons required to bind any party, appear on one or more such counterparts.
All counterparts shall collectively constitute a single agreement.
(i) Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered by hand or
mailed by first-class registered or certified mail, return receipt requested,
postage prepaid or delivered by commercial courier, telecopy or overnight
courier (e.g., Federal Express) against receipt, to the addresses indicated
below:
(i) if to FWRLP:
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Attn: William J. Wolfe
Jeffrey S. Distenfeld, Esq.
Telecopy: (301) 907-4911
(ii) if to Contributors or the General Partners:
c/o TriStar Management, Inc.
40 York Road
Towson, MD 21204
Attn: Jack Pechter
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Telecopy: (410) 821-5288
with a copy to:
Richard E. Levine, Esq.
Miles & Stockbridge, P.C.
10 Light Street
Baltimore, MD 21202
Telecopy: (410) 385-3700
Such notice shall be deemed given on the date of receipt by
the addressee or the date receipt would have been effectuated if delivery were
not refused. Each party may designate a new address by written notice to the
other in accordance with this Section 19(i).
(j) All Warranties Joint and Several. Except as expressly
provided otherwise in this Agreement, each and every warranty, covenant,
undertaking and agreement of the General Partners hereunder shall be deemed a
joint and several warranty, covenant, undertaking and agreement of each person
and entity collectively comprising the Contributors.
(k) Further Assurances. Contributors and FWRLP agree to
execute, acknowledge and deliver any further agreements, documents or
instruments that are reasonably necessary or desirable to carry out the
transactions contemplated by this Agreement.
(l) Business Days. A "business day" shall be Mondays through
Fridays, less and expecting all legal holidays observed by the United States
Government or the Government of the State of Maryland. Any date specified in
this Agreement which does not fall on a business day shall be automatically
extended until the first business day after such date.
(m) Time of the Essence. Time is of the essence in the
performance of all obligations under this Agreement. 20. Tax Matters.
(a) FWRLP hereby agrees to send to each Contributor who
receives Units the following information on an annual basis at least 30 days
prior to the filing of the tax return of FWRLP:
(i) the amount of the debt secured by the Property and
the amount of FWRLP's total non-recourse debit as of
the end of the most recent fiscal year;
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(ii) the amount of nonrecourse debt allocated to each
Contributor;
(iii) the adjusted basis of the Property as of the end of
the most recent fiscal year; and
(iv) the projected taxable income or loss of FWRLP for
such fiscal year.
(b) Each Contributor who receives Units, at its written
election but with no obligation to do so, may affirmatively make on an annual
basis (a) a DRO Election or (b) a Bottom Guaranty Election. Any such election
shall be made by notice delivered to FWRLP no later than the date on which the
tax return for FWRLP is filed for the fiscal year in question.
(c) A DRO Election shall state that if the Contributor has a
deficit balance in its capital account following the Liquidation of the
Contributor's interest in FWRLP or the Liquidation of FWRLP, as the case may be,
such Contributor shall contribute to the capital of FWRLP, no later than the end
of the fiscal year during which the Contributor's interest in FWRLP is
Liquidated or during which FWRLP is Liquidated, as the case may be (or, if
later, 90 days after the date on which the Contributor's interest in FWRLP is
Liquidated or on which FWRLP is Liquidated, as the case may be) (the
"Liquidation Date") an amount of money equal to a designated portion of the
deficit in the Contributor's capital account. The term "Liquidation" shall have
the meaning given to it in Treas. Regs. Section 1.704.
(d) A Bottom Guaranty Election shall state that if FWRLP shall
be in default with respect to the mortgage loan securing the Property, then the
Contributor agrees to contribute to the capital of FWRLP a designated portion of
the principal balance of such mortgage loan (the "Contribution Limit"); however,
such contribution shall only occur if the mortgage lender shall have exhausted
all of its remedies against the Property in order to collect the amount owing
the mortgage lender, and such Contribution Limit shall be reduced on a
dollar-for-dollar basis for every dollar received by the mortgage lender from
exercising its remedies. Any such contribution shall be made by the Liquidation
Date. For example, if the amount of the mortgage loan were $10,000,000.00 and
the amount of the Contribution Limit were $1,000,000.00, the capital
contribution would only be required if the Property were sold in foreclosure and
the proceeds of sale were less than $1,000,000.00.
(e) FWRLP covenants that the principal balance of the mortgage
loan secured by the Property shall not be reduced below $6,000,000.00 (other
than scheduled amortization of the mortgage loan and principal curtailments of
the mortgage loan beyond FWRLP's reasonable control), during the period
beginning on the Closing Date and ending five years thereafter.
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(f) FWRLP will use the "remedial" method under Section 704(c)
of the Internal Revenue Code in connection with the contribution herewith.
(g) FWRLP will depreciate the book basis and tax basis of the
Property over a 39-year life (as to the building component) and no depreciation
as to the land component.
(h) This Paragraph 20 shall survive the Closing.
IN WITNESS WHEREOF, the parties hereto have executed this Contribution
Agreement as of the day and year first written above.
FWRLP:
FIRST WASHINGTON REALTY
LIMITED PARTNERSHIP
By: First Washington Realty Trust, Inc.,
ATTEST: Its general partner
By: /s/
- ------------------------- -------------------------------
[Assistant Secretary] William J. Wolfe
President
[Corporate Seal]
Date of execution: October 17 , 1996
WITNESS: CONTRIBUTORS:
CONTINENTAL REALTY INVESTORS CORP.
By: /s/
- ------------------------- --------------------------------------
Name:
Title:
JHP DEVELOPMENT COMPANY, INC.
By: /s/
- ------------------------- --------------------------------------
Name:
Title:
/s/
- ------------------------- ---------------------------------------
J. MARK SCHAPIRO
-30-
<PAGE>
[Signatures Continued from Previous Page]
/s/
- ----------------------------- -------------------------------------
JOHN LUETKEMEYER, JR.
/s/
- ----------------------------- -------------------------------------
JAMES STONE, TRUSTEE
for MARY LUETKEMEYER
/s/
- ----------------------------- --------------------------------------
JAMES STONE, TRUSTEE
for JULIA LUETKEMEYER
/s/
- ----------------------------- ---------------------------------------
JAMES STONE, TRUSTEE
for ANNE LUETKEMEYER
TRIPEC ASSOCIATES, L.P.
By: /s/
- ----------------------------- ------------------------------------
Name:
Title:
/s/
- ----------------------------- ------------------------------------
HERBERT ROCHLIN
JHJ INVESTMENT LIMITED PARTNERSHIP
By: Continental Realty Investors Corp.,
Attorney-in-Fact
By: /s/
- ------------------------------ ------------------------------------
Name: J. Mark Shapiro
Title: Vice President
Date of execution: , 1996
-31-
<PAGE>
First Washington Realty Trust, Inc. joins herein solely for the purpose
of making the representations, warranties and covenants contained in Sections
8(a), 8(b), 8(e), 8(f), 8(g), 11, 18 and 21(g) hereof.
FIRST WASHINGTON REALTY
WITNESS: TRUST, INC.
By: /s/
- --------------------------- ----------------------------------
William J. Wolfe
President
Date of execution: October 17 ,1996
-32-
<PAGE>
ACKNOWLEDGE BY TITLE COMPANY
The undersigned Title Company executes this Contribution Agreement
solely to acknowledge receipt of the Deposit pursuant to Paragraph 3 hereof and
to evidence its agreement to serve as escrow agent pursuant to the terms of the
foregoing Agreement.
WITNESS: COMMERCIAL SETTLEMENTS, INC.
By: /s/
- ----------------------------- --------------------------------
Gerald R. Perras
President
Date: October 23, 1996
-33-
<PAGE>
LIST OF EXHIBITS
EXHIBIT A. Legal Description of Land Recitals
EXHIBIT B. Leases and Rent Schedule Section 6(d)
EXHIBIT C. Service Contracts Section 6(e)
EXHIBIT D. Violations Section 6(c)
EXHIBIT E. Insurance List Section 6(g)
EXHIBIT F. Form of Tenant Estoppel Section 6(i)
EXHIBIT F-1. Tenant Estoppels Section 8(a)(viii)
EXHIBIT G. Litigation Section 6(k)
EXHIBIT H. Operating Statements and Budget Section 6(r)
EXHIBIT I. Personal Property Section 6(t)
EXHIBIT J. Permitted Exceptions Section 9(a)(iii)(B)
EXHIBIT K. Registration Rights Agreement Section 18
EXHIBIT L. Confidential Information Statement Section 8(c)
EXHIBIT M. [Intentionally Omitted]
EXHIBIT N. Mortgage Section 2(c)
EXHIBIT O. Note Section 2(c)
EXHIBIT P. Partnership Agreement Section 6(a)
EXHIBIT Q. Allocation of Units, Consideration Section 2(a)
[Contributors and FWRLP to Attach Foregoing at Acceptance of this Agreement]
-34-
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
-35-
<PAGE>
EXHIBIT B
LEASES AND RENT SCHEDULE
-36-
<PAGE>
EXHIBIT C
SERVICE CONTRACTS
-37-
<PAGE>
EXHIBIT D
VIOLATIONS
NONE
-37-
<PAGE>
EXHIBIT E
INSURANCE LIST
-38-
<PAGE>
EXHIBIT F
Form of Tenant Estoppel
ESTOPPEL CERTIFICATE
, 199
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20852
Re: [Name of Shopping Center]
Lease dated ________, 19___, with [name of Tenant]
Gentlemen:
Please be advised that the undersigned tenant hereby certifies as of
the date hereof as follows with respect to the Lease:
Name of Tenant:
Description of Leased Premises:
Date of Commencement of Lease:
Date of Termination of Lease:
Options to Renew:
Base Rental: Annual Rental of $ , payable monthly in advance.
---------------
Real Estate Tax Charges: pro rata: ___ yes ___ no. ( $ payable monthly in
-----------------
advance)
Percentage Rent: ____% of Gross Receipts over $___________
Common Area Maintenance Charges: pro rata: ___ yes ___ no. ($_________
payable monthly in advance)
Tenant in possession of the premises under the Lease?: Yes
The Lease is unmodified and in full force and effect except for modifications,
listed by number and date on Exhibit A attached hereto.
Amount of rent paid in advance: $
Amount of Security Deposit: $
-i-
<PAGE>
Compliance with Construction Requirements: Landlord has complied with all
construction requirements of Tenant, and Tenant has accepted all of the leased
premises under the Lease.
Tenant has not made any claims against Landlord and has no knowledge of any
uncured default on the part of Landlord (If there is knowledge of any uncured
default, please note and attach separate sheet).
Tenant's Right to Purchase: Tenant has no option or right in the nature of a
right of first refusal to purchase or otherwise acquire any interest in the
leased premises.
Tenant's Right of Premature Termination or Option to Renew: Tenant has no right
to premature termination and no right or option to renew or extend the term
beyond its present term and no option to lease additional space, except as
expressly set forth in the Lease.
In the event of foreclosure, Tenant agrees to attorn to the purchaser of the
leased premises at the foreclosure sale.
TENANT:
By:
Name:
Title:
STATE OF )
) ss:
COUNTY OF )
Signed and sealed in my presence this day of , 199 .
---- -------------- ---
Notary Public
[SEAL]
My Commission Expires:
-ii-
<PAGE>
EXHIBIT F-1
TENANT ESTOPPELS
o Metro Foods 49,028 s.f.
o Rite Aid 6,336 s.f.
o Trak Auto 6,000 s.f.
61,364 s.f.
o Tenant's occupying at least 80% of
the remaining space at the Property.
[(98,016 s.f. - 61,364 s.f.) X 80% = 29,322 s.f.
-iii-
<PAGE>
EXHIBIT G
LITIGATION
NONE
-iv-
<PAGE>
EXHIBIT H
OPERATING STATEMENTS AND BUDGET
-v-
<PAGE>
EXHIBIT I
PERSONAL PROPERTY
NONE
-vi-
<PAGE>
EXHIBIT J
PERMITTED EXCEPTIONS
-vii-
<PAGE>
EXHIBIT K
REGISTRATION RIGHTS AGREEMENT
FWRLP will apply Revenue Ruling 95-41 such that the Northway Partners
would be allocated an amount of non-recourse liabilities under Section
1.752-3(a)(2) equal to (A) the product of (i) the fair market value of the
entire Property minus the non-recourse debt owed to Crown Life at the time of
Closing [currently estimated to be $3,000,000 (i.e., $9,000,000 minus
$6,000,000)] multiplied by (ii) the percentage of total Common Units in FWRLP
held by the other partners in FWRLP at the time of Closing, less (B) the excess
of the tax basis of the entire Property (currently estimated to be $6,393,505)
minus the non-recourse mortgage balance of the Crown Life Loan at Closing
(currently estimated to be $__________).
-viii-
<PAGE>
EXHIBIT L
CONFIDENTIAL INFORMATION STATEMENT
-ix-
<PAGE>
EXHIBIT M
[INTENTIONALLY OMITTED]
-x-
<PAGE>
EXHIBIT N
MORTGAGE
-xi-
<PAGE>
EXHIBIT O
NOTE
-xii-
<PAGE>
EXHIBIT P
PARTNERSHIP AGREEMENT
-xiii-
<PAGE>
EXHIBIT Q
ALLOCATION OF CONSIDERATION
Percentage of
Consideration
CONTINENTAL REALTY INVESTORS CORP.
JHP DEVELOPMENT COMPANY, INC.
EUGENE H. SCHREIBER and SANFORD D.
SCHREIBER, TRUSTEES UNDER
AGREEMENT OF MARVIN SCHAPIRO
DATED JUNE 24, 1974 (TRUST 112)
JOHN A. LUETKEMEYER, JR.
JAMES STONE, TRUSTEE
for MARY LUETKEMEYER (cash)
JAMES STONE, TRUSTEE
for JULIA LUETKEMEYER (cash)
JAMES STONE, TRUSTEE
for ANNE LUETKEMEYER (cash)
TRIPEC ASSOCIATES, L.P.
HERBERT ROCHLIN
JHJ INVESTMENT LIMITED PARTNERSHIP
-xiv-
EXHIBIT 10.49
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT is made and entered as the 22nd day of October,
1996, by and between (i) ISADORE SHOOSTER, HARRY SHOOSTER (Isadore Shooster and
Harry Shooster collectively the "General Partners"), DONALD SHOOSTER, DAVID
SHOOSTER, DANIEL SHOOSTER, MYRA GERSON, RICHARD AND HELAINE GORDON (Husband and
wife), DAVID and MICHELE SALAND (Husband and Wife) and FAIRLESS HILLS S.C.
ASSOCIATES, a Pennsylvania limited partnership, who are (or will be as of
Closing) all of the general and limited partners (collectively, the "Partners")
of City Line Shopping Center Associates, a Pennsylvania limited partnership (the
"Partnership") (the Partners sometimes herein after referred to collectively as
"Contributors"), and (ii) FIRST WASHINGTON REALTY LIMITED PARTNERSHIP, a
Maryland limited partnership (hereinafter referred to as "FWRLP").
W I T N E S S E T H:
WHEREAS, the Partners own, or will own as of Closing, all of the
partnership interests (the "Partnership Interests") of the Partnership; and
WHEREAS, the Partnership is the record and beneficial owner of that certain
parcel of real property as more particularly described on Exhibit A hereto
(collectively, the "Land"), together with the shopping center known as City Line
Shopping Center located in Philadelphia, Pennsylvania, and all other buildings
and improvements situated thereon (collectively, the "Building"), and all
Personal Property (as hereinafter defined) located therein, and all
appurtenances, rights, easements, rights-of-way, tenements and hereditaments
incident thereto (the "Additional Property") (the Land, Building, Personal
Property and Additional Property are hereinafter collectively referred to as the
"Property"); and
WHEREAS, Contributors and FWRLP desire to enter into this Agreement
relating to the contribution by Contributors to FWRLP of Partnership Interests
representing 89% of the capital interests and profits interests in the
Partnership (the "Contributed Interests") in exchange for certain interests in
FWRLP and for the continued ownership and later contribution by Contributors of
the remaining Partnership Interests representing 11% of the capital interests
and profits interests in the Partnership (the "Retained Interests").
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Contribution of Contributed Interests. Subject to the terms and
conditions set forth in this Agreement, at the First Closing (as defined below)
Contributors shall contribute the Contributed Interests to FWRLP in exchange for
that number of common limited partnership units of FWRLP (the "Units")
determined as set forth in Section 2
<PAGE>
below. Following the First Closing, those Contributors designated in Exhibit Q
attached hereto shall continue to hold all right, title and interest in and to
the Retained Interests, subject to the terms of this Agreement.
2. Consideration for Contributed Interests.
(a) In consideration of the Contribution of the Contributed Interests,
FWRLP shall issue Units in an aggregate amount calculated as follows: 89%
times the Net Asset Value (as defined below) of the Property, divided by
the Unit Price (as defined below) rounded to the nearest one (1). The Units
issued to the Contributors at the First Closing will be issued to the
respective Contributors in the same proportion as the respective
Contributors contribute the Contributed Interests.
(i) The "Net Asset Value" of the Property will equal
$14,775,000.00 less the outstanding and unpaid principal balance of
the Equitable Loan (as defined below) at the First Closing. The Net
Asset Value shall be further adjusted by the amounts of positive or
negative adjustments and prorations described in Section 12(b) below
(which shall all be determined as of the date of the First Closing).
(ii) The "Unit Price" will equal the average closing price of
First Washington Realty Trust, Inc. ("REIT") common stock for the
fifteen (15) business days immediately preceding the First Closing
Date (as defined below), rounded to the nearest 1/16th, such average
price not to be less than $19.50 per common share nor greater than
$21.00 per common share.
(b) At the First Closing, the Contributed Interests shall be
contributed to FWRLP with the Property then being subject to the
indebtedness, lien and operation of the Equitable Loan, including without
limitation the Mortgage (as defined below).
(c) (i) The Property is presently encumbered by a Mortgage and
Security Agreement ("Mortgage") from the Partnership, as debtor, for the
benefit of The Equitable Life Assurance Society of the United States, as
secured party (the "Lender"), which Mortgage secures an original principal
indebtness of $10,200,000.00 with interest thereon payable over the term
thereof (which ends on October 19, 2005) at a fixed interest rate of 8% per
annum, as evidenced by a Mortgage Note from the Partnership to Lender
("Note"). The Mortgage and Note and all documents and instruments executed
in connection therewith are collectively referred to as the "Equitable
Loan". The Equitable Loan is non-recourse (except for environmental and
other standard carve outs) to the Partnership and requires equal monthly
installments of principal and interest in the amount of the $78,725.25 per
month. The outstanding principal balance under the Equitable Loan as of
September 30, 1996 is approximately $10,089,472.00. Copies of the Mortgage
and Note are attached hereto as Exhibits N and O, respectively.
-2-
<PAGE>
(ii) FWRLP's obligations under this Agreement shall be expressly
contingent on the condition that on or prior to the First Closing
FWRLP receives a letter (the "Letter") from Lender at no cost to FWRLP
(other than charges or assumption fee of up to an aggregate 1% of the
then outstanding principal balance of the Equitable Loan), (i)
consenting to the contribution of the Partnership Interests to FWRLP
as set forth herein (the "Contribution"), (ii) confirming that the
Equitable Loan is as described above and shall remain on the same
terms and conditions as presently exist, and (iii) certifying that, to
the best knowledge of the Lender, there is no default or event which
with notice or lapse of time, or both, would constitute a default
under the Equitable Loan. At Closing, the General Partners shall
execute an estoppel certificate in favor of FWRLP certifying that, to
the best knowledge of the General Partners, there is no default, or
event of default which with notice or lapse of time, or both, would
constitute a default under the Equitable Loan. The General Partners
shall use commercially reasonable efforts to obtain such Letter from
Lender before the end of the Feasibility Period (as defined below) and
FWRLP shall cooperate therewith, but Contributors shall not have any
liability for any charges imposed by Lender as a condition of Lender's
consent to the Contribution of the Partnership Interests. If such
Letter is not received by FWRLP by the First Closing, FWRLP shall have
the right to terminate this Agreement, in which event the Deposit
(defined below), together with interest thereon, shall be returned to
FWRLP. If Lender does not consent or if Lender's Letter is other than
as set forth above and is not acceptable to FWRLP, FWRLP shall have
the right, at its sole election, to terminate this Agreement by giving
written notice thereof to Contributors within ten (10) days
thereafter, whereupon the Deposit, together with interest thereon,
shall be returned to Contributors and neither party shall have any
further liability to the other.
(iii) Contributors' obligations under this Agreement are
expressly contingent on the condition that the Lender, at or before
the First Closing, shall have released the General Partners from all
obligations and liabilities under the Equitable Loan pursuant to
release documents reasonably acceptable to the General Partners and
their counsel. If Lender does not deliver such release at or before
Closing, the General Partners shall have the right to terminate this
Agreement, in which event the Deposit, together with interest thereon,
shall be returned to FWRLP.
(d) Contributors acknowledge that the Units will not be redeemable for
cash or exchangeable for common stock of the REIT for a period of thirteen
(13) months after their issuance, all as more fully discussed in the
Confidential Information Statement (as hereinafter defined), as
supplemented through the date hereof.
(e) Notwithstanding any provision hereof to the contrary, the
Contribution of the Partnership Interests to FWRLP as set forth herein
shall constitute a "Capital Contribution" within the meaning of the FWRLP
Partnership Agreement and is intended, except as otherwise required under
Section 707, to be governed by Section 721(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and all parties
-3-
<PAGE>
to this Agreement will report the transaction evidenced hereby consistently
with this Section 2(e). Since the Contribution of the Partnership Interests
to FWRLP will terminate the Partnership for federal income tax purposes,
FWRLP agrees that the Contributors shall have the right and obligation to
file final tax returns for the Partnership as of the Closing Date.
3. Deposit.
(a) Within two (2) business days after the date of delivery to FWRLP
of an original of this Agreement executed by Contributors together with
completed Exhibits hereto (the date of such delivery by Contributors being
the "Acceptance Date") FWRLP shall deliver to the Title Company, as escrow
agent, a deposit (together with interest earned thereon, the "Deposit") of
One Hundred Thousand Dollars ($100,000.00 ) by check payable to the
Commercial Settlements, Inc., 1413 K Street, N.W., Washington, DC 20005
(the "Title Company").
(b) The Title Company will immediately provide Contributors with
written evidence of receipt of such Deposit. The Title Company shall place
the Deposit in an interest-bearing account within two (2) business days
after the date of receipt thereof, and interest on the Deposit shall accrue
to the benefit of the party entitled to the Deposit pursuant to this
Agreement. The Deposit shall be held by the Title Company pursuant to the
terms and conditions of this Agreement.
(c) In the event that, at any time prior to Closing, either of the
General Partners or FWRLP provides Title Company with a certification (a
copy of which shall be delivered contemporaneously to the other party) that
the Contributors or FWRLP, as the case may be, is entitled to the Deposit
pursuant to the terms of this Agreement, Title Company shall deliver the
Deposit to such party within seven (7) business days after receipt of said
notice, unless the other party disputes such certification by written
notice to Title Company (a copy of which shall be delivered
contemporaneously to the other party) delivered within five (5) business
days of Title Company's receipt of the initial certification. In such
event, Title Company shall hold the Deposit pending resolution of such
dispute. Any payment of the Deposit to the Contributors shall be made by
check payable to the General Partners.
(d) The parties acknowledge that Title Company is acting solely as a
stakeholder at their request and for their convenience, that Title Company
shall not be deemed to be the agent of either of the parties, and Title
Company shall not be liable to either of the parties for any act or
omission on its part unless taken or suffered in bad faith, in willful
disregard to this Agreement or involving gross negligence. The General
Partners and FWRLP shall jointly and severally indemnify and hold Title
Company harmless from and against all costs, claims and expenses, including
reasonable attorneys' fees, incurred in connection with the performance of
Title Company's duties hereunder, except with respect to actions or
omissions taken or suffered by Title
-4-
<PAGE>
Company in bad faith, in willful disregard of this Agreement or involving
gross negligence on the part of Title Company.
4. Closings. Except as otherwise provided in this Agreement, (a) the
Contribution of the Contributed Interests contemplated herein shall be
consummated at the "First Closing," which shall take place on the date (the
"First Closing Date") specified by FWRLP on not less than ten (10) days notice
to Contributors, provided that the First Closing Date shall not be later than
sixty (60) days after the end of the Feasibility Period, and (b) the
Contribution of the Retained Interests contemplated herein shall be consummated
at the "Second Closing," which shall take place three (3) years and one (1)
month after the First Closing. The Closings shall take place at the offices of
First Washington Realty Limited Partnership, 4350 East-West Highway, Suite 400,
Bethesda, Maryland 20814, or at such other place as may mutually agreed upon by
General Partners and FWRLP. All references in this Agreement to the "Closing"
shall be deemed to refer to the First Closing only, all references to the
"Closing Date" shall be deemed to refer to the First Closing Date only, and all
references to the "Closings" shall be deemed to refer to both the First Closing
and the Second Closing.
5. Representations and Warranties of Contributors. In order to induce
FWRLP to enter into this Agreement and to issue the Units in consideration for
the Partnership Interests, each Contributor for such Contributor only and for no
other Contributor makes the following representations and warranties, each of
which is material and shall survive Closing without limitation, notwithstanding
any investigation at any time made by or on behalf of FWRLP:
(a) Authority. Such Contributor has the rights, power and authority to
enter into this Agreement and to contribute its Partnership Interests in
accordance with the terms and conditions of this Agreement. Except for the
consents required under the Equitable Loan, no consents of any persons
other than those executing this Agreement as a Contributor are required for
such execution or to cause such Contributor to consummate the transactions
contemplated by this Agreement. This Agreement is the valid and binding
obligation of such Contributor, enforceable against such Contributor in
accordance with its terms.
(b) No Defaults. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) subject to
any approval required under the Equitable Loan, conflict with, or result in
a breach of, the terms, conditions, or provisions of or constitute a
default under any agreement or instrument to which such Contributor is a
party or by which such Contributor is bound, (ii) subject to any approval
required under the Equitable Loan, violate any restriction, requirement,
covenant or condition to which such Contributor is subject or by which such
Contributor is bound or (iii) constitute in violation of any code,
resolution, law, statute regulation, ordinance, rule, judgment, decree or
order to which such Contributor is subject or by which such Contributor is
bound.
-5-
<PAGE>
(c) Ownership of Interests. Such Contributor owns the Partnership
Interest owned by such Contributor, as set forth in Exhibit Q hereto, free
and clear of all liens, charges, encumbrances, restrictive agreements and
assessments; provided, however, that Fairless Hills S.C. Associates
("Fairless Hills") represents that it does not currently own the
Partnership Interests owned as of the date hereof by Brett Gordon and David
Gordon (the "Fairless Interests"), but will acquire the Fairless Interests
prior to the First Closing, free and clear of all liens, charges,
encumbrances, restrictive agreements and assessments. Upon the contribution
of such Contributor's Partnership Interest (or a portion thereof) to FWRLP
or its designee(s), FWRLP will receive good and absolute title thereto,
free from all liens, charges, encumbrances, restrictive agreements and
assessments whatsoever. Such Contributor hereby waives, with respect to the
contribution contemplated by this Agreement, any "right of refusal" or
other restriction on transfer set forth in the limited partnership
agreement of the Partnership. There are no outstanding options, contracts,
calls, commitments or demands of any nature relating to the Partnership
Interest of such Contributor (except for the right of Fairless Hills to
obtain the Fairless Interests).
(d) Securities Law Matters.
(i) Such Contributor is now or, at the time of Closing, will be,
an "accredited investor" as such term is defined under Rule 501
promulgated under the Securities Act of 1933, as amended (the
"Securities Act");
(ii) Such Contributor's primary residence or principal place of
business is in the state set forth on Exhibit Q;
(iii) Such Contributor is acquiring the Units for such
Contributor's account for investment purposes only and not with a
present view to distribution;
(iv) Taking into account the information and resources such
Contributor can practically bring to bear on the acquisition of the
Units in FWRLP contemplated hereby, such Contributor is knowledgeable,
sophisticated and experienced in making, and is qualified to make
decisions with respect to investments in securities presenting an
investment decision like that involved in the acquisition of the
Units, including investments in securities issued by FWRLP, and has
requested, received, reviewed and considered all information such
Contributor deems relevant in making an informed decision to acquire
the Units (including the Confidential Information Statement attached
hereto which contains the First Amended and Restated Agreement of
Limited Partnership of FWRLP and any Amendments thereto (the "FWRLP
Partnership Agreement"), except that the FWRLP Partnership Agreement
has been further amended solely to reflect exchanges of Units (as
defined in the Prospectus) for shares of the REIT's common stock by
holders of such Units in accordance with the terms of the FWRLP
Partnership Agreement);
-6-
<PAGE>
(v) Such Contributor will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose of (or
solicit any offers to buy, purchase or otherwise acquire or take a
pledge of ) any of the Units except in compliance with the Securities
Act and the rules and regulations promulgated thereunder and with the
terms and conditions of the FWRLP Partnership Agreement;
(vi) Such Contributor acknowledges that the Units to be issued
must be held unless and until they are subsequently registered under
the Securities Act and under applicable state securities or blue sky
laws, unless exemptions from such registrations are available at the
time of resale;
(vii) Prior to the issuance of the Units, such Contributor will
execute all such other documents and instruments as may be reasonably
necessary to allow FWRLP to comply with federal and state securities
law requirements with respect to the issuance of the Units and to
comply with the terms of the FWRLP Partnership Agreement;
(viii) As required by the Pennsylvania Securities Act of 1972, if
such Contributor is a resident of, or has his, her or its principal
place of business in the Commonwealth of Pennsylvania, they shall not
resell his, her or its Units for a period of twelve (12) months from
and after the date of their issuance to such Contributor unless
pursuant to an exemption from the requirements of such act or an order
from the Pennsylvania Securities Commission;
(ix) Such Contributor acknowledges and agrees that the Units to
be issued hereunder shall not be exchangeable and shall not be
exchanged for Common Stock in the REIT for a period of thirteen (13)
months (with respect to the Units issued at the First Closing, at the
Second Closing or pursuant to Section 20 hereof, if any) from and
after the date of issuance to such Contributor; and
6. Representations and Warranties of the General Partners. In order to
induce FWRLP to enter into this Agreement and to issue the Units in
consideration for the Partnership Interests, the General Partners, jointly and
severally, hereby make the following representations and warranties, each of
which is material and shall (except as otherwise set forth in Section 6(s)),
survive Closing for a period of one (1) year (unless expressly provided that it
will survive Closing without such limitation), notwithstanding any investigation
at any time made by or on behalf of FWRLP:
(a) Authority. The Partnership is a limited partnership duly organized
and in good standing under the laws of the Commonwealth of Pennsylvania.
The copy of the Partnership' s Partnership Agreement and all Amendments
thereto (collectively, the "Partnership Agreement") including all
Certificates of Limited Partnership and all Amendments thereto and the list
of all the Partners along with their individual Partnership Interests,
attached hereto an Exhibit P , is a true, correct and complete copy
thereof. Notwithstanding anything to the contrary, the representations and
warranties contained in this Section 6(a) shall survive Closing without
being subject to
-7-
<PAGE>
the one year limitation.
(b) Title. The Partnership is the sole owner of fee simple title to
the Property.
(c) Compliance with Existing Laws. To the best of the General
Partners' knowledge and except as set forth on Exhibit D attached hereto,
(i) the Partnership is not in violation, in any material respect, of any
material building, zoning, environmental or other ordinances, statutes or
regulations of any governmental agency, in respect to the ownership, use,
maintenance, condition and operation of the Property or any part thereof,
and (ii) the Partnership possesses all licenses, certificates, permits and
authorizations necessary for the use and operation of the Property in the
manner in which it is currently being operated by the Partnership , and the
requisite certificates of the fire marshalls or board of fire underwriters
have been issued for the Property. The Property is zoned _________. To the
best of the General Partners' knowledge, the Building and all related
facilities are now in conformance with all applicable zoning laws.
(d) Leases. True, correct and complete copies of all of the leases of
the Property and any amendments thereto (collectively, the "Leases"), have
been delivered to FWRLP. Attached hereto as Exhibit B is a description of
all of the Leases and a current rent schedule ("Rent Schedule") covering
the Leases, which is true and correct in all material respects. There are
no leases or tenancies of any space in the Property other than those set
forth in Exhibit B or, to the General Partners' knowledge, any subleases or
subtenancies unless otherwise noted therein. Except as otherwise set forth
in Exhibit B or elsewhere in this Agreement:
(i) The Leases are in full force and effect and constitute a
legal, valid and binding obligation of the respective tenants;
(ii) no tenant has an option to purchase the Property or any
portion thereof, except as set forth in the Amoco lease listed in the
Rent Schedule;
(iii) no renewal or expansion options have been granted to the
tenants, except as provided in the Leases;
(iv) to the best of the General Partners' knowledge, the
Partnership is not in default under any of the Leases;
(v) the rents set forth on the Rent Schedule are being collected
on a current basis and there are no arrearages in excess of one month,
except as indicated in Exhibit B hereto, nor has any tenant paid any
rent, additional rent or other charge of any nature for a period of
more than thirty (30) days in advance;
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(vi) all work for tenant alterations and other work or materials
contracted for by the Partnership and any tenant has been completed by
the Partnership, and all work and materials have been fully paid for
or will be paid for by Closing;
(vii) the Partnership has not sent written notice to any tenant
claiming that such tenant is in default, which default remains
uncured, and to the best of the General Partners' knowledge, no tenant
is in default under its Lease, except as indicated in Exhibit B
hereto;
(ix) no action or proceeding instituted against the Partnership
by any tenant is presently pending in any court; and
(x) there are no security deposits other than those set forth in
Exhibit B.
(e) Service Contracts. Attached hereto as Exhibit C is a complete and
correct list of all contracts or agreements relating to the management,
leasing, operation, maintenance or repair of the Property (the "Service
Contracts"). True and correct copies of all of the Service Contracts have
been delivered to FWRLP. Except in the case of a default by the vendor
under a specific Service Contract, no Service Contract will be terminated,
amended, modified or supplemented prior to the Closing Date without FWRLP's
prior written approval, which approval shall not be unreasonably withheld,
conditioned or delayed.
(f) Tax Bills. The General Partners have delivered true and correct
copies of tax bills issued by any applicable federal, state or local
governmental authority to the Partnership with respect to the Property for
the most recent past and current tax years, and any new assessment received
with respect to a current or future tax year.
(g) Insurance. Attached hereto as Exhibit E is a list of all hazard,
liability and other insurance policies presently affording coverage with
respect to the Property. The General Partners shall maintain in full force
and effect all such policies until the First Closing Date.
(h) Possession of Property. Possession of the Property shall remain
with the Partnership at Closing in its "as is, where is" condition as of
the date of FWRLP's execution of this Agreement, subject to normal wear and
tear and damage by fire or other casualty and the effect of condemnation
(subject to Section 13 herein), and subject to the Permitted Exceptions.
(i) Tenant Estoppels. The General Partners represent and warrant that
they shall use reasonable good faith efforts (without cost to the
Contributors or the Partnership) to obtain and deliver to FWRLP a tenant
estoppel letter from each tenant in the form attached hereto as Exhibit F
(or in such form or containing such information as may be required by the
lease of such tenant) from each of the tenants of the
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Property confirming the information set forth in the Rent Schedule attached as
Exhibit B hereto.
(j) Condemnation Proceedings. No condemnation or eminent domain
proceedings are pending or, to the best of the General Partners' knowledge,
threatened against the Property or any part thereof, and neither the
Partnership nor the General Partners has made any commitments to or
received any notice, oral or written, of the desire of any public authority
or other entity to take or use the Property or any part thereof whether
temporarily or permanently, for easements, rights-of-way, or other public
or quasi-public purposes, except as set forth in the Permitted Exceptions.
(k) Litigation. Except as set forth on Exhibit G hereto, no litigation
is pending or, to the best of the General Partners' knowledge, threatened,
including administrative actions or orders relating to governmental
regulations, affecting the use, operation or ownership of the Property or
any part thereof as contemplated herein, other than those being defended by
the Partnership's liability insurers.
(l) No Defaults. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) subject to
any approval required under the Equitable Loan, conflict with, or result in
a breach of, the terms, conditions or provisions of, or constitute a
default under, any agreement or instrument to which the Partnership is a
party or by which the Partnership or the Property is bound, (ii) subject to
the approval required under the Equitable Loan, violate any restriction,
requirement, covenant or condition to which the Partnership is subject or
by which the Partnership or the Property is bound, (iii) constitute a
violation of any applicable code, resolution, law, statute, regulation,
ordinance, rule, judgment, decree or order applicable to the Partnership,
or (iv) result in the cancellation of any contract or lease pertaining to
the Property. The representations and warranties set forth in this Section
6(l) shall survive Closing without being subject to the one year
limitation.
(m) Intentionally Omitted.
(n) Intentionally Omitted.
(o) Hazardous Waste. The General Partners have no knowledge of any
discharge, spillage, uncontrolled loss, seepage or filtration (a "Spill")
of oil, petroleum or chemical liquids or solids, liquid or gaseous products
or any hazardous waste or hazardous substance (as those terms are used in
the Comprehensive Environmental Response, Compensation and Liability Act of
1986, as amended, the Resource Conservation and Recovery Act of 1976, as
amended, or in any other applicable federal, state or local laws,
ordinances, rules or regulations relating to protection of public health,
safety or the environment, as such laws may be amended from time to time)
at, upon, under or within the Land or any contiguous real estate. To the
best of the General Partners' knowledge, there is no proceeding or action
pending or threatened by any person or governmental agency regarding the
environmental
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condition of the Property. To the General Partners' knowledge, the Building
is totally free of friable asbestos requiring remediation.
(p) Certificates of Occupancy. The Partnership will not amend any
certificates of occupancy for the Property and will maintain them in full
force and effect to the extent that the Partnership is responsible for
them. .
(q) Licenses and Permits. Contributors have received no notice, nor
has any knowledge, that it is lacking any required permit or license issued
by applicable governmental authorities for operation, maintenance or
ownership of the Property ("Licenses").
(r) Operating Statements. Attached hereto as Exhibit H are true and
correct operating statements of the Property for 1994 and 1995. Also
attached as Exhibit H is a copy of the 1996 operating budget for the
Property.
(s) Utilities. To the best of Contributors' knowledge, adequate,
usable public sewers, public water facilities, gas and electrical
facilities necessary to the current operation of the Property are installed
in and are duly connected to the Property and can be used without any
charge except the normal deposits, if any, and usual metered utility
charges and sewer charges. Notwithstanding anything to the contrary, the
representations and warranties set forth in this Section 6(s) shall not
survive Closing.
(t) Personal Property. Attached hereto as Exhibit I is a true, correct
and complete inventory of all personal property ("Personal Property"), if
any, used in the management, maintenance and operation of the Property
(other than trade fixtures or personal property of tenants).
(u) Leasing Commissions. There are, and at Closing shall be, no
outstanding or contingent leasing commissions or fees payable with respect
to the Property
(v) Partnership Liabilities. Except for (i) the obligations and
liabilities of the Partnership which FWRLP is taking the Partnership
Interests subject to under Section 2(c) above, and (ii) any accrued
liabilities and obligations of the Partnership which are being adjusted at
Closing pursuant to Section 12 of this Agreement, the Partnership shall not
have any liabilities or obligations, either accrued, absolute or contingent
or otherwise, which will not be paid or discharged on or before the Closing
Date. In addition, except for the claims and liabilities described in the
preceding sentence or otherwise described or disclosed in this Agreement
(including the Exhibits hereto), the Partnership has not received notice of
any, and to the best of the knowledge of the General Partners, there is, as
of the date of execution of this Agreement, no basis for any, claim against
(or liability of ) the Partnership arising from the business done,
transactions entered into or other events occurring prior to the
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Closing Date which is not the express responsibility of the Contributors
under the terms of this Agreement (or taken into account as an adjustment
to the Units to be issued to the Contributors hereunder).
(w) Partnership for Tax Purposes. The Partnership is, and at all
times has been, properly treated as a partnership for Federal Income Tax
purposes, and not as an "association" or "publicly traded partnership"
taxable as a corporation. The foregoing representation shall survive
Closing without being subject to the one year limitation.
(x) Taxes. Each of the Partnership and any predecessor of the
Partnership have timely filed with the appropriate taxing authorities all
returns (including without limitation information returns and other
material information) in respect of Federal, State and local taxes
(collectively "Taxes") required to be filed through the date hereof and
will timely file any such returns required to be filed on or prior to the
Closing Date. The returns and other information filed (or to be filed) are
complete and accurate in all material respects. All Taxes of the
Partnership in respect of periods beginning before the Closing Date have
been timely paid, or will be timely paid prior to the Closing Date, and the
Partnership has no material liability for Taxes in excess of the amounts so
paid. All Taxes that the Partnership has been required to collect or
withhold have been duly collected or withheld and, to the extent required
when due, have been or will be (prior to Closing Date) duly paid to the
proper taxing authority. No audits of any of the Partnership's federal,
state or local returns for Taxes by the relevant taxing authorities have
occurred, and no material deficiencies for Taxes of the Partnership have
been claimed, proposed or assessed by any taxing or other governmental
authority against the Partnership. There are no pending or, to the best of
knowledge of the General Partners, threatened audits, investigations or
claims for or relating to any material additional liability to the
Partnership in respect of Taxes, and there are no matters under discussion
with any governmental authorities with respect to Taxes that in reasonable
judgement of the General Partners or their counsel, is likely to result in
a material additional liability for Taxes. To the best of the knowledge of
the General Partners, there are no liens for taxes on any of the
Partnership Interests, and there are no liens for taxes (other than for
current taxes not yet due and payable) on any of the assets of the
Partnership. No Contributor is a person other than a United States person
within the meaning of the Internal Revenue Code of 1986, as amended (the
"Code"). The transaction contemplated herein is not subject to the tax
withholding provisions of Section 3406 of the Code, or Subchapter A of
Chapter 3 of the Code or of any other provision of law. The foregoing
representations and covenants shall survive Closing without being subject
to the one year limitation.
(y) Special Limitations. Notwithstanding anything in this Agreement
to the contrary (other than the second sentence of Section 15(a)(ii):
(i) If FWRLP does not elect to terminate this Agreement within
the Feasibility Period pursuant to the terms of Section 14 below, then
the
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representations and warranties made by the Contributors or the General
Partners in this Agreement (as well as the specific facts and/or
conditions which were the subject of such representations and/or
warranties) shall be deemed modified to account appropriately for
every fact or other matter which came to the attention of FWRLP, or
FWRLP's employees, agents or representatives during the course of the
Feasibility Period (other than such fact or matter which was due to
the willful misconduct or bad faith of the Contributors or the General
Partners), which fact or matter was inconsistent with the
Contributors' or General Partners' representation(s) or warranty(ies)
set forth herein, it being the intent and agreement of the parties
that FWRLP shall not have the right or ability to claim that the
inaccuracy of any representation set forth herein (provided that such
inaccuracy was not due to the willful misconduct or bad faith of
Contributors or the General Partners) which was actually known to
FWRLP (or its employees, agents and/or representatives) as of the end
of the Feasibility Period constitutes either a default by the
Contributors or the General Partners or a failure of a condition to
Closing hereunder;
(ii) If FWRLP elects to consummate the Closing under this
Agreement despite the failure of any of the conditions set forth in
Section 9 below, which failure is actually known to FWRLP prior to
Closing, including without limitation the failure of any
representation or warranty of the Contributors or General Partners
contained herein to be true and correct as of the time of Closing
(provided such failure was not the result of the willful misconduct or
bad faith of Contributors or the General Partners), then unless
Contributors or the General Partners expressly agree in writing to the
contrary at the time of Closing, FWRLP shall be deemed to have waived
any claims against the Contributors or General Partners arising out of
such failure, and, in such event, the Contributors and General
Partners shall have no post-Closing liability to FWRLP with respect
thereto.
(iii) FWRLP shall not be entitled to assert any claim against the
Contributors or General Partners with respect to the inaccuracy of any
representation or warranty made by the Contributors or General
Partners (provided that such inaccuracy was not due to the willful
misconduct or bad faith of Contributors or the General Partners), to
the extent such inaccuracy was actually known to FWRLP, or FWRLP's
employees, agents and/or representatives, as of or prior to the time
of Closing and FWRLP elects to consummate the Closing under this
Agreement, it being the intent and agreement of the parties that FWRLP
shall not have the right or ability to consummate the Closing and
thereafter assert a claim for breach of a warranty or representation
by Contributors which was actually known to FWRLP or its
representatives as of or prior to Closing.
(iv) If a matter represented by the Contributors or General
Partners hereunder was true as of the date of execution of this
Agreement, but
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subsequently is rendered inaccurate due to the occurrence of events or
due to a cause other than the Contributors' or General Partners'
intentional misconduct or bad faith, or intentional breach of this
Agreement, then such inaccuracy shall not constitute a default by the
Contributors or General Partners under this Agreement, even though the
same might constitute a failure of a condition to the Closing (subject
to subsections 6(y)(i)-(iii) above).
7. Obligations of Contributors Pending Closing. From and after the date
of this Agreement through the Closing Date, Contributors covenant and agree
as follows:
(a) Maintenance and Operation of Premises. The General Partners will
cause the Property to be maintained in its present order and condition,
normal wear and tear, and damage by fire or other casualty (subject to
Section 13) excepted and will cause the continuation of the normal
operation thereof, including the purchase and replacement of fixtures and
equipment, and the continuation of the normal practice with respect to
maintenance and repairs so that the Property will, except for normal wear
and tear and damage by fire or other casualty (subject to Section 13), be
in substantially the same condition on the Closing Date as on the date
hereof.
(b) Licenses. The General Partners shall use their commercially
reasonable efforts to preserve in force all Licenses and to cause those
expiring to be renewed.
(c) Changes in Representations. The General Partners shall notify
FWRLP promptly, and FWRLP shall notify Contributors promptly, if either
becomes aware of any occurrence prior to the Closing Date which would make
any of its representations, warranties or covenants contained herein not
true in any material respect.
(d) Obligations as to Leases. The General Partners shall not, without
FWRLP's prior written consent (which consent shall not be unreasonably
withheld), amend, modify, renew or extend any Lease in any respect unless
required by law, or enter into new leases or approve any assignment of
leases or subletting of leased space, or terminate any Lease. Contributors
hereby further agree that if any space is vacant on the First Closing Date,
FWRLP shall accept the Property subject to any vacancy as of the First
Closing Date, provided that the vacancy was not permitted or created by the
General Partners in violation of any restrictions contained in this
Agreement. Prior to Closing, Contributors shall not apply all or any part
of the security deposit of any tenant unless such tenant has vacated the
Property.
(e) Obligations as to Equitable Loan. The General Partners shall not,
without FWRLP's prior written consent, (i) prepay, or permit the
Partnership to prepay, the Equitable Loan, or (ii) modify or amend, or
permit the Partnership to modify or amend, any of the documents evidencing
or securing the Equitable Loan or otherwise entered into in connection with
the Equitable Loan. The General Partners shall make,
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or cause the Partnership to make, all payments required to be made under
the Equitable Loan when due, shall perform, or cause the Partnership to
perform, all obligations under the Equitable Loan and shall keep, and cause
the Partnership to keep, the Equitable Loan free from default.
8. Representations and Warranties of FWRLP. In order to induce Contributors
to enter into this Agreement and to contribute the Partnership Interests to
FWRLP, FWRLP, and, as to Sections 8(a), 8(b), 8(e), 8(f) and 8(g), the REIT
hereby makes the following representations and warranties, each of which is
material and shall survive Closing, notwithstanding any investigation at any
time made by or on behalf of Contributors:
(a) Authority of FWRLP and the REIT. FWRLP is a limited partnership
duly organized and existing and in good standing under the laws of the
State of Maryland. Subject to the approval of the Board of Directors of the
REIT (the "Board"), FWRLP and the REIT have all necessary power and
authority to execute, deliver and perform this Agreement and consummate all
of the transactions contemplated by this Agreement, including without
limitation the Registration Rights Agreement referred to in Section 18 and
attached hereto as Exhibit K. Subject to the approval of the Board, this
Agreement is the valid and binding obligation of FWRLP and the REIT,
enforceable against each of them in accordance with its terms. FWRLP shall
promptly notify the General Partners in writing of any approval or
disapproval by the Board of this Agreement and the transactions
contemplated by this Agreement. If, on or prior to the end of the
Feasibility Period, FWRLP shall notify the General Partners that the Board
has approved this Agreement and the transactions contemplated herein, then
such approval shall irrebuttably be deemed to have been given and such
approval may not thereafter be rescinded, revoked or treated as a condition
to the performance by FWRLP of its obligations hereunder. If, prior to the
end of the Feasibility Period, FWRLP shall notify the General Partners that
the Board has expressly disapproved this Agreement, or if FWRLP shall
otherwise fail to notify the General Partners prior to the end of the
Feasibility Period that the Board has approved this Agreement, then this
Agreement will terminate, the Deposit and any interest thereon shall be
returned to FWRLP and neither party shall have any further obligations or
liabilities to the other.
(b) No Defaults. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) conflict
with, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, any agreement or instrument to which FWRLP or
the REIT is a party, (ii) violate any restriction, requirement, covenant or
condition to which the FWRLP or the REIT is subject, or (iii) constitute a
violation of any applicable code, resolution, law, statute, regulation,
ordinance, rule, judgment, decree or order.
(c) Disclosure Documents. Attached hereto as Exhibit L is a true and
correct copy of the Confidential Information Statement, as supplemented
through the date hereof. The FWRLP Partnership Agreement, as contained in
the Confidential
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Information Statement, as supplemented through the date hereof, has not
been amended or modified except as set forth in Exhibit L, and, to the
knowledge of FWRLP, no default or condition which, with the passage of time
or the giving of notice could become a default, exists on the part of any
party thereunder.
(d) Disclosure. The Confidential Information Statement, as
supplemented through the date hereof, and including the Appendices thereto,
on the date hereof, does not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(e) Financial Information. The financial statements of FWRLP and the
REIT (including the notes thereto) included in the Confidential Information
Statement, as supplemented through the date hereof, present fairly the
financial position of the respective entity or entities presented therein
at the respective dates indicated and the results of their operations for
the respective periods specified, and except as otherwise stated in any
such registration statement or periodic report, such financial statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis.
(f) Issuance of Units. The FWRLP Partnership Agreement provides, or
prior to Closing will provide, for the issuance of the Units. The Units to
be issued in connection with the transactions herein contemplated have
been, or prior to their issuance will have been, duly authorized for
issuance by FWRLP to Contributors, and on the date of their issuance will
be validly issued, fully paid and non-assessable. The Units conform to the
description thereof contained in the Confidential Information Statement, as
supplemented through the date hereof, and such description conforms to the
rights set forth in the FWRLP Partnership Agreement. All issued and
outstanding Units were issued in compliance with or in transactions exempt
from the registration provisions of applicable federal and state securities
laws. Any and all shares of Common Stock of the REIT exchangeable for Units
issued in connection with the transactions herein contemplated will be duly
authorized, validly issued, fully paid and non-assessable. All issued and
outstanding shares of Common Stock of the REIT were issued in compliance
with or in transactions exempt from the registration provisions of
applicable federal and state securities laws.
(g) Litigation. There is no action or proceeding pending or, to the
knowledge of FWRLP, threatened against FWRLP, the REIT or any subsidiary
before any court or administrative agency which would result in any
material adverse change in the business or financial condition of FWRLP,
the REIT and their subsidiaries, taken as a whole.
(h) Disposition of Property. FWRLP has no current plan or intention
to sell or otherwise dispose of the Property or the Partnership Interests.
FWRLP acknowledges that, under Section 704(c) of the Code, the contributors
will be allocated
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"built-in" taxable income or gain if FWRLP makes a taxable sale or
disposition of all or a portion of the Property or the Partnership
Interests held by FWRLP(or if the Property or Partnership Interests held by
FWRLP are distributed to other partners of FWRLP within five years of the
contribution of the Partnership Interests). FWRLP agrees that if, within
six (6) years following the First Closing it voluntarily sells or otherwise
disposes of all or a portion of the Property or the Partnership Interests
held by FWRLP, it shall pay to each Contributor (or such Contributor's
successor in interest) an amount which, net of taxes on such payment, shall
be sufficient to indemnify and hold such Contributor (or successor in
interest) harmless from and against any tax liabilities incurred by such
Contributor (or successor in interest) as a result of such sale or
disposition.
(i) Allocation of Non-Recourse Debt. At least fifteen (15) days prior
to the First Closing, FWRLP shall provide the General Partners with a
letter from its independent certified public accountants in substantially
the form set forth in Exhibit M hereto (with appropriate modifications to
reflect that Partnership Interests are being contributed to FWRLP with the
Property then being subject to the Equitable Loan) indicating the amount of
FWRLP non-recourse indebtedness that will be allocated to Contributors'
Units for federal income tax purposes immediately after the First Closing.
The letter will contain a computation of the amount of FWRLP non-recourse
indebtedness allocable to Contributors based on certain assumptions (some
of which will be provided by Contributors or their counsel), and the
results for both (a) the contribution of the Contributed Interests, and (b)
the contribution of the Contributed Interests and the Retained Interests as
if both were contributed at the First Closing. FWRLP warrants that it will
prepare all of its federal, state and other income tax returns in a manner
reflecting the allocation of non-recourse liabilities set forth in the
letter in the immediately preceding sentence. If the aforementioned
accountant's letter delivered to the General Partners prior to the First
Closing indicates that the amount of FWRLP non-recourse indebtedness that
will be allocated to Contributors' Units immediately after the First
Closing is not sufficient to avoid triggering a taxable gain to
Contributors on Contributors' contribution of the Contributed Interests to
FWRLP (or would not be sufficient to avoid triggering a taxable gain to
Contributors on their contributing of both Contributed Interests and
Retained Interests as if both were contributed at the First Closing), then
the General Partners ( acting either singly or jointly) shall have the
right to terminate this Agreement by giving written notice thereof to FWRLP
within seven (7) days of receipt of such accountant's letter by the General
Partners, in which event the Deposit and any interest thereon shall be
returned to FWRLP and neither party shall have any further obligations or
liabilities to the other.
9. Conditions Precedent to First Closing.
(a) It shall be a condition precedent of FWRLP's obligation to issue
Units at the First Closing that each and every one of the following
conditions shall exist on the First Closing Date:
(i) Representations and Warranties. Contributors' representations
and warranties hereunder shall be true and correct in all
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material respects the same manner and with the same effect as though
such representations and warranties had been made on and as of the
First Closing.
(ii) Zoning. No proceedings shall have occurred or be pending to
change, redesignate or redefine the zoning classification of the
Property to a more restrictive classification than presently exists on
the date of FWRLP's execution of this Agreement.
(iii) Title. Title to the Property shall be marketable, good of
record, and insurable by the Title Company at standard rates or less,
pursuant to a full coverage ALTA Form-B owner's title insurance policy
(or an unconditional commitment therefor) without any exceptions
("Printed form" or otherwise) other than the Permitted Exceptions, and
in addition, without exception for mechanic's or materialmen's lien
arising from goods, labor or materials provided to the Property prior
to the First Closing Date. The "Permitted Exceptions" are:
(A) the lien of current real estate taxes and special
assessments not yet due and payable; and
(B) such other matters which are listed on Exhibit J
attached hereto. Notwithstanding anything to the contrary
contained in this paragraph (B), the General Partners, at or
prior to Closing, shall cause to be satisfied and released of
record all mortgages, deeds of trust, financing statements,
judgments, liens and other matters that may be satisfied by
payment of a liquidated sum, other than the Equitable Mortgage.
(iv) [Intentionally Omitted]
(v) [Intentionally Omitted].
(vi) Leasing Brokerage / Property Management Agreements. The
General Partners shall have terminated any and all leasing brokerage
agreements and property management agreements with respect to each
Property effective as of the First Closing. All responsibility for
dealings with any such brokers and agents, including the payment of
any claims (if deemed warranted by the General Partners), shall be the
sole responsibility of the General Partners. The General Partners
agree that they will indemnify and hold FWRLP, its successors,
assigns, partners, agents and employees, harmless against any such
claims and/or losses which might be incurred by such indemnitees or by
the Partnership in connection with any outstanding and/or contingent
leasing commissions or fees or management fees. Notwithstanding
anything to the contrary, the indemnity set forth in this subsection
9(a)(vi) shall survive Closing
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without limitation.
(vii) Performance by Contributor. Contributors shall have
complied with and not be in breach of any of their covenants or
obligations under this Agreement.
(viii) Tenant Estoppels. FWRLP shall have received a tenant
estoppel letter in the form attached hereto as Exhibit F (or in such
form as required by the lease to which a specific tenant is subject)
from, at a minimum, tenants satisfying the requirements described on
Exhibit F-1, confirming the information set forth in the Rent Schedule
attached as Exhibit B hereto for such tenants and containing no
material changes from the Rent Schedule, and any subordination and
attornment agreements required by the mortgage lender of FWRLP.
(b) Failure of Condition. In the event of the failure by the Closing
Date of any condition precedent set forth above, then FWRLP, at its sole
election, may (a) terminate this Agreement, in which event the Deposit and
any interest thereon shall be returned to FWRLP and, except as otherwise
provided in Section 17 hereof, neither party shall have any further
obligations or liabilities to the other; or (b) waive such condition and
proceed to Closing without abatement of consideration under Section 2(a)
herein.
10. Contributors' Deliveries. At the First Closing the following documents,
each dated as of the First Closing Date, shall be delivered to FWRLP:
(a) a Contribution and Assumption Agreement ("Assignment") and an
Amendment to the Partnership Agreement ("Amendment") and Limited
Partnership Certificate, in a recordable from, reasonably satisfactory to
FWRLP and the Contributors, setting forth the assignment by each of the
Contributors of their Contributed Interest and his, her or its withdrawal
from the Partnership (or reduction in interest, in the case of Contributors
holding Retained Interests) and the admission of FWRLP and /or its
designee(s) as partners of the Partnership, which Amendment shall be
executed and acknowledged by all the Contributors and FWRLP.
(b) a release from each Contributor releasing the Partnership and
FWRLP (and its designee(s)) as partners of the Partnership from any
obligations and liabilities with respect to the original formation of the
Partnership, and any other matter arising from business done, transactions
entered into or events occurring prior to the Closing Date (other than
those matters for which FWRLP is indemnifying the Contributors pursuant to
Section 15(c)).
(c) An opinion of counsel for Contributors, in form and substance
reasonably acceptable to counsel for FWRLP, to the effect that:
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(i) The Partnership is a duly organized and validly existing
limited partnership in good standing under the laws of the
Commonwealth of Pennsylvania:
(ii) The execution and delivery of this Agreement and all other
agreements delivered in connection herewith or at the Closing, the
consummation of the transactions herein contemplated, and compliance
with the terms of this Agreement and all other agreements delivered in
connection herewith or at the Closing will not conflict with, or
result in a breach of, any of the terms, conditions or provisions of,
or constitute a default under, any note, indenture, mortgage, deed of
trust, contract or other agreement or instrument to which the
Partnership is a party or by which the Partnership is bound (and of
which counsel has knowledge) (other than the Equitable Loan), or any
law or order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality or court, domestic or
foreign;
(iii) Contributors have power and authority to contribute,
transfer, assign and deliver to FWRLP and its designee(s) all of the
Contributed Interests to be contributed and assigned hereunder which
are owned and /or controlled by them, and the Assignment and the
Amendment delivered pursuant to this Section 10 are in form legally
sufficient to vest in FWRLP and its designee(s) good and marketable
title to the Contributed Interests described therein; and
(iv) To the best of counsel's knowledge, there is no litigation
or investigation pending or threatened against the Partnership, or the
Property, or any part thereof, which might result in any material,
adverse change pertaining to the Property or the Partnership, or the
operations thereof, or which questions the validity of any action
taken in, under or in connection with any of the provisions of this
Agreement.
(d) a schedule from the General Partners updating the Rent Schedule
for the Property and setting forth all arrearages in rents and all
prepayments of rents;
(e) originally executed Leases and Service Contracts and copies of
books, records, operating reports, files and other materials related to the
ownership, use and operation of the Property, to the extent that any exist
and are in the possession of the General Partners, which obligation shall
survive Closing;
(f) [Intentionally Omitted]
(g) an original letter executed by the General Partners advising the
tenants of the Property of the change in control and management of the
Property and directing that rents and other payments thereafter be sent to
FWRLP or as FWRLP may
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direct;
(h) possession of the Property from the General Partners in the
condition required by this Agreement, and the keys therefore;
(i) from each Contributor, the Certification of Non-foreign Status as
provided in Treas. Reg. 1.1445-2(b)(2)(iii)(B) or in any other form as may
be required by the Internal Revenue Code or the regulations issued
thereunder;
(j) such other items and instruments from the General Partners as
shall be required by the Title Company in connection with the issuance of
its title insurance policy to FWRLP pursuant to Section 9(a)(iii)
(including customary General Partners' or owner's affidavit), except that
Contributors shall not be obligated to undertake any financial obligation,
indemnities, escrows or guarantee in favor of the Title Company;
(k) any and all documents from the General Partners necessary to
release the Deposit from escrow with the Title Company and to have said
Deposit returned to FWRLP;
(l) any other documents required by this Agreement to be delivered by
Contributors; and
(m) An amendment to the FWRLP Partnership Agreement, in a form
reasonably acceptable to FWRLP and Contributors, admitting the Contributors
as limited partners of FWRLP and issuing such Units as computed in
accordance with Exhibit Q hereto with respect to the applicable Closing.
11. FWRLP's Performance. At the First Closing, simultaneously with the
deliveries of Contributors pursuant to the provisions of Section 10 above, FWRLP
shall issue to Contributors the Units in the amount and manner specified in
Section 2 and FWRLP and REIT shall execute and deliver those documents
(including without limitation those documents described in Section 10 above to
which FWRLP or the REIT is a party or a required signatory) and take such other
actions required to be taken by FWRLP and REIT at Closing as required under this
Agreement, whereupon the Deposit, and any interest accrued thereon, shall be
returned to FWRLP by the Title Company.
12. Settlement Charges; Prorations and Adjustments.
(a) FWRLP shall pay for the title examination, the title insurance
premium, notary fees and other such charges incident to the Closings.
Although Contributors and FWRLP believe that no real estate transfer or
recording fees or taxes will be due in connection with the transactions
contemplated hereby, if it is finally determined that such taxes are due
and payable in connection herewith, then FWRLP
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shall pay the full amount of such taxes, but Contributors shall either (i)
reimburse to FWRLP one-half (1/2) of such sum paid by FWRLP, or (ii)
return/relinquish to FWRLP the number of Units equal to one-half (1/2) of
the taxes paid by FWRLP divided by the Unit Price. FWRLP and Contributors
shall each pay its own legal fees related to the preparation of this
Agreement and all documents required to settle the transaction contemplated
hereby.
(b) At the First Closing, the following adjustments and prorations
shall be computed as of the First Closing Date, and shall increase or
decrease the Net Asset Value determined under Section 2(a) above, as if the
transaction contemplated by this Agreement was a sale of the Property by
the Partnership to FWRLP:
(i) Taxes. Real estate and personal property taxes shall be
apportioned (based on the fiscal periods for which such taxes are
assessed) as of the Closing Date.
(ii) Assessments. All special assessments and other similar
charges which have become a lien upon the Property or any part thereof
at the Closing Date, and are due and payable through the Closing Date,
shall be paid in full by the Partnership or the Contributors on or
prior to the Closing. All other special assessments or similar charges
shall be adjusted as of the Closing Date.
(iii) Rent. Rent for the month of , and any month after, Closing
collected by the Partnership prior to Closing shall be apportioned as
of the Closing Date. If any tenant is in arrears in the payment of
rent on the Closing Date, rents received from such tenant after the
Closing shall be applied in the following order of priority: (a)
first, to the payment of current rent then due; (b) second, to
delinquent rent for any period after the Closing Date; and (c) third,
to delinquent rent for any period prior to the Closing Date. FWRLP
shall either cause the Partnership to use reasonable efforts to
collect (at no cost to FWRLP or the Partnership), or shall assign to
Contributors the right to collect, arrearages in rents due from
tenants as of the First Closing Date. If rents or any portion thereof
received by Contributors or the Partnership after the Closing Date are
payable to the other party by reason of this allocation, the
appropriate sum, less a proportionate share of any reasonable
attorneys' fee, costs and expenses of collection thereof, shall be
promptly paid to the other party, which obligation shall survive the
Closing.
If any tenants are required to pay percentage rents, escalation
charges for real estate taxes, operating expenses, cost-of-living
adjustments or other charges of a similar nature ("Additional Rents")
and any Additional Rents are collected by the Partnership after the
Closing which are attributable in whole or in part to any period prior
to the Closing,
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then the Partnership shall promptly pay to Contributors the amount of
such Additional Rents attributable to the period prior to the Closing,
less a proportionate share of any reasonable attorneys' fees, costs
and expenses of collection thereof, and deliver to Contributors a
statement therefor, if and when the tenant paying the same has made
all payments of rents and Additional Rent then due to the Partnership
pursuant to the tenant's Lease, which obligation shall survive the
Closing. Upon written request of Contributors (but only until the time
of the first reconciliation), FWRLP shall cause the Partnership to
provide Contributors with the then current periodic report of the
status of collection of such Additional Rents from such tenants.
(iv) Debt Service on the Equitable Loan. The amount of interest
payable under the Equitable Loan shall be apportioned as of the
Closing Date.
(v) Security Deposits and Cash. The Net Asset Value of the
Property shall be reduced by the aggregate amount of security deposits
which the Partnership is holding or is obligated to hold under the
Leases as of the First Closing Date and shall be increased by the
aggregate amount of cash in the Partnership's bank account(s) as of
the First Closing Date (determined as of 11:59 p.m. on the day
immediately preceding the First Closing Date, but after taking into
account any amounts of cash distributed to the Contributors as
permitted under Section 12(d) below).
(vi) Miscellaneous. All other charges and fees customarily
prorated and adjusted in similar transactions, including utilities,
insurance premiums and charges for Service Contracts to be retained by
the Partnership, shall be prorated as of the Closing Date. In the
event that accurate prorations and other adjustments cannot be made at
Closing because current bills are not obtainable or the amount to be
adjusted is not yet ascertainable (as, for example, in the case of
utility bills) the parties shall prorate on the best available
information, subject to further adjustment promptly upon receipt of
the final bill or upon completion of final computations. To the extent
that water consumption or other utility charges may constitute a lien
against the Property, Contributors agree that an appropriate amount in
respect of water consumption or other utility charges may be held in
escrow by the Title Company in connection with its issuance of a title
insurance policy to FWRLP. The General Partners shall use their
reasonable efforts to have all utility meters read on the Closing Date
so as to accurately determine the proration of current utility bills.
(c) Distributions. The quarterly distributions payable to Contributors
on
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the Units for the first record date after any issuance to Contributors
shall be pro rated based upon the number of days within the quarter
occurring after such issuance to Contributors .
(d) It is acknowledged and agreed that, on or prior to the First
Closing, the General Partners shall cause the Partnership to distribute to
the Contributors all cash and assets of the Partnership other than the
Property; provided that the cash distributed to the Contributors shall not
exceed the cash within the Partnership's bank accounts as of 11:59 p.m. on
the day immediately preceding the First Closing Date.
13. Risk of Loss. The risk of loss or damage to the Property by fire or
other casualty until the First Closing shall be borne by the Contributors. If
prior to Closing (i) condemnation proceedings are commenced against all or any
portion of the Property (other than a de minimis condemnation, which shall mean
a condemnation which does not affect any parking or access areas of the Property
and does not have a material adverse affect on the value of the Property), or
(ii) if the Property is damaged by fire or other casualty to the extent that the
cost of repairing such damage shall be Five Hundred Thousand Dollars
($500,000.00) or more based on the good faith estimate of an independent
contractor selected by the General Partners and reasonably approved by FWRLP, or
(iii) if the Property is damaged by an uninsured risk, then FWRLP shall have the
right, upon notice in writing to the Contributors delivered within thirty (30)
days after actual notice of such condemnation or fire or other casualty or
litigation, to terminate this Agreement, and thereupon the parties shall be
released and discharged from any further obligations to each other and the
Deposit shall be refunded to FWRLP. If FWRLP does not elect to terminate this
Agreement or in the event of fire or other casualty or condemnation not giving
rise to a right to terminate this Agreement by FWRLP, all of the proceeds of
fire or other casualty insurance proceeds and the rent insurance proceeds
payable with respect to the period after Closing or of the condemnation award,
as the case may be, shall remain in the Partnership for the benefit of FWRLP,
and Contributors shall have no obligation to repair or restore the Property;
provided, however, that the Net Asset Value determined under Section 2(b) above
shall be reduced by (a) the "deductible" applied by the Partnership's insurance
policy, or (b) if the Partnership is self-insured, the cost of repairing such
damage. FWRLP shall have the right to participate in the negotiation and
settlement of any casualty or condemnation-related claim if FWRLP does not elect
to terminate this Agreement.
14. Inspection of Property.
(a) FWRLP's Right of Inspection. Subject to the rights of tenants
under the Leases, FWRLP shall have the right, at its own risk, cost and
expense, at any time or times prior to Closing, to enter, or cause its
agents or representatives to enter, upon the Property for the purpose of
making surveys, or any tests, investigations and/or studies relating to the
Property or FWRLP's intended acquisition of Partnership Interests which
FWRLP deems appropriate, in its sole discretion, during reasonable
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hours and upon reasonable notice to the General Partners. FWRLP agrees to
use all reasonable efforts to minimize disruption to business operations
within the Property during the course of any entries thereon. FWRLP shall
further have complete access to all documentation, agreements and other
information in the possession of Contributors related to the ownership, use
and operation of the Property, to the extent it is readily available to
Contributors, and shall have the right to make copies of same. FWRLP agrees
to repair any damage to the Property that may be caused by its inspections
and to indemnify and defend Contributors and hold Contributors harmless
against any injury, loss or damage suffered upon the Property as a result
of such inspections.
(b) Feasibility Period. Any other provisions of this Agreement to the
contrary notwithstanding, FWRLP may cause at FWRLP's sole cost and expense,
such boring, engineering, economic, water, sanitary and storm sewer,
utilities, topographic, structural, environmental and other tests,
investigations, market studies and other studies as FWRLP shall elect,
subject to the rights of tenants under the Leases. FWRLP agrees to use all
reasonable efforts to minimize disruption to business operations within the
Property during the course of any entries thereon. In the event that any of
the tests, investigations, market studies and other studies indicate, in
FWRLP's sole discretion, that FWRLP's plans for the Property would not be
feasible for any reason, then FWRLP shall have the right, at its sole
election on or before the date which is sixty (60) after the Acceptance
Date (such period herein referred to as the "Feasibility Period"), to
terminate this Agreement by giving written notice thereof to the General
Partners in which event this Agreement shall terminate, the Deposit shall
be returned to FWRLP and neither party shall have any further liabilities
or obligations to each other.
(c) Audit. The General Partners hereby agree to allow books and
records related to each Property to be audited (at FWRLP's sole expense) by
an independent, certified public accounting firm selected by FWRLP, and the
General Partners will cooperate and cause its employees and other agents to
cooperate in such auditing process. FWRLP shall provide the General
Partners with prior notice of such audit.
15. Indemnifications.
(a) Indemnification by Contributors. (i) Each Contributor for such
Contributor only, and for no other Contributor, hereby indemnifies and
agrees to defend and hold harmless FWRLP and its partners and subsidiaries
and any officer, director, employee, agent of any of them, and their
respective successors and assigns from and against any and all claims,
expenses, costs, damages, losses and liabilities (including reasonable
attorneys' fees) which may be asserted against or suffered by any
indemnitee, the Partnership or the Property, or any part thereof, whether
before or after the Closing Date, as a result of, on account of or arising
from any breach by such Contributor of any representation, warranty,
covenant or agreement made by such Contributor herein or in any instrument
or document delivered by such Contributor pursuant to this Agreement. The
indemnification set forth in this Section 15(a) shall
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survive Closing without limitation; provided, however, that the
indemnification for breach of representations or warranties which are
subject to a limited survival period described in Section 5 or elsewhere in
this Agreement shall cease and expire with respect to any claim not raised
by FWRLP, by written notice to the Contributor from whom indemnification is
sought, within such limited survival period.
(ii) Indemnification by Contributors. Subject to Section 6(y)
herein and except as otherwise provided in Section 15(a)(i) above, the
Contributors, jointly and severally, hereby indemnify and agree to
defend and hold harmless the Partnership, FWRLP and its partners and
subsidiaries and any officer, director, employee, agent of any of
them, and their respective successors and assigns from and against any
and all claims, expenses, costs, damages, losses and liabilities
(including reasonable attorneys' fees) which may at any time be
asserted against or suffered by any indemnitee, the Partnership or the
Property, or any part thereof, whether before or after the First
Closing Date, as a result of, on account of or arising from any claim
relating to or arising out of any contract, agreement or other
obligation to which the Partnership was a party or any claim relating
to any encumbrance or other occurrence prior to the First Closing Date
(other than obligations under the Equitable Loan accruing after the
First Closing Date, obligations accruing after the First Closing Date
under the Leases and Service Contracts, items adjusted as of the First
Closing Date under Section 12 above, and other obligations, claims or
agreements expressly assumed by FWRLP in writing), provided (and
solely to the extent) such claim is derived from an occurrence or
breach which took place prior to the First Closing Date, and solely to
the extent such claim is not within the scope of any insurance and/or
indemnity agreement in favor of the Partnership (and FWRLP will look
to any such insurance and /or indemnity agreement(s) in connection
with any such insured or indemnified claims to the extent actually
covered by such insurance and/or indemnity agreement). Claims within
the scope of the indemnity set forth in this Section 15(a)(ii) shall
include, without limitation, any and all liabilities for federal and
state income and other taxes (other than real estate taxes) due and
payable with respect to any period (or portion thereof) ending on or
prior to the First Closing Date, and such indemnity shall not be
subject to Section 6(y) of this Agreement. Notwithstanding any other
provision of this Agreement to the contrary, the liability of each
Contributor to FWRLP and its successors and assigns with respect to
any indemnities set forth in this Section 15(a)(ii), any documents
delivered pursuant hereto, and/or any of the transactions contemplated
herein, shall be limited to the right, title and interest of each such
Contributor in the Units issued to such Contributor pursuant to
Sections 2, 19 and 20 of this Agreement, and such liability shall be
satisfied solely out of the sale or redemption of such Units by FWRLP
in levy upon or set off against the right, title and interest of such
Contributor therein, and in any distributions payable pursuant
thereto, except and solely to the extent the Units so issued have been
converted by such Contributor to Common Stock of the REIT or sold or
otherwise transferred by such Contributor, in which event such
liability may be satisfied out of any assets of such Contributor,
subject to a maximum limitation of liability equal to the market value
of the Units (i.e., the number of Units multiplied by the closing
price on the NYSE of the respective Common Stock into which the Units
are
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exchangeable) issued to such Contributor as of the date of issuance.
Any indemnification of FWRLP or the Partnership by Contributors under
this Section 15(a)(ii) shall survive Closing without limitation.
(b) Indemnification by the General Partners . The General Partners,
jointly and severally, hereby indemnify and agree to defend and hold
harmless FWRLP and its partners and subsidiaries and any officer, director,
employee, agent of any of them, and their respective successors and assigns
from and against any and all claims, expenses, costs, damages, losses and
liabilities (including reasonable attorneys' fees) which may at any time be
asserted against or suffered by, any indemnitee, the Partnership or the
Property, or any part thereof, whether before or after the Closing Date, as
a result of, on account of or arising from any breach of any
representation, warranty, covenant or agreement made by the General
Partners herein or in any instrument or document delivered by the General
Partners pursuant to this Agreement. Any indemnification of FWRLP or the
Partnership or other indemnitee under this Section 15(b) shall survive
Closing without limitation (other than indemnification for breach of
representations or warranties which are subject to a limited survival
period described in Section 6 or elsewhere in this Agreement, in which case
such indemnification obligation shall cease and expire with respect to any
claim not raised by FWRLP, by written notice to Contributors, within such
limited survival period).
(c) Indemnification by FWRLP. FWRLP hereby indemnifies and agrees to
defend and hold harmless Contributors and their respective, heirs, personal
representatives, successors and assigns from and against any and all
claims, expenses, costs, damages, losses and liabilities (including
reasonable attorneys' fees) which may at any time be asserted against or
suffered by Contributors as a result of, on account of or arising from (i)
any breach of any representation, warranty, covenant or agreement on the
part of FWRLP or the REIT made herein or in any instrument or document
delivered pursuant to this Agreement, and/or (ii) any obligation, claim,
suit, liability, contract, agreement, debt or encumbrance or other
occurrence created, arising or accruing after the Closing Date and relating
to the Property or its operations (including without limitation (1) the
obligations under the Equitable Loan accruing after the First Closing, and
(2) any accrued liabilities and obligations of the Partnership which are
being adjusted at the First Closing pursuant to Section 12 herein). The
foregoing obligations set forth in this Section 15(c) shall survive Closing
without time limitation.
(d) Right to Defend Claim. If any party entitled to indemnification
under this Section 15 (the "Indemnitee") becomes aware of any potential
claim, suit or action which, if successful, will give rise to a right to
indemnification against another party to this Agreement (the "Indemnitor"),
the Indemnitee shall give the Indemnitor prompt written notice of such
potential claim, suit or action and shall give the Indemnitor the right to
defend such claim, suit or action at the sole cost and expense of the
Indemnitor. If the Indemnitor shall undertake to defend such claim, suit or
action, the Indemnitee may, at its own cost and expense, participate in the
defense of such claim, suit or action. If the Indemnitor declines to defend
such claim, suit or action, the Indemnitee's claim for indemnification
against the Indemnitor shall include reasonable
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attorneys' fees and expenses incurred by the Indemnitee in defending such
claim, suit or action.
16. Brokerage Commission. Contributors and FWRLP represent and warrant to
each other that no brokerage fee or real estate commission is or shall be due or
owing in connection with this transaction other than the $225,000.00 fee payable
to Albert M. Greenfield & Company, Inc., which shall be payable by FWRLP at the
First Closing pursuant to a separate agreement. Contributors and FWRLP hereby
indemnify and hold the other harmless from any and all claims of any other
broker or agent so claiming based on action or alleged action of the other.
17. Default Provisions; Remedies.
(a) FWRLP's Default. If FWRLP fails to consummate the Contribution
contemplated herein when required to do so pursuant to the provisions
hereof, then the Title Company shall deliver the Deposit to Contributors as
full and complete liquidated damages, and as the exclusive and sole right
and remedy of Contributors, whereupon this Agreement shall terminate and
neither party shall have any further obligations or liabilities to any
other party.
(b) Contributors Default. Except for any breaches waived in writing by
FWRLP, if Contributors have breached any of their covenants or obligations
under this Agreement or have failed, refused or are unable to consummate
the Contribution contemplated herein by the Closing Date or if any of the
representations and warranties made by Contributors under this Agreement
shall be inaccurate or incorrect in any material respect, then FWRLP shall
be entitled, as FWRLP's sole and exclusive right and remedy, to (i) waive
such breach, default or failure and proceed to Closing without abatement of
consideration hereunder, (ii) extend the Closing for such reasonable time
or times as may be necessary in order to enable Contributors to remedy such
breach, default or failure (not to exceed thirty (30) days in the
aggregate), (iii) terminate this Agreement and obtain the return of the
Deposit, and/or (iv) pursue an action for specific performance. In the
event that FWRLP elects to pursue specific performance and FWRLP prevails
in such litigation, in addition to any damages or other relief awarded to
FWRLP, Contributors shall be obligated to pay all reasonable legal fees,
costs and expenses incurred by FWRLP.
(c) The provisions of Sections 17(a) and (b) above shall not be
applicable to any breach or default by a party occurring or first becoming
actually known to the other party after the First Closing, and, as to any
said breach or default, the non-defaulting party may exercise any and all
remedies available at law or in equity, subject, however, to any applicable
limitations on survival expressly provided for in this Agreement.
18. Registration Rights. Contributors and the REIT hereby agree to execute
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at Closing the Registration Rights Agreement attached hereto as on Exhibit K.
19. Retained Interests.
(a) Upon the contribution of the Contributed Interests to FWRLP at
the First Closing, the Contributors holding the Retained Interests (the
"Retained Partners") and FWRLP (and any other party designated by FWRLP to
hold an interest in the Partnership) shall enter into an amended and
restated limited partnership agreement (the "Amended Partnership
Agreement") for the Partnership containing such terms and conditions as are
mutually agreeable to FWRLP and the Retained Partners. The Amended
Partnership Agreement shall provide that (i) FWRLP is the general partner
of the Partnership and shall have exclusive authority to manage the
Property and the Partnership, including without limitation the expenditure
of Partnership funds and the distribution of cash flow, (ii) the Retained
Partners shall be limited partners and shall have no personal liability for
any debts, obligations or claims of the Partnership, (iii) the Retained
Partners shall, in the aggregate, have a capital interest in the
Partnership equal to 11% of the aggregate capital of the Partnership (which
aggregate capital of the Partnership shall equal the Net Asset Value), and
(iv) the Retained Partners shall be entitled to a cumulative 9% priority
return on their capital interest in the Partnership (the "Priority
Return"). The Retained Partners shall retain full right, title and interest
in and to the Retained Interests until the Second Closing.
(b) At the Second Closing, the Retained Partners will contribute the
Retained Interests to FWRLP and, in exchange therefor, FWRLP will issue to
the Retained Partners an aggregate amount of Units calculated as follows:
11% times the Net Asset Value of the Property, divided by the Unit Price.
If, as of the Second Closing, the Retained Partners have not received the
full amount of the Priority Return accrued through the Second Closing Date,
FWRLP shall take such actions as may be required to cause the Partnership
to pay to the Retained Partners the unpaid amount of the Priority Return
accrued through the Second Closing (including contributing or advancing
such funds to the Partnership if necessary).
(c) At the Second Closing, the Retained Partners shall (i) execute,
acknowledge and deliver to FWRLP substantially the same documents set forth
in Section 10(a), (b), (c)(iii) and (m) above with respect to the Retained
Interests, each dated as of the date of the Second Closing and (ii) execute
an affidavit setting forth that all of the representations and warranties
set forth in Section 5 (including without limitation subsection 5(d)
relating to securities law matters) relating to the Retained Interests are
true and correct in all material respects on the date of the Second
Closing.
20. Contingent Units.
(a) Pep Boys currently leases approximately 10,000 square feet of
space at the Property ("Space A"), and Rickels currently leases
approximately 20,000 square feet of space at the Property ("Space B"). The
General Partners have entered
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in discussions with Pep Boys to relocate from Space A to Space B. The
General Partners have also had discussions with Sears Roebuck & Co. to
lease Space B. FWRLP has expressed a desire to endeavor to lease Space B to
Pep Boys, so that FWRLP may offer to lease Space A to Acme for expansion
purposes. Therefore, upon execution of this Agreement, the General Partners
will not enter into a new lease for, or modify an existing lease, for Space
A or Space B without the prior written consent of FWRLP.
(b) In consideration of the foregoing and subject to the terms and
conditions set forth below, if prior to the third (3rd) anniversary of the
First Closing Date a new lease is entered into for Space A and/or Space B
and (i) the sum of the aggregate initial annual base rent for Space A and
Space B under the new leases (disregarding any initial rent abatement or
allowance), plus the percentage rent that would be payable under the new
lease during the first year thereof assuming that the annual sales of such
new tenant was equal to the 1994 sales of Rickels, plus the estimated
initial annual pass-through expenses payable under said Leases (i.e.,
common area maintenance costs, real estate taxes, and insurance premiums)
exceed (ii) the aggregate annual base rent payable as of the date of this
Agreement for Space A and Space B under the current Leases with Pep Boys
and Rickels, respectively, plus the percentage rent, if any, paid based on
1994 sales, plus the current aggregate estimated annual pass-through
expenses payable under said existing leases (such excess is hereinafter
referred to as the "Additional Income"), then additional consideration in
the form of additional Units (the "Contingent Units") will be issued by
FWRLP to the Contributors in the amounts, and subject to the terms and
conditions, set forth below.
(c) The number of Contingent Units to be issued to Contributors shall
be based upon the "Additional Value" attributable to the new lease(s) for
Space A and/or Space B. Subject to Sections 20(d) and (e) below,
"Additional Value" will be computed as follows:
(i) Determine the amount of aggregate Additional Income;
(ii) Subtract from the Additional Income an amount equal to 12%
of the aggregate amount of any capital expenditures, tenant
improvement expenditures and/or allowances, lease buyout expenses and
any leasing commission incurred by FWRLP in connection with the new
leases for Spaces A and B; and
(iii) Multiply the resulting amount by four (4).
As discussed below, Additional Value may be computed more than one time
under this Section 20. If Additional Value is computed two times, the
second computation of Additional Value shall be reduced by the amount of
any positive Additional Value determined when Additional Value was
originally computed. Notwithstanding anything to the contrary, the
aggregate Additional Value taken into account under this Section 20 shall
in no event exceed $750,000.00.
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(d) Additional Value shall first be computed as of the date (the
"First Valuation Date") on which a new tenant commences occupancy of Space
B. The following rules shall apply for purposes of computing Additional
Value:
(i) If Space B is leased to a tenant other than Pep Boys, there
shall be only one computation of Additional Value. In this case
Additional Income and Additional Value shall be determined solely by
reference to the current and new leases for Space B.
(ii) If Space B is leased to Pep Boys and as of the date Pep Boys
commences occupancy of Space B a new lease has been entered into for
Space A, then the "First Valuation Date" shall be deferred until the
date both Space A and Space B are occupied by new tenants and
Additional Value shall be computed only once, taking account of both
new leases.
(iii) If Space B is leased to Pep Boys, and Space A (which is to
be vacated by Pep Boys) has not been leased to a new tenant as of the
date Pep Boys commences occupancy of Space B, then, for purposes of
determining the "Additional Income" as of the First Valuation Date,
the new base rent, percentage rent and pass-throughs for Space A shall
be assumed to be zero (0). In a case described in the preceding
sentence Additional Value shall be computed for a second time as of
the date (the "Second Valuation Date") which is the earlier of the
date a new tenant occupies Space A or, if Space A remains vacant, the
third anniversary of the First Closing Date. As noted above, when
Additional Value is computed as of the Second Valuation Date, there
shall be subtracted from such Additional Value the amount of any
positive Additional Value computed as of the First Valuation Date and
the aggregate amount of Additional Value computed as of the First
Valuation Date and the Second Valuation Date shall not exceed
$750,000.00.
(e) For purposes of computing Additional Value under Section 20(d)(ii)
or (iii) above, Space A shall be deemed to have a new initial base rent of
$8.00 per square foot per year (based on its existing leasable square
footage) plus estimated annual pass-through expenses equal to those
existing under the current Pep Boys lease for Space A if either (i) Space A
has not been leased to a new tenant and remains vacant on the third
anniversary of the First Closing Date or (ii) prior to such third
anniversary of the First Closing Date the Partnership enters into an
agreement with Acme that involves razing Space A. In the case where a new
lease for Space A is entered into with Acme and such new lease involves
razing Space A, the deemed rental value of $8.00 per square foot is a net
value and Additional Value shall not be reduced by any razing,
reconstruction or tenant improvement expenditures and/or allowances with
respect to Space A.
(f) If a positive Additional Value is computed as of the First
Valuation Date or, if applicable, the Second Valuation Date, then FWRLP
shall issue to the Contributors that number of Contingent Units determined
by dividing the Additional Value determined as of the applicable Valuation
Date by the average closing price of REIT common stock (rounded to the
nearest 1/16th) for the fifteen (15) business days immediately preceding
the applicable Valuation Date.
(i) 89% of the Contingent Units described in the first sentence
of this
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<PAGE>
Section 20(f) will be issued, no later than 45 days after the
applicable Valuation Date, to the Contributors in the same proportion
as they contributed the Contributed Interests to FWRLP at the First
Closing.
(ii) The remaining 11% of the Contingent Units described in the
first sentence of this Section 20(f) will be issued to the Retained
Partners in proportion to their ownership of the Retained Interests.
The Contingent Units described in this Section 20(f)(ii) will be
issued at the Second Closing Date. Notwithstanding the foregoing
provisions, if there is more than a six-month period of time between a
given Valuation Date at which it is determined that Contingent Units
are due to be issued and the Second Closing Date, then the number of
Contingent Units issued to the Retained Partners at the Second Closing
with respect to such Valuation Date shall be supplemented by an
additional number of Contingent Units calculated by multiplying the
number of Contingent Units that would otherwise be issued to the
Retained Partners at the Second Closing (without reference to this
sentence) by the product of (1) .0075 and (2) the number of months
between the applicable Valuation Date and the Second Closing Date.
An example of the operation of this Section 20 is attached to this
Agreement as Exhibit R.
21. Miscellaneous Provisions.
(a) Completeness and Modification. This Agreement (together with
Exhibits A to R attached hereto), constitutes the entire understanding of
the parties hereto with respect to the transactions contemplated herein,
and it supersedes all prior discussions, understandings or agreements
between the parties. This Agreement shall not be modified or amended except
by an instrument in writing signed by all of the parties hereto.
(b) Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, and their respective successors and
assigns.
(c) Assignment. This Agreement shall not be assignable by FWRLP
without the consent of Contributors, provided that, notwithstanding
anything to the contrary contained in this Agreement, FWRLP shall be
entitled to transfer or, at Closing, cause the Partnership to issue a 1%
limited partnership interest in the Partnership to the REIT or to an entity
controlled by, controlling or under common control with the FWRLP, as long
as the Units are issued to Contributors as required herein. This Agreement
shall not be assignable by Contributors.
(d) Waiver; Modification. Failure by FWRLP or Contributors to insist
upon or enforce any of its rights hereto shall not constitute a waiver or
modification thereof.
(e) Governing Law. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Pennsylvania.
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<PAGE>
(f) Headings. The headings are herein used for convenience or
reference only and shall not be deemed to vary the content of this
Agreement or the covenants, agreements, representations and warranties
herein set forth, or the scope of any provision hereof.
(g) Continuing Documentation and Access. From and after Closing, the
General Partners shall afford FWRLP reasonable access to any and all
information in their possession concerning the ownership, use and operation
of the Property (including the right to copy same at the expense of FWRLP)
for purposes of any tax examination or audit or other similar purpose,
subject to the agreements of the Contributors, the Partnership or FWRLP
concerning confidentiality set forth herein. FWRLP and the REIT agree and
acknowledge that the information provided to them by the General Partners,
the Contributors or the Partnership regarding the Property or the
Partnership is confidential, and that they will not disclose such
information to any other person, other than to their employees, attorneys,
accountants and other consultants, or use such information for any purpose
other than the transaction described herein without the prior written
consent of the General Partners. If this Agreement is terminated or if the
Contribution at the First Closing is not consummated, all information
provided to FWRLP and the REIT, and all copies thereof, shall be returned
to the General Partners.
(h) Counterparts. To facilitate execution, this Agreement may be
executed in as many counterparts as may be required; it shall be sufficient
that the signature of, or on behalf of, each party, or that the signatures
of the persons required to bind any party, appear on one or more such
counterparts. All counterparts shall collectively constitute a single
agreement.
(i) Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
first-class registered or certified mail, return receipt requested, postage
prepaid or delivered by commercial courier, telecopy or overnight courier
(e.g., Federal Express) against receipt, to the addresses indicated below:
(i) if to FWRLP:
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Attn: William J. Wolfe
Jeffrey S. Distenfeld, Esq.
Telecopy: (301) 907-4911
(ii) if to Contributors or the General Partners:
Donald Shooster
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<PAGE>
Shooster Properties
555 City Avenue
Suite 1170
Bala Cynwyd, PA 19004
Telecopy: (610) 668-2243
with a copy to:
Stanley Kull, Esquire
Saul, Ewing, Remick & Saul
3800 Centre Square West
Philadelphia, PA 19102
Telecopy: (215) 972-1857
Such notice shall be deemed given on the date of receipt by the
addressee or the date receipt would have been effectuated if delivery were
not refused. Each party may designate a new address by written notice to
the other in accordance with this Section 21(i). Any notice required or
permitted to be given by or on behalf of the Contributors hereunder shall
be effective if such notice is executed by at least one of the General
Partners.
(j) Further Assurances. Contributors and FWRLP agree to execute,
acknowledge and deliver any further agreements, documents or instruments
that are reasonably necessary or desirable to carry out the transactions
contemplated by this Agreement.
(k) Business Days. A "business day" shall be Mondays through Fridays,
less and excepting all legal holidays observed by the United States
Government or the Government of the State of Maryland. Any date specified
in this Agreement which does not fall on a business day shall be
automatically extended until the first business day after such date.
(i) Time of the Essence. Time is of the essence in the performance of
all obligations under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Contribution
Agreement as of the day and year first written above.
FWRLP:
FIRST WASHINGTON REALTY
LIMITED PARTNERSHIP
By: First Washington Realty Trust, Inc.,
ATTEST: Its general partner
By: /s/
- ----------------------------------- --------------------------------
[Assistant Secretary] William J. Wolfe
President
[Corporate Seal]
Date of execution: October 2, 1996
WITNESS: CONTRIBUTORS:
/s/
- ----------------------------------- --------------------------------
ISADORE SHOOSTER
/s/
- ----------------------------------- --------------------------------
HARRY SHOOSTER
/s/
- ----------------------------------- --------------------------------
DONALD SHOOSTER
/s/
- ----------------------------------- --------------------------------
DAVID SHOOSTER
/s/
- ----------------------------------- --------------------------------
DANIEL SHOOSTER
/s/
- ----------------------------------- --------------------------------
MYRA GERSON
[Signatures continued on Following Page]
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<PAGE>
[Signatures continued from Previous Page]
RICHARD and HELAINE GORDON
(Husband and Wife)
By: /s/
- ----------------------------------- ---------------------------------
RICHARD GORDON
By: /s/
- ----------------------------------- ---------------------------------
HELAINE GORDON
DAVID AND MICHELE SALAND
(Husband and Wife)
By: /s/
- ----------------------------------- ---------------------------------
DAVID SALAND
By: /s/
- ----------------------------------- ---------------------------------
MICHELE SALAND
FAIRLESS HILLS S.C. ASSOCIATES
By: /s/
- ----------------------------------- ---------------------------------
Name:
Title:
Date of execution: , 1996
----------------
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<PAGE>
First Washington Realty Trust, Inc. joins herein solely for the purpose of
making the representations, warranties and covenants contained in Sections 8(a),
8(b), 8(e), 8(f), 8(g), 11, 18 and 21(g) hereof.
FIRST WASHINGTON REALTY
WITNESS: TRUST, INC.
By: /s/
- ----------------------------------- --------------------------------
William J. Wolfe
President
Date of execution: October 2, 1996
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<PAGE>
ACKNOWLEDGE BY TITLE COMPANY
The undersigned Title Company executes this Contribution Agreement solely
to acknowledge receipt of the Deposit pursuant to Paragraph 3 hereof and to
evidence its agreement to serve as escrow agent pursuant to the terms of the
foregoing Agreement.
WITNESS: COMMERCIAL SETTLEMENTS, INC.
By: /s/
- ----------------------------------- --------------------------------
Gerald R. Perras
President
Date: October 23, 1996
-38-
<PAGE>
LIST OF EXHIBITS
EXHIBIT A. Legal Description of Land Recitals
EXHIBIT B. Leases and Rent Schedule Section 6(d)
EXHIBIT C. Service Contracts Section 6(e)
EXHIBIT D. Violations Section 6(c)
EXHIBIT E. Insurance List Section 6(g)
EXHIBIT F. Form of Tenant Estoppel Section 6(i)
EXHIBIT F-1. Tenant Estoppels Section 8(a)(viii)
EXHIBIT G. Litigation Section 6(k)
EXHIBIT H. Operating Statements and Budget Section 6(r)
EXHIBIT I. Personal Property Section 6(t)
EXHIBIT J. Permitted Exceptions Section 9(a)(iii)(B)
EXHIBIT K. Registration Rights Agreement Section 18
EXHIBIT L. Confidential Information Statement Section 8(c)
EXHIBIT M. Form of Allocation Letter Section 8(i)
EXHIBIT N. Mortgage Section 2(c)
EXHIBIT O. Note Section 2(c)
EXHIBIT P. Partnership Agreement Section 6(a)
EXHIBIT Q. Contributed and Retained Interests Section 5(c), 19
EXHIBIT R. Illustration of Section 20 Section 20
[Contributors and FWRLP to Attach Foregoing at Acceptance of this Agreement]
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
<PAGE>
EXHIBIT B
LEASES AND RENT SCHEDULE
<PAGE>
EXHIBIT C
SERVICE CONTRACTS
<PAGE>
EXHIBIT D
VIOLATIONS
NONE
<PAGE>
EXHIBIT E
INSURANCE LIST
<PAGE>
EXHIBIT F
Form of Tenant Estoppel
ESTOPPEL CERTIFICATE
, 199
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20852
Re: [Name of Shopping Center]
Lease dated ________, 19___, with [name of Tenant]
Gentlemen:
Please be advised that the undersigned tenant hereby certifies as of
the date hereof as follows with respect to the Lease:
Name of Tenant:
Description of Leased Premises:
Date of Commencement of Lease:
Date of Termination of Lease:
Options to Renew:
Base Rental: Annual Rental of $ , payable monthly in advance.
---------------
Real Estate Tax Charges: pro rata: ___ yes ___ no. ( $_________________ payable
monthly in advance)
Percentage Rent: ____% of Gross Receipts over $___________
Common Area Maintenance Charges: pro rata: ___ yes ___ no. ($_________
payable monthly in advance)
Tenant in possession of the premises under the Lease?: Yes
The Lease is unmodified and in full force and effect except for modifications,
listed by number and date on Exhibit A attached hereto.
Amount of rent paid in advance: $
Amount of Security Deposit: $
Compliance with Construction Requirements: Landlord has complied with all
-i-
<PAGE>
construction requirements of Tenant, and Tenant has accepted all of the leased
premises under the Lease.
Tenant has not made any claims against Landlord and has no knowledge of any
uncured default on the part of Landlord (If there is knowledge of any uncured
default, please note and attach separate sheet).
Tenant's Right to Purchase: Tenant has no option or right in the nature of a
right of first refusal to purchase or otherwise acquire any interest in the
leased premises.
Tenant's Right of Premature Termination or Option to Renew: Tenant has no right
to premature termination and no right or option to renew or extend the term
beyond its present term and no option to lease additional space, except as
expressly set forth in the Lease.
In the event of foreclosure, Tenant agrees to attorn to the purchaser of the
leased premises at the foreclosure sale.
TENANT:
By:
Name:
Title:
STATE OF )
) ss:
COUNTY OF )
Signed and sealed in my presence this day of , 199 .
---- ------------ ---
Notary Public
[SEAL]
My Commission Expires:
-ii-
<PAGE>
EXHIBIT F-1
TENANT ESTOPPELS
o Acme Markets 30,000 s.f.
o TJ Maxx 22,538 s.f.
o Pep Boys 9,800 s.f.
o Rickels Home Center 20,000 s.f.
o Thrift Drug 9,240 s.f.
o West Coast Video 6,300 s.f.
------------
97,878 s.f.
o Tenant's occupying at least 50% of
the remaining space at the Property.
[(153,979 s.f. - 97,878 s.f.) X 50% = 28,050 s.f.
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<PAGE>
EXHIBIT G
LITIGATION
NONE
<PAGE>
EXHIBIT H
OPERATING STATEMENTS AND BUDGET
<PAGE>
EXHIBIT I
PERSONAL PROPERTY
NONE
<PAGE>
EXHIBIT J
PERMITTED EXCEPTIONS
<PAGE>
EXHIBIT K
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT L
CONFIDENTIAL INFORMATION STATEMENT
<PAGE>
EXHIBIT M
FORM OF ALLOCATION LETTER
<PAGE>
EXHIBIT N
MORTGAGE
<PAGE>
EXHIBIT O
NOTE
<PAGE>
EXHIBIT P
PARTNERSHIP AGREEMENT
<PAGE>
EXHIBIT Q
CONTRIBUTED AND RETAINED INTERESTS
A. First Closing: 89% of the Partnership Interests.
=============
Percentage Interest Percentage of
in Partnership Units Issued
Isadore Shooster (Pennsylvania)
Harvey Shooster (Florida)
Donald Shooster (Pennsylvania)
David Shooster (Pennsylvania)
Daniel Shooster (Florida)
Myra Gerson (Pennsylvania)
Richard and Helaine Gordon (Delaware)
David and Michele Saland (Pennsylvania)
Fairless Hills S.C. Associates (Pennsylvania)
B. Second Closing: 11% of the Partnership Interests.
==============
Percentage Interest Percentage of
in Partnership Units Issued
Isadore Shooster
Harry Shooster
Donald Shooster
David Shooster
Daniel Shooster
<PAGE>
EXHIBIT R
ILLUSTRATION OF SECTION 20
EXHIBIT 10.50
REAL ESTATE PURCHASE AGREEMENT
THIS REAL ESTATE PURCHASE AGREEMENT is made and entered as the 15th day
of October, 1996, by and between (i) GRAYLYN SHOPPING CENTER ASSOCIATES, L.P., a
Delaware limited partnership (hereinafter referred to as "Seller") and (ii)
FIRST WASHINGTON REALTY LIMITED PARTNERSHIP or its assignees (hereinafter
referred to as "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the record and beneficial owner of all that certain
real property containing acres and located in Brandywine, New Castle County,
Delaware, as more particularly described on Exhibit A attached hereto (the
"Land") together with a shopping center containing approximately 65,746 square
feet as shown on "Exhibit A" attached hereto and all other buildings and
improvements situated thereon (collectively, the "Building"), all personal
property and fixtures located therein (the "Personalty"), and all appurtenances,
rights, easements, rights-of-way, tenements and hereditaments incident thereto
(the "Additional Property") (the Land, Building, Personalty and Additional
Property are hereinafter collectively referred to as the "Property"); and
WHEREAS, Purchaser desires to purchase the Property from Seller and
Seller desires to sell and transfer the same to Purchaser.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Purchase and Sale. Purchaser agrees to buy and Seller agrees to sell
and convey the Property for and in consideration of the purchase price and upon
the terms and conditions set forth herein.
2. Purchase Price. The purchase price for the Property (the "Purchase
Price") shall be Seven Million Two Hundred Thousand Dollars ($7,200,000.00),
payable at Closing (as hereinafter defined) in cash, cashier's check, certified
check or bank wire transfer.
3. Deposit.
(a) Within three (3) days after the date of delivery to
Purchaser of an original of this Agreement executed by Seller, together with
completed Exhibits hereto (the date of such delivery by Seller being the
"Acceptance Date"), Purchaser shall deliver to Commercial Settlements, Inc.,
1413 K Street, N.W., Washington, DC 20005 (the "Title Company"), as escrow
agent, a deposit (the "Initial Deposit") of One Hundred
-1-
<PAGE>
Thousand Dollars ($100,000.00) by a check payable to the Title Company. If
Purchaser shall fail to deliver the Initial Deposit when required to do so, this
Agreement shall become null and void and the parties hereto shall be relieved of
all further liability and obligation to each other.
(b) Within three (3) days after the end of the Feasibility
Period (as defined in Section 13(b)), Purchaser shall deliver to the Title
Company, as escrow agent, an additional deposit (the "Additional Deposit") of
Fifty Thousand Dollars ($50,000.00) by check payable to the Title Company.
(c) The Initial Deposit and Additional Deposit and all accrued
interest thereon are hereinafter referred to collectively as the "Deposit". The
Title Company will immediately provide Seller with written evidence of receipt
of such Deposit. The Title Company shall place the Deposit in an
interest-bearing account within three (3) days after the date of receipt
thereof, and interest on the Deposit shall accrue to the benefit of Purchaser.
The Deposit shall be held by the Title Company pursuant to the terms and
conditions of this Agreement.
(d) In the event that, at any time prior to Closing, Seller or
Purchaser provides Title Company with a certification (a copy of which shall be
delivered contemporaneously to the other party) that the Seller or Purchaser, as
the case may be, is entitled to the Deposit pursuant to the terms of this
Agreement, Title Company shall deliver the Deposit to such party within seven
(7) business days after receipt of said notice, unless the other party disputes
such certification by written notice to Title Company (a copy of which shall be
delivered contemporaneously to the other party) delivered within five (5)
business days of Title Company's receipt of the initial certification. In such
event, Title Company shall hold the Deposit pending resolution of such dispute.
(e) The parties acknowledge that Title Company is acting
solely as a stakeholder at their request and for their convenience, that Title
Company shall not be deemed to be the agent of either of the parties, and Title
Company shall not be liable to either of the parties for any act or omission on
its part unless taken or suffered in bad faith, in willful disregard to this
Agreement or involving gross negligence. Seller and Purchaser shall jointly and
severally indemnify and hold Title Company harmless from and against all costs,
claims and expenses, including reasonable attorneys' fees, incurred in
connection with the performance of Title Company's duties hereunder, except with
respect to actions or omissions taken or suffered by Title Company in bad faith,
in willful disregard of this Agreement or involving gross negligence on the part
of Title Company.
-2-
<PAGE>
4. Closing. Except as otherwise provided in this Agreement, the
purchase and sale contemplated herein shall be consummated at the "Closing",
which shall take place on the date (the "Closing Date") specified by Purchaser
on not less than ten (10) days notice to Seller, provided that the Closing Date
shall not be later than sixty (60) days after the end of the Feasibility Period
(as defined and described in Section 13(b) hereof). The Closing shall take place
at the offices of the Purchaser, or at such other place as may mutually agreed
upon by Seller and Purchaser and in no event shall occur prior to 1/1/97.
5. Representations and Warranties of Seller. In order to induce
Purchaser to enter into this Agreement and to purchase the Property, Seller
hereby makes the following representations and warranties, each of which is
material and shall, together with all covenants, agreements and indemnities set
forth in or made pursuant to this Agreement, survive Closing, notwithstanding
any investigation at any time made by or on behalf of Purchaser:
(a) Authority of Seller. Seller is a limited partnership duly
organized and existing and in good standing under the laws of the State of
Delaware. Seller has all necessary power and authority and has taken all
necessary partnership or corporate action to execute, deliver and perform this
Agreement and consummate all of the transactions contemplated by this Agreement.
This Agreement is the valid and binding obligation of Seller, enforceable
against it in accordance with its terms.
(b) Title. Seller is the sole owner of fee simple title to the
Property with the authority to sell and convey the Property to Purchaser without
the consent of any other party, and such title is marketable and good of record
and free and clear of all liens, encumbrances, covenants, conditions,
restrictions and other matters affecting title, except for the Permitted
Exceptions (as defined in Section 8(a)(iii)).
(c) Compliance with Existing Laws. To the best of Seller's
knowledge, Seller is not in violation of, and has complied with, any and all
applicable building, zoning, environmental or other ordinances, statutes or
regulations of any governmental agency, in respect to the ownership, use,
maintenance, condition and operation of the Property or any part thereof. To the
best of Seller's knowledge, Seller possesses all licenses, certificates, permits
and authorizations necessary for the use and operation of the Property in the
manner in which it is currently being operated by Seller, and the requisite
certificates of the fire marshalls or board of fire underwriters have been
issued for the Property. To the best of Seller's knowledge, the Building and all
related facilities are now in conformance with all applicable zoning laws and no
variance, exception or other modification of such laws was necessary in order to
authorize the use or occupancy of any portion thereof.
-3-
<PAGE>
(d) Leases. True, correct and complete copies of all of the
leases of the Property and any amendments thereto (collectively, the "Leases")
have been delivered to Purchaser. Attached hereto as Exhibit B is a description
of all of the Leases and a current rent schedule ("Rent Schedule") covering the
Leases. There are no leases or tenancies of any space in the Property other than
those set forth in Exhibit B or any subleases or subtenancies unless otherwise
noted therein. Except as otherwise set forth in Exhibit B or elsewhere in this
Agreement:
(i) The Leases are in full force and effect and
constitute a legal, valid and binding obligation of Seller and
are assignable by Seller to Purchaser;
(ii) no tenant has an option to purchase the
Property;
(iii) no renewal or expansion options have been
granted to the tenants, except as provided in the Leases;
(iv) to the best of Seller's knowledge, Seller is not
in default under the Leases;
(v) the rents set forth on the Rent Schedule are
being collected on a current basis and there are no arrearages
in excess of one month nor has any tenant paid any rent,
additional rent or other charge of any nature for a period of
more than thirty (30) days in advance;
(vi) all work for tenant alterations and other work
or materials contracted for by Seller and any tenant has been
completed by Seller, and all work and materials have been
fully paid for;
(viii) Seller has not sent written notice to any
tenant claiming that such tenant is in default, which default
remains uncured, and to the best of Seller's knowledge, no
tenant is in default under its Lease;
(ix) no action or proceeding instituted against
Seller by any tenant is presently pending in any court; and
(x) there are no security deposits other than those
set forth in Exhibit B.
(e) Service Contracts. Attached hereto as Exhibit C is a
complete and correct list of all contracts or agreements relating to the
management, leasing, operation, maintenance or repair of the Property (the
"Service Contracts"). True and correct copies of all of the Service Contracts
have been delivered to Purchaser. No
-4-
<PAGE>
Service Contract which Purchaser agrees to assume will be terminated, amended,
modified or supplemented prior to the Closing Date without Purchaser's prior
written approval.
(f) Tax Bills. Attached hereto as Exhibit D are true and
correct copies of tax bills issued by any applicable federal, state or local
governmental authority to Seller with respect to the Property for the most
recent past and current tax years, and any new assessment received with respect
to a current or future tax year.
(g) Insurance. The Property is insured for its replacement
value against loss or damage sustained as a result of fire or other casualty.
Attached hereto as Exhibit E are copies of all hazard, liability and other
insurance certificates presently affording coverage with respect to the
Property. Seller shall maintain in full force and effect all such policies until
the Closing Date and shall cause its insurer to name Purchaser as an additional
insured as a contract party on its rent loss policy with respect to the
Property.
(h) Condition. Possession of Property shall be delivered to
Purchaser at Closing in "as is, where is" condition as of the date of
Purchaser's execution of this Agreement. Seller has no knowledge of any material
defect in the condition of the Property, the structural elements thereof or the
mechanical systems therein.
(i) Tenant Estoppel. Seller represents and warrants that it
shall use its best efforts to obtain and deliver to Purchaser within thirty (30)
days after the Acceptance Date, a tenant estoppel letter in the form attached
hereto as Exhibit F (or such other customary form as reasonably required by
Purchaser's mortgage lender within 30 days after delivery of such document to
Seller) from each of the tenants of the Property. Seller hereby agrees that
Purchaser shall have full participation in connection with the procurement of
said tenant estoppel letter(s).
(j) Condemnation Proceedings. No condemnation or eminent
domain proceedings are pending or, to the best of Seller's knowledge, threatened
against the Property or any part thereof, and Seller has made no commitments to
and has received no notice, oral or written, of the desire of any public
authority or other entity to take or use the Property or any part thereof
whether temporarily or permanently, for easements, rights-of-way, or other
public or quasi-public purposes.
(k) Litigation. No litigation is pending or, to the best of
Seller's knowledge, threatened, including administrative actions or orders
relating to governmental regulations, affecting the Property or any part thereof
or Seller's right to sell the Property.
-5-
<PAGE>
(l) No Defaults. Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will to the best of
Seller's knowledge: (i) conflict with, or result in a breach of, the terms,
conditions or provisions of, or constitute a default under, any agreement or
instrument to which Seller is a party or by which the Property is bound, (ii)
violate any restriction, requirement, covenant or condition to which the Seller
is subject or by which the Property is bound, (iii) constitute a violation of
any applicable code, resolution, law, statute, regulation, ordinance, rule,
judgment, decree or order, or (iv) result in the cancellation of any contract or
lease pertaining to the Property.
(m) Entrances. To the best of Seller's knowledge, all driveway
entrances to the Land are permanent, and no special access or other permits from
governmental authorities or from any private parties are required to operate and
maintain such driveway entrances. To the best of Seller's knowledge, access to
any portion of the Land is not obtained from adjoining public roads by means of
easements, rights-of-way or licenses across lands or premises not included
within the Property.
(n) Separate Tax Lot and Subdivision. To the best of Seller's
knowledge, the Land is the subject of a separate subdivision, and the Land is
assessed for tax purposes as a separate and distinct parcel.
(o) Hazardous Waste. Except as otherwise disclosed in "Exhibit
F-1", Seller has no knowledge of any discharge, spillage, uncontrolled loss,
seepage or filtration (a "Spill") of oil, petroleum or chemical liquids or
solids, liquid or gaseous products or any hazardous waste or hazardous substance
(as those terms are used in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Resource Conservation
and Recovery Act of 1976, as amended, or in any other applicable federal, state
or local laws, ordinances, rules or regulations relating to protection of public
health, safety or the environment, as such laws may be amended from time to
time) at, upon, under or within the Land or any contiguous real estate. Seller
has not caused or permitted to occur, and shall not permit to exist any
condition which may cause a Spill at, upon, under or within the Land or any
contiguous real estate. To the best of Seller's knowledge, there is no
proceeding or action pending or threatened by any person or governmental agency
regarding the environmental condition of the Property. The Building is totally
free of asbestos.
(p) Certificates of Occupancy. Attached hereto as Exhibit G
are true and correct copies of the certificates of occupancy for all of the
Property. Seller will not amend such certificates and will maintain them in full
force and effect.
(q) Licenses and Permits. All licenses and permits have been
issued to Seller by all applicable governmental authorities which are necessary
for the ownership, management and operation of the Property (the "Licenses").
Seller has
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received no notice, nor has any knowledge, that it is lacking any required
permit or license.
(r) Operating Statements. Attached hereto as Exhibit H are
true and correct operating statements of the Property for 1993, 1994, 1995 and
the indicated portion of 1996. These statements were prepared in accordance with
generally accepted accounting principles consistently applied except as noted.
There has been no adverse change in the Property or the operation thereof which
would materially adversely affect the economic condition of the Property. Also
attached as Exhibit H is a copy of the 1996 operating budget detailed as to
amounts by month and operating department in reasonably sufficient detail.
(s) Utilities. To the best of Seller's knowledge, adequate,
usable public sewers, public water facilities, gas and electrical facilities
necessary to the operation of the Property are installed in and are duly
connected to the Property and can be used without any charge except the normal
deposits, if any, and usual metered utility charges and sewer charges.
(t) Personal Property. Attached hereto as Exhibit I is a true,
correct and complete inventory of all personal property ("Personal Property"),
if any, used in the management, maintenance and operation of the Property (other
than trade fixtures or personal property of tenants).
(u) Leasing Commissions. There are, and at Closing shall be,
no outstanding or contingent leasing commissions or fees payable with respect to
the Property.
(v) Flood Plain. To the best of Seller's knowledge, the Land
is not located in a flood plain.
6. Obligations of Seller Pending Closing. From and after the date of
this Agreement through the Closing Date, Seller covenants and agrees as follows:
(a) Maintenance and Operation of Premises. Seller will cause
the Property to be maintained in its present order and condition, normal wear
and tear excepted, and will cause the continuation of the normal operation
thereof, including the purchase and replacement of fixtures and equipment, and
the continuation of the normal practice with respect to maintenance and repairs
so that the Property will, except for normal wear and tear, be in substantially
the same condition on the Closing Date as of the Acceptance Date.
(b) Licenses. Seller shall use it best efforts to preserve in
force all Licenses and to cause those expiring to be renewed.
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(c) Changes in Representations. Seller shall notify Purchaser
promptly, and Purchaser shall notify Seller promptly, if either becomes aware of
any occurrence prior to the Closing Date which would make any of its
representations, warranties or covenants contained herein not true in any
material respect.
(d) Obligations as to Leases. Except as set forth in Paragraph
11(e), Seller shall not, without Purchaser's prior written consent, amend,
modify, renew or extend any Lease in any respect unless required by law, or
enter into new leases or approve any assignment of leases or subletting of
leased space, or terminate any Lease. Seller hereby further agrees that if any
space is vacant on the Closing Date, Purchaser shall accept the Property subject
to such vacancy, provided that the vacancy was not permitted or created by
Seller in violation of any restrictions contained in this Agreement. Prior to
Closing, Seller shall not apply all or any part of the security deposit of any
tenant unless such tenant has vacated the Property.
7. Representations and Warranties of Purchaser. In order to induce
Seller to enter into this Agreement and to sell the Property, Purchaser hereby
makes the following representations and warranties, each of which is material
and shall survive Closing, notwithstanding any investigation at any time made by
or on behalf of Seller:
(a) Authority of Purchaser. Purchaser is a limited partnership
duly organized and existing and in good standing under the laws of the State of
Maryland. Subject to the approval of the Board of Directors of FWRT, Purchaser
has all necessary power and authority to execute, deliver and perform this
Agreement and consummate all of the transactions contemplated by this Agreement.
Subject to the approval of the Board of Directors of FWRT, this Agreement is the
valid and binding obligation of Purchaser, enforceable against it in accordance
with its terms.
(b) No Defaults. To the best of Seller's knowledge, neither
the execution of this Agreement nor the consummation of the transactions
contemplated hereby will: (i) conflict with, or result in a breach of, the
terms, conditions or provisions of, or constitute a default under, any agreement
or instrument to which Purchaser is a party, (ii) violate any restriction,
requirement, covenant or condition to which the Purchaser is subject, and (iii)
constitute a violation of any applicable code, resolution, law, statute,
regulation, ordinance, rule, judgment, decree or order.
8. Conditions Precedent to Closing.
(a) It shall be a condition precedent of Purchaser's
obligation to make a full settlement hereunder that each and every one of the
following conditions shall exist on the Closing Date:
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(i) Representations and Warranties. Seller's
representations and warranties hereunder shall be true and
correct in the same manner and with the same effect as though
such representations and warranties had been made on and as of
the Closing.
(ii) Zoning. No proceedings shall have occurred or be
pending to change, redesignate or redefine the zoning
classification of the Property to a more restrictive
classification than presently exists on the date of
Purchaser's execution of this Agreement.
(iii) Title. Title to the Property shall be
marketable, good of record, and insurable by the Title Company
at standard rates or less, pursuant to a full coverage ALTA
Form-B (Rev. 1970 and 1984) owner's title insurance policy in
the amount of the Purchase Price (or an unconditional
commitment therefor) without any exceptions ("Printed form" or
otherwise) other than the Permitted Exceptions, and in
addition, providing affirmative coverage satisfactory to
Purchaser insuring against any mechanic's or materialmen's
lien arising from goods, labor or materials provided to the
Property prior to the Closing Date. The "Permitted Exceptions"
are:
(A) the lien of current real estate taxes
and special assessments not yet due and payable; and
(B) such other matters which are not
unacceptable to Purchaser under this subsection B.
Promptly after the date of execution of this
Agreement by Seller, Purchaser shall request an
interim title binder from the Title Company and
within fifteen (15) days after receipt thereof shall
notify Seller of all exceptions to title to the
Property which are unacceptable to Purchaser, in its
sole discretion. Seller shall act diligently, and its
sole expense, to correct such conditions at least
thirty (30) days prior the Closing Date. If such
conditions are not corrected by thirty (30) days
prior to the Closing Date hereunder, Purchaser, in
addition to any other rights it may have, shall have
the right and option (i) to terminate this Agreement,
or (ii) to extend the Closing Date for a period not
to exceed six (6) months until such time as Seller
has corrected such defects, or (iii) to close on the
purchase of the Property and waive such defects in
title. In the event of termination of this Agreement,
Seller and Purchaser shall be relieved of all
liabilities under this Agreement and the Deposit
shall be returned to Purchaser.
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(iv) Existing Mortgages. Seller shall have delivered
to the Title Company such releases or other instruments
necessary to release of record and beneficially any and all
existing mortgages, deeds of trust, financing statements or
other security documents affecting the Property (collectively,
the "Existing Mortgages") or assurances that same will be
produced upon, and in return for, payment of such obligations
at Closing.
(v) Employees. Seller shall terminate the employment
of all persons employed in connection with the Property.
(vi) Leasing Brokerage and Property Management
Agreements. Seller shall have terminated any and all leasing
brokerage and property management agreements with respect to
the Property effective as of the Closing. All responsibility
for dealings with any such brokers, including the payment of
any claims (if deemed warranted by Seller) shall be the sole
responsibility of Seller. Seller agrees that it will indemnify
and hold Purchaser, its successors, assigns, partners, agents
and employees, harmless against any such claims and/or losses
which might be incurred by such indemnitees in connection with
any additional and/or contingent leasing commissions or fees
or management fees. The provisions of this subparagraph (vi)
shall survive Closing.
(vii) Performance by Seller. Seller shall have
complied with and not be in breach of any of its covenants or
obligations under this Agreement.
(viii) Tenant Estoppels. Purchaser shall have received a
tenant estoppel letter substantially in the form attached
hereto as Exhibit F from each of the tenants of the Property
(or in such form as required by Purchaser's mortgage lender),
confirming the information set forth in the Lease and Rent
Schedule attached hereto as Exhibit B, and any subordination
and attornment agreements required by Purchaser's mortgage
lender.
(ix) FWRT Board Approval. The Board of Directors of
FWRT shall have approved this Agreement and the transactions
contemplated hereby. In the event that the aforesaid condition
is not satisfied by the end of the Feasibility Period,
Purchaser may elect to terminate this Agreement by giving
Seller written notice thereof within one (1) day after the end
of the Feasibility Period in which event the Deposit and any
interest thereon shall be returned to Purchaser and neither
party shall have any further obligations or liabilities to the
other.
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<PAGE>
(b) Failure of Condition. In the event of the failure by the
Closing Date of any condition precedent set forth above, except for the FWRT
Board approval, which shall be satisfied or waived by the first day following
the Feasibility Period, then Purchaser, at its sole election, may (a) terminate
this Agreement, in which event the Deposit and any interest thereon shall be
returned to Purchaser and, except as otherwise provided in Paragraph 16 hereof,
neither party shall have any further obligations or liabilities to the other; or
(b) proceed to Closing and avail itself of any legal or equitable remedy
Purchaser may have except as to any default of Seller waived in writing by
Purchaser on or before the Closing Date, and except as to any default of Seller
which is not a result of a material misrepresentation, fraud, wrongful refusal
to close or willful misconduct of Seller which legal remedy therefor shall be
limited to specific performance; or (c) extend the Closing Date for such
reasonable time period as may be determined by Purchaser (but in no event for
more than three (3) months from the Closing Date then in effect) in order to
permit the satisfaction of any condition precedent not so fulfilled.
9. Seller's Deliveries. Seller shall execute, acknowledge and deliver
to Purchaser at the Closing the following documents, dated on the Closing Date:
(a) a special warranty deed, in form and substance
satisfactory to Purchaser and Title Company, conveying good and marketable fee
simple title to the Property, free and clear of all liens, encumbrances,
easements and restrictions of every nature and description, except for the
Permitted Exceptions;
(b) a bill of sale which shall convey to Purchaser good title
to all the Personalty, free and clear of all liens and encumbrances;
(c) an affidavit setting forth that all of Seller's
representations and warranties are true and correct in all material respects on
the Closing Date;
(d) an assignment of the Leases and security deposits,
together with all originally executed Leases, and the security deposits shall be
paid to Purchaser;
(e) an assignment of Licenses, permits and Service Contracts,
if any, which are to be assumed by Purchaser at Purchaser's request, together
with the originally executed Service Contracts which are to be assumed;
(f) a schedule updating the Rent Schedule and setting forth
all arrearages in rents and all prepayments of rents;
(g) copies of books, records, operating reports, files and
other materials related to the ownership, use and operation of the Property, to
the extent that any exist and are in the possession of Seller, which obligation
shall survive Closing;
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(h) Tenant estoppel letters and subordination and attornment
agreements from each tenant of the Property dated within thirty (30) days of
Closing to the extent and, in the form required by Purchaser's lender;
(i) an original letter executed by Seller advising the tenants
of the sale of the Property to Purchaser and directing that rents and other
payments thereafter be sent to Purchaser or as Purchaser may direct;
(j) possession of the Property in the condition required by
this Agreement, and the keys therefore;
(k) the Certification of Non-foreign Status as provided in
Treas. Reg. 1.1445-2T(b)(2)(iii)(B) or in any other form as may be required by
the Internal Revenue Code or the regulations issued thereunder;
(l) such other customary items and instruments as shall be
required by the Title Company in connection with the issuance of its title
insurance policy to Purchaser pursuant to Section 8(a)(iii) (including customary
Seller's or owner's affidavit) or as shall be reasonably requested by counsel to
Purchaser and consistent with the terms of this Agreement;
(m) any and all documents necessary to release the letter of
credit and/or cash constituting the Deposit from escrow with the Title Company
and to have said letter of credit and/or cash returned to Purchaser; and
(n) any other documents required by this Agreement to be
delivered by Seller.
10. Purchaser's Performance. At Closing, simultaneously with the
deliveries of Seller pursuant to the provisions of Paragraph 9, Purchaser shall
pay to Seller the Purchase Price in the manner specified in Paragraph 2,
whereupon the Deposit, and any interest accrued thereon, shall be returned to
Purchaser by the Title Company or, at the option of Purchaser, shall be applied
against the payment of Purchase Price.
11. Settlement Charges; Prorations and Adjustments. Purchaser shall pay
for the title examination, the title insurance premium, notary fees and other
such charges incident to Closing. The cost of preparation of the deed for the
Property shall be borne by Seller. Any real estate transfer and recording fees
and taxes and documentary stamps in connection with this transaction shall be
borne equally by Seller and by Purchaser. Purchaser and Seller shall each pay
its own legal fees related to the preparation of this Agreement and all
documents required to settle the transaction contemplated hereby. In addition to
the foregoing, at the Closing, the following
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adjustments and prorations shall be computed as of the Closing Date and the
Purchase Price shall be adjusted to reflect such prorations, as follows:
(a) Taxes. Real estate and personal property taxes shall be
apportioned as of the Closing Date.
(b) Assessments. All special assessments and other similar
charges which have become or may become a lien upon the Property or any part
thereof at the Closing Date, whether or not same are then past due or are
payable thereafter (in installments or otherwise), or which have been confirmed
by a public authority at the Closing Date, shall, at Purchaser's option, either
be paid in full by Seller at the Closing or credited against the cash portion of
the Purchase Price and assumed by Purchaser.
(c) Rent. Rent for the month of Closing collected by Seller
prior to Closing. If any tenant is in arrears in the payment of rent on the
Closing Date, rents received from such tenant after the Closing shall be applied
in the following order of priority: (a) first, to the payment of current rent
then due; (b) second, to delinquent rent for any period after the Closing Date;
and (c) third, to delinquent rent for any period prior to the Closing Date.
Purchaser does not guarantee or undertake any obligation to sue or take other
action for collection of arrearages in rents due from tenants as of the Closing
Date. If rents or any portion thereof received by Seller or Purchaser after the
Closing Date are payable to the other party by reason of this allocation, the
appropriate sum, less a proportionate share of any reasonable attorneys' fee,
costs and expenses of collection thereof, shall be promptly paid to the other
party, which obligation shall survive the Closing.
If any tenants are required to pay percentage rents,
escalation charges for real estate taxes, operating expenses, cost-of-living
adjustments or other charges of a similar nature ("Additional Rents") and any
Additional Rents are collected by Purchaser after the Closing which are
attributable in whole or in part to any period prior to the Closing, then
Purchaser shall promptly pay to Seller Seller's proportionate share thereof,
less a proportionate share of any reasonable attorneys' fees, costs and expenses
of collection thereof, if and when the tenant paying the same has made all
payments of rents and Additional Rent then due to Purchaser pursuant to the
tenant's Lease, which obligation shall survive the Closing.
(d) Miscellaneous. All other charges and fees customarily
prorated and adjusted in similar transactions, including utilities, insurance
premiums and charges for Service Contracts to be assumed by Purchaser, shall be
prorated as of the Closing Date. In the event that accurate prorations and other
adjustments cannot be made at Closing because current bills are not obtainable
or the amount to be adjusted is not yet ascertainable (as, for example, in the
case of utility bills) the parties shall prorate on the best available
information, subject to further adjustment promptly upon receipt of the
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final bill or upon completion of final computations. Seller agrees that an
appropriate amount in respect of water consumption charges may be held in escrow
by the Title Company in connection with its issuance of a title insurance policy
to Purchaser. Seller shall use its best efforts to have all utility meters read
on the Closing Date so as to accurately determine its share of current utility
bills. If any claims or liabilities are asserted at any time subsequent to
Closing against the Property or the Purchaser, which were not taken into
consideration for adjustment hereunder, including without limitation, claims by
governmental agencies, and if such claims or liabilities are based upon or arise
out of any occurrence prior to Closing or any act or omission by Seller, Seller
shall satisfy such claims or liabilities and shall indemnify and hold Purchaser
harmless therefrom.
(e) Vacancy Adjustments. Seller acknowledges that the tenant
spaces at the Property formerly occupied by White Robbins Real Estate (2,800
square feet at $14.50/s.f. NNN) and Graylyn Liquors (1,600 square feet at
$17.00/s.f. NNN) are vacant (collectively referred to herein as the "Vacant
Spaces"). Prior to Closing, Seller shall use reasonable efforts to relet these
two (2) tenant spaces at rents equal to or greater than the rents reflected in
the parentheticals above (collectively referred to as the "Threshold Rents") and
shall incur any and all costs and expenses associated with such reletting
(including without limitation tenant improvement costs and allowances and
leasing commissions). In the event that either or both of the Vacant Spaces are
leased prior to Closing at a rental rate less than the Threshold Rents set forth
herein, Purchaser and Seller agree that the Purchase Price shall be reduced by
an amount based upon a ten percent (10%) capitalization rate for the income
differential between the Threshold Rent(s) and the actual rent. In the event
that either or both the Vacant Spaces are not leased prior to Closing, Purchaser
and Seller agree that the Purchase Price shall be reduced by an amount equal to
one years' rent (using the Threshold Rents (and the NNN pass-throughs)) plus
$10.00 per square foot for tenant improvements/allowances and leasing
commissions, or, in the alternative at Seller's option, Seller may guarantee for
the one (1) year period after Closing the Threshold Rents (including the NNN
pass-throughs) and tenant improvement and leasing commissions at $10.00 per
square foot for such unleased vacant spaces by posting such amount in an escrow
account.
12. Risk of Loss. The risk of loss or damage to the Property by fire or
other casualty until recordation of the deed of conveyance shall be borne by
Seller. If prior to Closing (i) condemnation proceedings are commenced against
all or any portion of the Property, or (ii) if the Property is damaged by fire
or other casualty to the extent that the cost of repairing such damage shall be
One Hundred Thousand Dollars ($100,000.00) or more, or (iii) if the Property is
damaged by an uninsured risk; or (iv) the Property becomes subject to litigation
which may deprive Purchaser of any material benefit to which it would become
entitled pursuant to this Agreement, then Purchaser shall have the right, upon
notice in writing to the Seller delivered within thirty (30) days after actual
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notice of such condemnation or fire or other casualty or litigation, to
terminate this Agreement, and thereupon the parties shall be released and
discharged from any further obligations to each other and the discharged from
any further obligations to each other and the Deposit shall be refunded to
Purchaser. If Purchaser does not elect to terminate this Agreement or in the
event of fire or other casualty not giving rise to a right to terminate this
Agreement by Purchaser, the Closing Date shall be postponed until not later than
sixty (60) days following the date (the "Determination Date") on which the
condemnation becomes final or the amount, if any, of insurance proceeds payable
on account of such fire or other casualty is determined or such litigation is
reduced to final judgment or settled. The Closing shall be held after thirty
(30) days and prior to sixty (60) days following the Determination Date upon at
least ten (10) days prior written notice from Purchaser to Seller, and the
Purchaser Price shall not be reduced except as hereinafter set forth, but
Purchaser shall be entitled to an assignment of all of Seller's share of the
proceeds of fire or other casualty insurance and rent insurance proceeds payable
with respect to the period after Closing or of the condemnation award, as the
case may be, and Seller shall have no obligation to repair or restore the
Property; provided, however, that the Purchase Price shall be reduced by an
amount equal to the sum of (a) the "deductible" applied by Seller's insurance
policy, or (c) if Seller is self-insured, the cost of repairing such damage.
Purchaser shall have the right to participate in the negotiation and settlement
of any litigation, casualty or condemnation-related claim.
13. Inspection of Property.
(a) Purchaser's Right of Inspection. Purchaser shall have the
right, at its own risk, cost and expense, at any time or times prior to Closing,
to enter, or cause its agents or representatives to enter, upon the Property for
the purpose of making surveys, or any tests, investigations and/or studies
relating to the Property or Purchaser's intended acquisition thereof which
Purchaser deems appropriate, in its sole discretion, during reasonable hours and
upon reasonable notice to Seller. Purchaser shall further have complete access
to all documentation, agreements and other information in the possession of
Seller related to the ownership, use and operation of the Property, to the
extent it is readily available to Seller, and shall have the right to make
copies of same.
(b) Feasibility Period. Any other provisions of this Agreement
to the contrary notwithstanding, Purchaser may, prior to the expiration of sixty
(60) days after the Acceptance Date (such 60-day period herein referred to as
the "Feasibility Period"), cause at Purchaser's sole cost and expense, such
boring, engineering, economic, water, sanitary and storm sewer, utilities,
topographic, structural, environmental and other tests, investigations, market
studies and other studies as Purchaser shall elect. Notwithstanding the
preceding sentence, purchaser shall not initiate or perform any subsurface
environmental investigation without Seller's prior consent which consent
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shall not be unreasonably withheld or delayed. In the event that any of such
tests, investigations and/or studies indicate, in Purchaser's sole discretion,
that Purchaser's plans for the Property would not be feasible, then Purchaser
shall have the right, at its sole election on or before the last day of the
Feasibility Period, to terminate this Agreement by giving written notice thereof
to Seller, in which event this Agreement shall terminate, the Deposit shall be
returned to Purchaser and neither party shall have any further liabilities or
obligations to each other. Purchaser shall be liable for any damage to real or
personal property or injuries to persons caused by Purchaser's actions in
studying the Property during the Feasibility Period, and Purchaser agrees to
indemnify Seller against any and all loss, cost, expense, damage and liability
incurred as a result thereof. In the event Purchaser, in its sole discretion,
decides to terminate this Agreement, Purchaser agrees to provide Seller with
copies of those materials, studies and reports which Purchaser has undertaken
during the Feasibility Period and which Purchaser is authorized to provide to
Seller.
(c) Audit. Seller hereby agrees to allow its books and records
related to the Property to be audited (at Purchaser's sole expense) by an
independent, certified public accounting firm selected by Purchaser, and Seller
will cooperate and cause its employees and other agents to cooperate in such
auditing process. Purchaser shall provide Seller with prior notice of such audit
and execute a confidentiality agreement at Seller's request.
14. Indemnifications.
(a) Indemnification by Seller. Seller hereby indemnifies and
agrees to defend and hold harmless Purchaser and its partners and subsidiaries,
and any officer, director, employee or agent of any of them, and their
respective successors and assigns, from and against any and all claims,
expenses, costs, damages, losses and liabilities (including reasonable
attorneys' fees) which may at any time be asserted against or suffered by
Purchaser or the Property, or any part thereof, whether before or after the
Closing Date, as a result of, on account of or arising from (a) any breach of
any covenant, representation, warranty or agreement on the part of Seller made
herein or in any instrument or document delivered pursuant to this Agreement,
and/or (b) any obligation, claims, suit, liability, contract, agreement, debt or
encumbrance or other occurrence (other than encumbrances expressly approved by
Purchaser) created, arising or accruing prior to the Closing Date, regardless of
when asserted and relating to the Property or its operations.
(b) Seller's Environmental Indemnity. For a period of three
(3) years from Closing, Seller hereby indemnifies and agrees to defend and hold
harmless Purchaser and its partners and subsidiaries, and any officer, director,
employee or agent of any of them, and their respective successors and assigns,
from and against any and all claims, expenses, costs, damages, losses and
liabilities (including
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reasonable attorneys' fees) which may at any time be asserted against or
suffered by any indemnitee, directly or indirectly, relating to the presence of
Hazardous Materials on the Property at Closing, or the removal of Hazardous
Materials from the Property prior to Closing, including any claim as a result of
any governmental action, action by a third party or actions taken by such
indemnitees based upon advice of a recognized environmental authority to the
effect that action may need to be taken to avoid, reduce or limit any
indemnitees exposure to liability or the risk of injury or damage of persons or
property.
(c) Indemnification by Purchaser. Purchaser hereby indemnifies
and agrees to defend and hold harmless Seller and its partners and subsidiaries,
and any officer, director, employee or agent of any of them, and their
respective successors and assigns, from and against any and all claims,
expenses, costs, damages, losses and liabilities (including reasonable
attorneys' fees) which may at any time be asserted against or suffered by Seller
as a result of, on account of or arising from (a) any breach of any covenant,
representation, warranty or agreement on the part of Purchaser made herein or in
any instrument or document delivered pursuant to this Agreement, and/or (b) any
obligation, claims, suit, liability, contract, agreement, debt or encumbrance or
other occurrence created, arising or accruing after the Closing Date and
relating to the Property or its operations.
15. Brokerage Commission. Purchaser and Seller each recognize LRA
Realty Advisors (the "Broker") as the sole agent for this transaction. Any
commission due the Broker in connection with this transaction shall be paid by
Seller pursuant to a separate agreement with the Broker. Purchaser shall not be
obligated to pay for any commission or fee to the Broker. Seller and Purchaser
represent and warrant to each other that no other brokerage fee or real estate
commission is or shall be due or owing in connection with this transaction, and
Seller and Purchaser hereby indemnify and hold the other harmless from any and
all claims of any other broker or agent so claiming based on action or alleged
action of the other.
16. Default Provisions; Remedies.
(a) Purchaser's Default. If Purchaser fails to consummate the
purchase and sale contemplated herein when required to do so pursuant to the
provisions hereof, then the Title Company shall deliver the Deposit to Seller as
full and complete liquidated damages, and as the exclusive and sole right and
remedy of Seller, whereupon this Agreement shall terminate and neither party
shall have any further obligations or liabilities to any other party.
(b) Seller's Default. Except for any breaches waived in
writing by Purchaser, if Seller has breached any of its covenants or obligations
under this Agreement or has failed, refused or is unable to consummate the
purchase and sale
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contemplated herein by the Closing Date or if any of the representations and
warranties made by Seller under this Agreement shall be inaccurate or incorrect
in any material respect, then Purchaser shall be entitled to (i) waive such
breach, default or failure, (ii) extend the Closing for such reasonable time or
times as may be necessary in order to enable Seller to remedy such breach,
default or failure, (iii) terminate this Contract and obtain the return of the
Deposit, and/or (iv) as its sole and exclusive remedy, institute proceedings in
any court of competent jurisdiction to specifically enforce the performance by
Seller of the terms of this Agreement (and if Purchaser is successful in
obtaining such specific performance, Seller shall indemnify Purchaser for all of
Purchaser's costs and expenses, including without limitation reasonable
attorney's fees and court costs). Notwithstanding the foregoing, if Seller's
default is as a result of a material misrepresentation, fraud, wrongful refusal
to close, or willful misconduct by Seller, then Purchaser may also recover from
Seller the damages actually incurred by Purchaser as a result of that default
including, but not limited to, reasonable attorney's fees.
17. Miscellaneous Provisions.
(a) Tax Deferred Like-Kind Exchange.
(i) Notwithstanding anything contained herein to the
contrary, in accordance with the terms set forth herein,
Seller shall be entitled, at its option, to structure the
transfer of the Property to Purchaser as part of a
tax-deferred "like-kind" exchange under Section 1031 of the
Internal Revenue Code of 1986. In this event, Seller will not
receive the consideration otherwise contemplated by this
Agreement but will instead receive, in whole or in part, other
real estate.
(ii) If Seller desires to effectuate a tax-deferred
exchange as aforesaid, Seller shall so notify Purchaser not
later than the date which is ten (10) days prior to Closing.
In this event, Purchaser shall nonetheless receive title to
the Property at Closing and shall at Closing provide only the
cash consideration contemplated by this Agreement.
Furthermore, although Purchaser will reasonably cooperate with
Seller to help Seller accomplish a tax-deferred like-kind
exchange, by so cooperating, Purchaser shall incur no extra
expenses, no delays, and no extra risks. Furthermore, neither
Purchaser nor Purchaser's legal counsel makes any
representations or warranties to Seller concerning the tax
consequences of Seller's actions in this regard. Apart from
the obligation to provide the consideration, Purchaser shall
have no obligation or liability whatsoever in connection with
the like-kind exchange and Seller shall indemnify and hold
Purchaser harmless from any damages, liability and claims,
including
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<PAGE>
reasonable attorney's fees, paid or incurred by Purchaser in
connection therewith.
(b) Completeness and Modification. This Agreement (together
with Exhibits A to I attached hereto) with respect to the transactions
contemplated herein, and it supersedes all prior discussions, understandings or
agreements between the parties. This Agreement shall not be modified or amended
except by an instrument in writing signed by all of the parties hereto.
(c) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
assigns.
(d) Assignment. This Agreement shall be freely assignable by
Purchaser, without the consent of Seller. This Agreement shall not be assignable
by Seller.
(e) Waiver; Modification. Failure by Purchaser or Seller to
insist upon or enforce any of its rights hereto shall not constitute a waiver or
modification thereof.
(f) Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Delaware.
(g) Headings. The headings are herein used for convenience or
reference only and shall not be deemed to vary the content of this Agreement or
the covenants, agreements, representations and warranties herein set forth, or
the scope of any provision hereof.
(h) Continuing Documentation and Access. From and after
Closing, Seller shall afford Purchaser reasonable access to any and all
information in its possession concerning the ownership, use and operation of the
Property (including the right to copy same at the expense of Purchaser) for
purposes of any tax examination or audit or other similar purpose, subject to
the agreements of Purchaser concerning confidentiality set forth herein.
(i) All Warranties Joint and Several. Each and every warranty,
covenant, undertaking and agreement of Seller hereunder shall be deemed a joint
and several warranty, covenant, undertaking and agreement of each person and
entity collectively comprising the Seller.
(j) Counterparts. To facilitate execution, this Agreement may
be executed in as many counterparts as may be required; it shall be sufficient
that the signature of, or on behalf of, each party, or that the signatures of
the persons required
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<PAGE>
to bind any party, appear on one or more such counterparts. All counterparts
shall collectively constitute a single agreement.
(k) Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be personally delivered
or mailed by first-class registered or certified mail, return receipt requested,
postage prepaid or delivered by commercial courier, telecopy or overnight
courier (e.g., Federal Express), against receipt, to the addresses indicated
below:
(i) if to Purchaser:
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Attn: William J. Wolfe
Telecopy: (301) 907-4911
with a copy to:
Jeffrey S. Distenfeld, Esquire
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Telecopy: (301) 907-4911
(ii) if to Seller:
Graylyn Shopping Center Associates, L.P.
800 Delaware Avenue
Wilmington, DE 19801
Attn: Ernest F. Delle Donne
Telecopy: (302) 652-7140
with a copy to:
J.P. Collins, Esq.
Delle Donne & Associates, Inc.
800 Delaware Avenue
Wilmington, DE 19801
Telecopy: (302) 652-7140
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<PAGE>
Such notice shall be deemed given ont he date of
receipt by the addressee or the date receipt would have been effectuated if
delivery were not refused. Each party may designate a new address by written
notice to the other in accordance with this Paragraph 17(k).
(l) Business Days. A "business day" shall be Mondays through
Fridays, less and expecting all legal holidays observed by the United States
Government or the Government of the State of Maryland. Any date specified in
this Agreement which does not fall on a business day shall be automatically
extended until the first business day after such date.
IN WITNESS WHEREOF, the parties hereto have executed this Real Estate
Purchase Agreement as of the day and year first written above.
PURCHASER:
FIRST WASHINGTON REALTY
LIMITED PARTNERSHIP
By: First Washington Realty Trust, Inc.,
WITNESS: Its general partner
- -------------------------- By: /s/
-------------------------------
Stuart D. Halpert
Chairman of the Board
Date of execution by
Purchaser: May 6 , 1996
SELLER:
GRAYLYN SHOPPING CENTER
WITNESS: ASSOCIATES, L.P.
- -------------------------- By: /s/
--------------------------------
Name: Ernest F. Della Donne
Title: General Partner
Date of execution by
Seller: October 15 , 1996
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<PAGE>
ACKNOWLEDGE BY TITLE COMPANY
The undersigned Title Company executes this Real Estate Purchase
Agreement solely to acknowledge receipt of the Deposit pursuant to Paragraph 3
hereof and to evidence its agreement to serve as escrow agent pursuant to the
terms of the foregoing Agreement.
COMMERCIAL SETTLEMENTS, INC.
By: /s/
-----------------------------
Name:
Title:
Date: October 18, 1996
---------------------------
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<PAGE>
LIST OF EXHIBITS
EXHIBIT A. Legal Description of Land Recitals
EXHIBIT B. Leases and Rent Schedule Section 5(d)
EXHIBIT C. Service Contracts Section 5(e)
EXHIBIT D. Tax Bills Section 5(f)
EXHIBIT E. Insurance Policies Section 5(g)
EXHIBIT F. Form of Tenant Estoppel Section 5(i)
EXHIBIT G. Certificates of Occupancy Section 5(p)
EXHIBIT H. Operating Statements and Operating Budget Section 5(r)
EXHIBIT I. Personal Property Section 5(t)
[Seller to Attach Foregoing at Acceptance of this Agreement]
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<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
-24-
<PAGE>
EXHIBIT B
LEASES AND RENT SCHEDULE
-25-
<PAGE>
EXHIBIT C
SERVICE CONTRACTS
-26-
<PAGE>
EXHIBIT D
TAX BILLS
-27-
<PAGE>
EXHIBIT E
INSURANCE POLICIES
-28-
<PAGE>
EXHIBIT F
[Form of Tenant Estoppel]
ESTOPPEL CERTIFICATE
, 199
Re:
Lease with [name of Tenant]
Gentlemen:
Please be advised that the undersigned tenant hereby certifies as of
the date hereof as follows with respect to the Lease:
Name of Tenant:
Description of Leased Premises:
Date of Commencement of Lease:
Date of Termination of Lease:
Options to Renew:
Base Rental: Annual Rental of $ , payable monthly in arrears.
---------------
Tax Adjustments: $ payable monthly in arrears
----------------
Percentage Rent:
Common Area Maintenance Charges: $
Tenant in possession of the premises under the Lease?: Yes
The Lease is unmodified and in full force and effect except for modifications,
listed by number and date on Exhibit A attached hereto.
Amount of rent paid in advance: $
Amount of Security Deposit: $
Compliance with Construction Requirements: Landlord has complied with all
construction requirements of Tenant, and Tenant has accepted all of the leased
premises under the Lease.
-i-
<PAGE>
Tenant has not made any claims against Landlord and has no knowledge of any
uncured default on the part of Landlord (If there is knowledge of any uncured
default, please note and attach separate sheet).
Tenant's Right to Purchase: Tenant has no option or right in the nature of a
right of first refusal to purchase or otherwise acquire any interest in the
leased premises.
Tenant's Right of Premature Termination or Option to Renew: Tenant has no right
to premature termination and no right or option to renew or extend the term
beyond its present term and no option to lease additional space, except as
expressly set forth in the Lease.
Anything in the Lease to the contrary notwithstanding, Tenant agrees that it
will not terminate the Lease or withhold any rents due thereunder because of
Landlord's default in the performance thereof until tenant has first given
notice to Landlord and to the holder of any deed of trust specifying the nature
of any such default by Landlord and allowing the said holder, at its option,
thirty (30) days after date of such notice to cure the default, or a reasonable
period of time in addition thereto if circumstances are such that the default
cannot be cured within a thirty (30) day period.
Tenant agrees to subordinate the Lease to any deed of trust on the leased
premises.
In the event of foreclosure, Tenant agrees to attorn to the purchaser of the
leased premises at the foreclosure sale.
TENANT:
[Name of Tenant]
By:
Name:
Title:
STATE OF )
) ss:
COUNTY OF )
Signed and sealed in my presence this day of , 199 .
---- --------- ---
Notary Public
[SEAL]
My Commission Expires:
-ii-
<PAGE>
EXHIBIT G
CERTIFICATES OF OCCUPANCY
-iii-
<PAGE>
EXHIBIT H
OPERATING STATEMENTS AND OPERATING BUDGET
-iv-
<PAGE>
EXHIBIT I
PERSONAL PROPERTY
-v-
EXHIBIT 10.51
October 3, 1996
VIA FEDERAL EXPRESS
Mr. Jeffrey Distenfeld
First Washington Realty Limited Partnership
4350 East-West Highway
Suite 400
Bethesda, Maryland 20814
Re: Four Mile Fork Shopping Center, Fredericksburg, Virginia
--------------------------------------------------------
Dear Jeff:
I am returning to you one fully executed copy of the Real Estate
Purchase Agreement dated October 3, 1996, along with two (2) additional copies.
The Agreement is being accepted by VOL Properties Corporation conditioned upon
your approval of the following modifications to the Agreement:
1. Seller has ordered and should be receiving shortly a Phase I
environmental study of the Property. A copy of that study will
be delivered to Purchaser on the condition that the contents
thereof are not to be disclosed to any person without the
prior written consent of Seller.
Notwithstanding any other provision to the contrary contained
in Section 13 or elsewhere in the Agreement, Purchaser will
not perform any subsurface testing of the Property without the
prior written consent of Seller.
2. In Section 12 of the Agreement, on the second line, delete the
words "recordation of the deed of conveyance" and insert the
word "Closing."
<PAGE>
October 3, 1996
Page 2
3. In Section 17, on the third line, before the word "with",
insert the words "and the letter dated October 3, 1996 from
Herbert J. Linn to Jeffrey Distenfeld constitute the entire
agreement between the parties."
4. In Exhibit B to the Agreement, Space 170-5043 correctly shows
monthly rental of $1,500. However, the area should be reduced
to 2,000 square feet, with the rent per square foot adjusted
accordingly. The additional 750 square feet represents space
170-5045, which is vacant.
If the foregoing is satisfactory, please sign and return a copy of this
at which time the Agreement shall be deemed to be binding on the parties. In
addition, return a copy of the Agreement after it has been signed by the Title
Company.
Very truly yours,
/s/
Herbert J. Linn
Agreed and Accepted this
4th day of October, 1996
/s/
- ------------------------
Agent for Purchaser
HJL/cod
Enclosures
cc: Herb Ehlers
Jim Postweiler
<PAGE>
REAL ESTATE PURCHASE AGREEMENT
THIS REAL ESTATE PURCHASE AGREEMENT is made and entered as the 3rd day of
October, 1996, by and between (i) VOL PROPERTIES CORPORATION, a Delaware
corporation, (hereinafter referred to as "Seller") and (ii) FIRST WASHINGTON
REALTY LIMITED PARTNERSHIP or its assignees (hereinafter referred to as
"Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the record and beneficial owner of all that certain real
property containing 10.339 acres and located in Fredericksburg, Spotsylvania
County, Virginia, as more particularly described on Exhibit A attached hereto
(the "Land") together with a shopping center commonly known as Four Mile Fork
Shopping Center containing approximately 96,720 square feet of net rentable area
and all other buildings and improvements situated thereon (collectively, the
"Building"), all personal property and fixtures located therein (the
"Personalty"), and all appurtenances, rights, easements, rights-of-way,
tenements and hereditaments incident thereto (the "Additional Property") (the
Land, Building, Personalty and Additional Property are hereinafter collectively
referred to as the "Property"); and
WHEREAS, Purchaser desires to purchase the Property from Seller and Seller
desires to sell and transfer the same to Purchaser.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Purchase and Sale. Purchaser agrees to buy and Seller agrees to sell
and convey the Property for and in consideration of the purchase price and upon
the terms and conditions set forth herein.
2. Purchase Price. The purchase price for the Property (the "Purchase
Price") shall be Five Million Seven Hundred Thousand Dollars ($5,700,000.00),
payable at Closing (as hereinafter defined) in cash, cashier's check, certified
check or bank wire transfer.
3. Deposit.
(a) Within one (1) business day after the date of delivery to
Purchaser of an original of this Agreement executed by Seller (the date of
such delivery by Seller being the "Acceptance Date"), Purchaser shall
deliver to Commercial Settlements, Inc., 1413 K Street, N.W., Washington,
DC 20005
<PAGE>
(the "Title Company"), as escrow agent, a deposit (the "Initial Deposit")
of Seventy-five Thousand Dollars ($75,000.00) by a check payable to the
Title Company. If Purchaser shall fail to deliver the Initial Deposit when
required to do so, this Agreement shall become null and void and the
parties hereto shall be relieved of all further liability and obligation to
each other.
(b) Within three (3) days after the end of the Feasibility Period (as
defined in Section 13(b)), Purchaser shall deliver to the Title Company, as
escrow agent, an additional deposit (the "Additional Deposit") of
Seventy-five Thousand Dollars ($75,000.00) by check payable to the Title
Company.
(c) The Initial Deposit and the Additional Deposit and all accrued
interest therein are hereinafter referred to collectively as the "Deposit."
The Title Company will immediately provide Seller with written evidence of
receipt of such Deposit. The Title Company shall place the Deposit in an
interest-bearing account within three (3) days after the date of receipt
thereof, and interest on the Deposit shall accrue to the benefit of
Purchaser. The Deposit shall be held by the Title Company pursuant to the
terms and conditions of this Agreement.
(d) In the event that, at any time prior to Closing, Seller or
Purchaser provides Title Company with a certification (a copy of which
shall be delivered contemporaneously to the other party) that the Seller or
Purchaser, as the case may be, is entitled to the Deposit pursuant to the
terms of this Agreement, Title Company shall deliver the Deposit to such
party within seven (7) business days after receipt of said notice, unless
the other party disputes such certification by written notice to Title
Company (a copy of which shall be delivered contemporaneously to the other
party) delivered within five (5) business days of Title Company's receipt
of the initial certification. In such event, Title Company shall hold the
Deposit pending resolution of such dispute.
(e) The parties acknowledge that Title Company is acting solely as a
stakeholder at their request and for their convenience, that Title Company
shall not be deemed to be the agent of either of the parties, and Title
Company shall not be liable to either of the parties for any act or
omission on its part unless taken or suffered in bad faith, in willful
disregard to this Agreement or involving gross negligence. Seller and
Purchaser shall jointly and severally indemnify and hold Title Company
harmless from and against all costs, claims and expenses, including
reasonable attorneys' fees, incurred in connection with the performance of
Title Company's duties hereunder, except with respect to actions or
omissions taken or suffered by Title Company in bad faith, in willful
disregard of this Agreement or involving gross negligence on the part of
Title Company.
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<PAGE>
4. Closing. Except as otherwise provided in this Agreement, the purchase
and sale contemplated herein shall be consummated at the "Closing", which shall
take place on the date (the "Closing Date") specified by Purchaser on not less
than ten (10) days notice to Seller, provided that the Closing Date shall not be
later than sixty (60) days after the end of the Feasibility Period (as defined
and described in Section 13(b) hereof). The Closing shall take place at the
offices of the Purchaser, or at such other place as may mutually agreed upon by
Seller and Purchaser. Notwithstanding anything to the contrary contained herein,
if Closing has not occurred by December 31, 1996 for any reason whatsoever
(other than as a result of the default of Seller), then Seller shall have the
right to terminate this Agreement, in which case the Deposit shall be returned
to Purchaser and neither party shall have any further liabilities or obligations
under this Agreement.
5. Representations and Warranties of Seller. In order to induce Purchaser
to enter into this Agreement and to purchase the Property, Seller hereby makes
the following representations and warranties, each of which is material and
shall, together with all covenants, agreements and indemnities set forth in or
made pursuant to this Agreement, survive Closing, notwithstanding any
investigation at any time made by or on behalf of Purchaser:
(a) Authority of Seller. Seller is a corporation duly organized and
existing and in good standing under the laws of the State of Delaware.
Seller has all necessary power and authority and has taken all necessary
partnership or corporate action to execute, deliver and perform this
Agreement and consummate all of the transactions contemplated by this
Agreement. This Agreement is the valid and binding obligation of Seller,
enforceable against it in accordance with its terms.
(b) Title. Seller is the sole owner of fee simple title to the
Property with the authority to sell and convey the Property to Purchaser
without the consent of any other party, and such title is marketable and
good of record and free and clear of all liens, encumbrances, covenants,
conditions, restrictions and other matters affecting title, except for the
Permitted Exceptions (as defined in Section 8(a)(iii)).
(c) Compliance with Existing Laws. To the best of Seller's knowledge,
Seller is not in violation of, and has complied with, any and all
applicable building, zoning, environmental or other ordinances, statutes or
regulations of any governmental agency, in respect to the ownership, use,
maintenance, condition and operation of the Property or any part thereof.
To the best of Seller's knowledge, Seller possesses all licenses,
certificates, permits and authorizations necessary for the use and
operation of the Property in the manner in which it is currently being
operated by Seller, and the requisite certificates of the fire marshalls or
board of fire underwriters have been issued for the Property. To the best
of Seller's knowledge, the Building and all related facilities are now in
conformance with all applicable zoning laws and no variance, exception or
other modification of such laws was necessary in order to authorize the use
or
-3-
<PAGE>
occupancy of any portion thereof.
(d) Leases. To the best of Seller's knowledge, true, correct and
complete copies of all of the leases of the Property and any amendments
thereto (collectively, the "Leases") have been delivered to Purchaser. To
the best of Seller's knowledge, attached hereto as Exhibit B is a
description of all of the Leases and a current rent schedule ("Rent
Schedule") covering the Leases. To the best of Seller's knowledge, there
are no leases or tenancies of any space in the Property other than those
set forth in Exhibit B or any subleases or subtenancies unless otherwise
noted therein. Except as otherwise set forth in Exhibit B or elsewhere in
this Agreement, to the best of Seller's knowledge:
(i) the Leases are in full force and effect and constitute a
legal, valid and binding obligation of Seller and are assignable by
Seller to Purchaser;
(ii) no tenant has an option to purchase the Property;
(iii) no renewal or expansion options have been granted to the
tenants, except as provided in the Leases;
(iv) to the best of Seller's knowledge, Seller is not in default
under the Leases;
(v) the rents set forth on the Rent Schedule are being collected
on a current basis and there are no arrearages in excess of one month
nor has any tenant paid any rent, additional rent or other charge of
any nature for a period of more than thirty (30) days in advance;
(vi) all work for tenant alterations and other work or materials
contracted for by Seller and any tenant has been completed by Seller,
and all work and materials have been fully paid for;
(viii) Seller has not sent written notice to any tenant claiming
that such tenant is in default, which default remains uncured, and to
the best of Seller's knowledge, no tenant is in default under its
Lease;
(ix) no action or proceeding instituted against Seller by any
tenant is presently pending in any court; and
(x) there are no security deposits other than those set forth in
Exhibit B.
(e) Service Contracts. To the best of Seller's knowledge, attached
hereto as Exhibit C is a complete and correct list of all contracts or
agreements relating
-4-
<PAGE>
to the management, leasing, operation, maintenance or repair of the
Property (the "Service Contracts"). To the best of Seller's knowledge, true
and correct copies of all of the Service Contracts have been delivered to
Purchaser. No Service Contract which Purchaser agrees to assume will be
terminated, amended, modified or supplemented after the end of the
Feasibility Period without Purchaser's prior written approval.
(f) Tax Bills. Attached hereto as Exhibit D are true and correct
copies of tax bills issued by any applicable federal, state or local
governmental authority to Seller with respect to the Property for the most
recent past and current tax years, and any new assessment received with
respect to a current or future tax year.
(g) Insurance. The Property is insured for its replacement value
against loss or damage sustained as a result of fire or other casualty.
Seller shall maintain in full force and effect all hazard, liability and
other insurance policies currently in effect until the Closing Date and
shall cause its insurer to name Purchaser as an additional insured as a
contract party on its rent loss policy with respect to the Property.
(h) Condition. Possession of Property shall be delivered to Purchaser
at Closing in "as is, where is" condition as of the date of Purchaser's
execution of this Agreement. Seller has no knowledge (having made no
independent investigations) of any material defect in the condition of the
Property, the structural elements thereof or the mechanical systems therein
(other than a potential roof problem which has been disclosed to
Purchaser).
(i) Tenant Estoppel. Seller shall use commercially reasonable efforts
to obtain and deliver to Purchaser after the Feasibility Period and prior
to Closing, a tenant estoppel letter in the form attached hereto as Exhibit
F (or such other form as required by Purchaser's mortgage lender) from each
of the tenants of the Property.
(j) Condemnation Proceedings. No condemnation or eminent domain
proceedings are pending or, to the best of Seller's knowledge, threatened
against the Property or any part thereof, and Seller has made no
commitments to and has received no notice, oral or written, of the desire
of any public authority or other entity to take or use the Property or any
part thereof whether temporarily or permanently, for easements,
rights-of-way, or other public or quasi-public purposes. Seller has made no
independent investigations as to the matters contained on this subsection
5.(j).
(k) Litigation. No litigation is pending or, to the best of Seller's
knowledge, threatened, including administrative actions or orders relating
to governmental regulations, affecting the Property or any part thereof or
Seller's right to sell the Property.
(l) No Defaults. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) conflict
with, or result in
-5-
<PAGE>
a breach of, the terms, conditions or provisions of, or constitute a
default under, any agreement or instrument to which Seller is a party or by
which the Property is bound, (ii) violate any restriction, requirement,
covenant or condition to which the Seller is subject or by which the
Property is bound, (iii) constitute a violation of any applicable code,
resolution, law, statute, regulation, ordinance, rule, judgment, decree or
order, or (iv) result in the cancellation of any contract or lease
pertaining to the Property.
(m) Hazardous Waste. Seller has no actual knowledge (having made no
independent investigations) of any discharge, spillage, uncontrolled loss,
seepage or filtration (a "Spill") of oil, petroleum or chemical liquids or
solids, liquid or gaseous products or any hazardous waste or hazardous
substance (as those terms are used in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, or in any other
applicable federal, state or local laws, ordinances, rules or regulations
relating to protection of public health, safety or the environment, as such
laws may be amended from time to time) at, upon, under or within the Land
or any contiguous real estate. Seller has not caused or permitted to occur,
and shall not permit to exist any condition which may cause a Spill at,
upon, under or within the Land or any contiguous real estate. To the best
of Seller's knowledge (having made no independent investigations), there is
no proceeding or action pending or threatened by any person or governmental
agency regarding the environmental condition of the Property.
(n) Certificates of Occupancy. Seller will not amend any certificates
of occupancy and will maintain them in full force and effect.
(o) Licenses and Permits. To the best of Seller's knowledge, all
licenses and permits have been issued to Seller by all applicable
governmental authorities which are necessary for the ownership, management
and operation of the Property (the "Licenses"). Seller has received no
notice, nor has any knowledge, that it is lacking any required permit or
license.
(p) Operating Statements. To the best of Seller's knowledge, attached
hereto as Exhibit H are true and correct operating statements of the
Property for 1993, 1994, 1995 and the indicated portion of 1996. Also
attached as Exhibit H is a copy of the 1996 operating budget detailed as to
amounts by month and operating department in reasonably sufficient detail.
(q) Utilities. To the best of Seller's knowledge (having made no
independent investigations), adequate, usable public sewers, public water
facilities, gas and electrical facilities necessary to the operation of the
Property are installed in and are duly connected to the Property and can be
used without any charge except the normal deposits, if any, and usual
metered utility charges and sewer charges.
(r) Personal Property. To the best of Seller's knowledge, attached
-6-
<PAGE>
hereto as Exhibit I is a true, correct and complete inventory of all
personal property ("Personal Property"), if any, used in the management,
maintenance and operation of the Property (other than trade fixtures or
personal property of tenants).
(s) Leasing Commissions. There are, and at Closing shall be, no
outstanding or contingent leasing commissions or fees payable with respect
to the Property.
For purposes of Section 5, the terms "best knowledge" or "knowledge" of Seller
shall mean the knowledge of Irwin Gross, Herbert Ehlers and Dumbarton
Properties, Inc.
6. Obligations of Seller Pending Closing. From and after the date of this
Agreement through the Closing Date, Seller covenants and agrees as follows:
(a) Maintenance and Operation of Premises. Seller will cause the
Property to be maintained in its present order and condition, normal wear
and tear excepted, and will cause the continuation of the normal operation
thereof, including the purchase and replacement of fixtures and equipment,
and the continuation of the normal practice with respect to maintenance and
repairs so that the Property will, except for normal wear and tear, be in
substantially the same condition on the Closing Date as of the Acceptance
Date.
(b) Licenses. Seller shall use it best efforts to preserve in force
all Licenses and to cause those expiring to be renewed.
(c) Changes in Representations. Seller shall notify Purchaser
promptly, and Purchaser shall notify Seller promptly, if either becomes
aware of any occurrence prior to the Closing Date which would make any of
its representations, warranties or covenants contained herein not true in
any material respect.
(d) Obligations as to Leases. From the Acceptance Date to the
expiration of the Feasibility Period provided for in Section 13, Seller
shall have the right to enter into new leases for space at the Property
("New Lease(s)") or to amend, modify, renew, supplement or extend any Lease
in any respect or approve any assignment of leases or subletting of leased
space, or terminate any Lease (with respect to any provision amending,
modifying, renewing, supplementing or extending, etc. above, "Amended
Lease(s)"), and as to any Amended or New Leases entered into by the Seller
during this period, the Seller shall give Purchaser notice (including
therewith copies of the New Leases and all relevant data related to the
particular Amended or New Lease) of such Amended and/or New Leases within
three (3) days after the entry into any Amended or New Lease, but, in any
event, not later than seven (7) days prior to the expiration of the
Feasibility Period. After the expiration of the Feasibility Period, Seller
shall not, without Purchaser's prior written consent (which consent shall
not be unreasonably withheld or delayed), amend, modify, renew or
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<PAGE>
extend any Lease in any respect unless required by law, or enter into new
leases or approve any assignment of leases or subletting of leased space,
or terminate any Lease. Seller hereby further agrees that if any space is
vacant on the Closing Date, Purchaser shall accept the Property subject to
such vacancy, provided that the vacancy was not permitted or created by
Seller in violation of any restrictions contained in this Agreement. Prior
to Closing, Seller shall not apply all or any part of the security deposit
of any tenant unless such tenant has vacated the Property or defaulted
under its Lease, in which case Seller may deal with the security deposit of
such tenant in a prudent business manner.
7. Representations and Warranties of Purchaser. In order to induce Seller
to enter into this Agreement and to sell the Property, Purchaser hereby makes
the following representations and warranties, each of which is material and
shall survive Closing, notwithstanding any investigation at any time made by or
on behalf of Seller:
(a) Authority of Purchaser. Purchaser is a limited partnership duly
organized and existing and in good standing under the laws of the State of
Maryland. Purchaser has all necessary power and authority to execute,
deliver and perform this Agreement and consummate all of the transactions
contemplated by this Agreement. This Agreement is the valid and binding
obligation of Purchaser, enforceable against it in accordance with its
terms.
(b) No Defaults. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will: (i) conflict
with, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, any agreement or instrument to which Purchaser
is a party, (ii) violate any restriction, requirement, covenant or
condition to which the Purchaser is subject, and (iii) constitute a
violation of any applicable code, resolution, law, statute, regulation,
ordinance, rule, judgment, decree or order.
8. Conditions Precedent to Closing.
(a) It shall be a condition precedent of Purchaser's obligation to
make a full settlement hereunder that each and every one of the following
conditions shall exist on the Closing Date:
(i) Representations and Warranties. Seller's representations and
warranties hereunder shall be true and correct in the same manner and
with the same effect as though such representations and warranties had
been made on and as of the Closing.
(ii) Zoning. No proceedings shall have occurred or be pending to
change, redesignate or redefine the zoning classification of the
Property to a more restrictive classification than presently exists on
the
-8-
<PAGE>
date of Purchaser's execution of this Agreement.
(iii) Title. Title to the Property shall be marketable, good of
record, and insurable by the Title Company at standard rates or less,
pursuant to a full coverage ALTA Form-B (Rev. 1970 and 1984) owner's
title insurance policy in the amount of the Purchase Price (or an
unconditional commitment therefor) without any exceptions ("Printed
form" or otherwise) other than the Permitted Exceptions, and in
addition, providing affirmative coverage satisfactory to Purchaser
insuring against any mechanic's or materialmen's lien arising from
goods, labor or materials provided to the Property prior to the
Closing Date. The "Permitted Exceptions" are:
(A) the lien of current real estate taxes and special
assessments not yet due and payable; and
(B) such other matters which are not unacceptable to
Purchaser under this subsection B. Promptly after the date of
execution of this Agreement by Seller, Purchaser shall request an
interim title binder from the Title Company and within fifteen
(15) days after receipt thereof shall notify Seller of all
exceptions to title to the Property which are unacceptable to
Purchaser, in its sole discretion. Seller shall act diligently,
and its sole expense, to correct such conditions at least thirty
(30) days prior the Closing Date. If such conditions are not
corrected by thirty (30) days prior to the Closing Date
hereunder, Purchaser, in addition to any other rights it may
have, shall have the right and option (i) to terminate this
Agreement, or (ii) to extend the Closing Date for a period not to
exceed one (1) month until such time as Seller has corrected such
defects, or (iii) to close on the purchase of the Property and
waive such defects in title. In the event of termination of this
Agreement, Seller and Purchaser shall be relieved of all
liabilities under this Agreement and the Deposit shall be
returned to Purchaser.
(iv) Existing Mortgages. Seller shall have delivered to the Title
Company such releases or other instruments necessary to release of
record and beneficially any and all existing mortgages, deeds of
trust, financing statements or other security documents affecting the
Property (collectively, the "Existing Mortgages").
(v) Intentionally Omitted.
(vi) Leasing Brokerage and Property Management Agreements. Seller
shall have terminated any and all leasing brokerage and property
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management agreements with respect to the Property effective as of the
Closing. All responsibility for dealings with any such brokers,
including the payment of any claims (if deemed warranted by Seller)
shall be the sole responsibility of Seller. Seller agrees that it will
indemnify and hold Purchaser, its successors, assigns, partners,
agents and employees, harmless against any such claims and/or losses
which might be incurred by such indemnitees in connection with any
additional and/or contingent leasing commissions or fees or management
fees. The provisions of this subparagraph (vi) shall survive Closing.
(vii) Performance by Seller. Seller shall have complied with and
not be in breach of any of its covenants or obligations under this
Agreement.
(viii) Tenant Estoppels. Purchaser shall have received (A) a
tenant estoppel letter in the form attached hereto as Exhibit F from,
at a minimum, each of those tenants satisfying the requirements
described on Exhibit F-1 (or from such tenants and in such form as
required by Purchaser's mortgage lender), confirming the information
set forth in Section 4(d) hereof and in the Lease and Rent Schedule
attached hereto as Exhibit B for such tenants and containing no
material changes from the Rent Schedule, and (B) any subordination and
attornment agreements required by Purchaser's mortgage lender.
(b) Failure of Condition. In the event of the failure by the Closing
Date of any condition precedent set forth above, then Purchaser, at its
sole election, may (a) terminate this Agreement, in which event the Deposit
and any interest thereon shall be returned to Purchaser and, except as
otherwise provided in Paragraph 16 hereof upon a default by Seller, neither
party shall have any further obligations or liabilities to the other; or
(b) proceed to Closing; or (c) extend the Closing Date for such reasonable
time period as may be determined by Purchaser (but in no event for more
than one (1) month from the Closing Date then in effect) in order to permit
the satisfaction of any condition precedent not so fulfilled.
9. Seller's Deliveries. Seller shall execute, acknowledge and deliver to
Purchaser at the Closing the following documents, dated on the Closing Date:
(a) a special warranty deed, in form and substance satisfactory to
Purchaser and Title Company, conveying good and marketable fee simple title
to the Property, free and clear of all liens, encumbrances, easements and
restrictions of every nature and description, except for the Permitted
Exceptions;
(b) a bill of sale which shall convey to Purchaser good title to all
the Personalty, free and clear of all liens and encumbrances;
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(c) an affidavit setting forth that all of Seller's representations
and warranties are true and correct in all material respects on the Closing
Date;
(d) an assignment of the Leases and security deposits, together with
all originally executed Leases (to the extent in Seller's possession or
control), and the security deposits shall be paid to Purchaser;
(e) an assignment of Licenses and Service Contracts, if any, which are
to be assumed by Purchaser at Purchaser's request, together with the
originally executed Service Contracts (to the extent in Seller's possession
or control) which are to be assumed;
(f) a schedule updating the Rent Schedule and setting forth all
arrearages in rents and all prepayments of rents;
(g) copies of books, records, operating reports, files and other
materials related to the ownership, use and operation of the Property, to
the extent that any exist and are in the possession of Seller, which
obligation shall survive Closing;
(h) Tenant estoppel letters and subordination and attornment
agreements as required in Section 8(a)(viii);
(i) an original letter executed by Seller advising the tenants of the
sale of the Property to Purchaser and directing that rents and other
payments thereafter be sent to Purchaser or as Purchaser may direct;
(j) possession of the Property in the condition required by this
Agreement, and the keys therefore;
(k) the Certification of Non-foreign Status as provided in Treas. Reg.
1.1445-2T(b)(2)(iii)(B) or in any other form as may be required by the
Internal Revenue Code or the regulations issued thereunder;
(l) such other items and instruments as shall be required by the Title
Company in connection with the issuance of its title insurance policy to
Purchaser pursuant to Section 8(a)(iii) (including customary Seller's or
owner's affidavit) or as shall be reasonably requested by counsel to
Purchaser and consistent with the terms of this Agreement;
(m) any and all documents necessary to release the cash constituting
the Deposit from escrow with the Title Company and to have said cash
returned to Purchaser; and
(n) any other documents required by this Agreement to be delivered by
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Seller.
10. Purchaser's Performance. At Closing, simultaneously with the deliveries
of Seller pursuant to the provisions of Paragraph 9, Purchaser shall pay to
Seller the Purchase Price in the manner specified in Paragraph 2, whereupon the
Deposit, and any interest accrued thereon, shall be returned to Purchaser by the
Title Company or, at the option of Purchaser, shall be applied against the
payment of Purchase Price.
11. Settlement Charges; Prorations and Adjustments. Purchaser shall pay for
the title examination, the title insurance premium, notary fees and other such
charges incident to Closing. The cost of preparation of the deed for the
Property shall be borne by Seller. Any real estate transfer and recording fees
and taxes and documentary stamps in connection with this transaction shall be
borne equally by Seller and by Purchaser. Purchaser and Seller shall each pay
its own legal fees related to the preparation of this Agreement and all
documents required to settle the transaction contemplated hereby. In addition to
the foregoing, at the Closing, the following adjustments and prorations shall be
computed as of the Closing Date and the Purchase Price shall be adjusted to
reflect such prorations, as follows:
(a) Taxes. Real estate and personal property taxes shall be
apportioned as of the Closing Date.
(b) Assessments. All special assessments and other similar charges
which have become or may become a lien upon the Property or any part
thereof at the Closing Date, whether or not same are then past due or are
payable thereafter (in installments or otherwise), or which have been
confirmed by a public authority at the Closing Date, shall, at Purchaser's
option, either be paid in full by Seller at the Closing or credited against
the cash portion of the Purchase Price and assumed by Purchaser.
(c) Rent. Rent for the month of Closing and any month thereafter
collected by Seller prior to Closing shall be apportioned as of the Closing
Date. If any tenant is in arrears in the payment of rent on the Closing
Date, rents received from such tenant after the Closing shall be applied in
the following order of priority: (a) first, to the payment of current rent
then due; (b) second, to delinquent rent for any period after the Closing
Date; and (c) third, to delinquent rent for any period prior to the Closing
Date. Purchaser does not guarantee or undertake any obligation to sue or
take other action for collection of arrearages in rents due from tenants as
of the Closing Date; provided, however, Seller shall have the right to
pursue and collect such delinquent rents from such tenants. If rents or any
portion thereof received by Seller or Purchaser after the Closing Date are
payable to the other party by reason of this allocation, the appropriate
sum, less a proportionate share of any reasonable attorneys' fee, costs and
expenses of collection thereof, shall be promptly paid to the other party,
which obligation shall survive the Closing.
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<PAGE>
If any tenants are required to pay percentage rents, escalation
charges for real estate taxes, operating expenses, cost-of-living
adjustments or other charges of a similar nature ("Additional Rents") and
any Additional Rents are collected by Purchaser after the Closing which are
attributable in whole or in part to any period prior to the Closing, then
Purchaser shall promptly pay to Seller's's proportionate share thereof,
less a proportionate share of any reasonable attorneys' fees, costs and
expenses of collection thereof, if and when the tenant paying the same has
made all payments of rents and Additional Rent then due to Purchaser
pursuant to the tenant's Lease, which obligation shall survive the Closing.
(d) Miscellaneous. All other charges and fees customarily prorated and
adjusted in similar transactions, including utilities, insurance premiums
and charges for Service Contracts to be assumed by Purchaser, shall be
prorated as of the Closing Date. In the event that accurate prorations and
other adjustments cannot be made at Closing because current bills are not
obtainable or the amount to be adjusted is not yet ascertainable (as, for
example, in the case of utility bills) the parties shall prorate on the
best available information, subject to further adjustment promptly upon
receipt of the final bill or upon completion of final computations. Seller
agrees that an appropriate amount in respect of water consumption charges
may be held in escrow by the Title Company in connection with its issuance
of a title insurance policy to Purchaser. Seller shall use its best efforts
to have all utility meters read on the Closing Date so as to accurately
determine its share of current utility bills. If any claims or liabilities
are asserted at any time subsequent to Closing against the Property or the
Purchaser, which were not taken into consideration for adjustment
hereunder, including without limitation, claims by governmental agencies,
and if such claims or liabilities are based upon or arise out of any
occurrence prior to Closing or any act or omission by Seller, Seller shall
satisfy such claims or liabilities and shall indemnify and hold Purchaser
harmless therefrom.
12. Risk of Loss. The risk of loss or damage to the Property by fire or
other casualty until recordation of the deed of conveyance shall be borne by
Seller. If prior to Closing (i) condemnation proceedings are commenced against
all or any portion of the Property, or (ii) if the Property is damaged by fire
or other casualty to the extent that the cost of repairing such damage shall be
One Hundred Thousand Dollars ($100,000.00) or more, or (iii) if the Property is
damaged by an uninsured risk; or (iv) the Property becomes subject to litigation
which may deprive Purchaser of any material benefit to which it would become
entitled pursuant to this Agreement, then Purchaser shall have the right, upon
notice in writing to the Seller delivered within thirty (30) days after actual
notice of such condemnation or fire or other casualty or litigation, to
terminate this Agreement, and thereupon the parties shall be released and
discharged from any further obligations to each other and the discharged from
any further obligations to each other and the Deposit shall be refunded to
Purchaser. If Purchaser does not elect to terminate this Agreement or in the
event of fire or other casualty not giving rise to a right to terminate this
Agreement by Purchaser, this Agreement shall continue in full
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<PAGE>
force and effect and the Purchase Price shall not be reduced except as
hereinafter set forth, but Purchaser shall be entitled to an assignment of all
of Seller's share of the proceeds of fire or other casualty insurance and rent
insurance proceeds payable with respect to the period after Closing or of the
condemnation award, as the case may be, and Seller shall have no obligation to
repair or restore the Property; provided, however, that the Purchase Price shall
be reduced by an amount equal to the sum of (a) the "deductible" applied by
Seller's insurance policy, or (c) if Seller is self-insured, the cost of
repairing such damage. Purchaser shall have the right to participate in the
negotiation and settlement of any litigation, casualty or condemnation-related
claim.
13. Inspection of Property.
(a) Purchaser's Right of Inspection. Purchaser shall have the right,
at its own risk, cost and expense, at any time or times prior to Closing,
to enter, or cause its agents or representatives to enter, upon the
Property for the purpose of making surveys, or any tests, investigations
and/or studies (lien free) relating to the Property or Purchaser's intended
acquisition thereof which Purchaser deems appropriate, in its sole
discretion, during reasonable hours and upon reasonable notice to Seller.
Purchaser shall further have complete access to all documentation,
agreements and other information in the possession of Seller related to the
ownership, use and operation of the Property, to the extent it is readily
available to Seller, and shall have the right to make copies of same.
Purchaser agrees to repair any damage to the Property that may be caused by
its inspections and to indemnify and defend Seller and hold Seller harmless
against any property damage or physical injury suffered as a result of such
inspections.
(b) Feasibility Period. Any other provisions of this Agreement to the
contrary notwithstanding, Purchaser may, prior to the expiration of sixty
(60) days after the Acceptance Date (such 60-day period herein referred to
as the "Feasibility Period"), cause at Purchaser's sole cost and expense
(lien free), such boring, engineering, economic, water, sanitary and storm
sewer, utilities, topographic, structural, environmental and other tests,
investigations, market studies and other studies as Purchaser shall elect.
In the event that any of such tests, investigations and/or studies
indicate, in Purchaser's sole discretion, that Purchaser's plans for the
Property would not be feasible for any reason, then Purchaser shall have
the right, at its sole election on or before the last day of the
Feasibility Period, to terminate this Agreement by giving written notice
thereof to Seller, in which event this Agreement shall terminate, the
Deposit shall be returned to Purchaser and neither party shall have any
further liabilities or obligations to each other, and Purchaser shall
provide copies of third-party studies to Seller, if permitted to do so by
the parties who prepared those studies.
(c) Audit. Seller hereby agrees to allow its books and records related
to the Property to be audited (at Purchaser's sole expense) by an
independent, certified public accounting firm selected by Purchaser, and
Seller will cooperate and cause its
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employees and other agents to cooperate in such auditing process. Purchaser
shall provide Seller with prior notice of such audit.
14. Indemnifications.
(a) Indemnification by Seller. Seller hereby indemnifies and agrees to
defend and hold harmless Purchaser and its partners and subsidiaries, and
any officer, director, employee or agent of any of them, and their
respective successors and assigns, from and against any and all claims,
expenses, costs, damages, losses and liabilities (including reasonable
attorneys' fees) which may at any time be asserted against or suffered by
Purchaser or the Property, or any part thereof, whether before or after the
Closing Date, as a result of, on account of or arising from (a) any breach
of any covenant, representation, warranty or agreement on the part of
Seller made herein or in any instrument or document delivered pursuant to
this Agreement, and/or (b) any obligation, claims, suit, liability,
contract, agreement, debt or encumbrance or other occurrence (other than
encumbrances expressly approved by Purchaser) created, arising or accruing
prior to the Closing Date, regardless of when asserted and relating to the
Property or its operations.
(b) Intentionally Omitted.
(c) Indemnification by Purchaser. Purchaser hereby indemnifies and
agrees to defend and hold harmless Seller and its partners and
subsidiaries, and any officer, director, employee or agent of any of them,
and their respective successors and assigns, from and against any and all
claims, expenses, costs, damages, losses and liabilities (including
reasonable attorneys' fees) which may at any time be asserted against or
suffered by Seller as a result of, on account of or arising from (a) any
breach of any covenant, representation, warranty or agreement on the part
of Purchaser made herein or in any instrument or document delivered
pursuant to this Agreement, and/or (b) any obligation, claims, suit,
liability, contract, agreement, debt or encumbrance or other occurrence
created, arising or accruing after the Closing Date and relating to the
Property or its operations.
15. Brokerage Commission. Purchaser and Seller each recognize First Capital
Realty, Inc. (the "Broker") as the sole agent for this transaction. Any
commission due the Broker in connection with this transaction shall be paid by
Purchaser pursuant to a separate agreement with each Broker. Seller shall not be
obligated to pay for any commission or fee to the Broker. Seller and Purchaser
represent and warrant to each other that no other brokerage fee or real estate
commission is or shall be due or owing in connection with this transaction, and
Seller and Purchaser hereby indemnify and hold the other harmless from any and
all claims of any other broker or agent so claiming based on action or alleged
action of the other.
16. Default Provisions; Remedies.
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(a) Purchaser's Default. If Purchaser fails to consummate the purchase
and sale contemplated herein when required to do so pursuant to the
provisions hereof, then the Title Company shall deliver the Deposit to
Seller as full and complete liquidated damages, and as the exclusive and
sole right and remedy of Seller, whereupon this Agreement shall terminate
and neither party shall have any further obligations or liabilities to any
other party.
(b) Seller's Default. Except for any breaches waived in writing by
Purchaser, if Seller has breached any of its covenants or obligations under
this Agreement or has failed, refused or is unable to consummate the
purchase and sale contemplated herein by the Closing Date or if any of the
representations and warranties made by Seller under this Agreement shall be
inaccurate or incorrect, then Purchaser shall be entitled to (i) waive such
breach, default or failure, (ii) extend the Closing for such reasonable
time or times (but in no event for more than one (1) month from the Closing
Date then in effect) as may be necessary in order to enable Seller to
remedy such breach, default or failure, (iii) terminate this Contract and
obtain the return of the Deposit, and/or (iv) pursue an action for specific
performance. In the event that Purchaser elects to pursue specific
performance and Purchaser prevails in such litigation, Seller shall be
obligated to pay all reasonable legal fees, costs and expenses incurred by
Purchaser.
17. Miscellaneous Provisions.
(a) Completeness and Modification. This Agreement (together with
Exhibits A to I attached hereto, all of which shall be attached within
seven (7) days of the Acceptance Date, to the extent not attached as of the
Acceptance Date) with respect to the transactions contemplated herein, and
it supersedes all prior discussions, understandings or agreements between
the parties. This Agreement shall not be modified or amended except by an
instrument in writing signed by all of the parties hereto.
(b) Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, and their respective successors and
assigns.
(c) Assignment. This Agreement shall not be assignable by Purchaser
without the consent of Seller, provided that this Agreement may be assigned
at Closing without Seller's consent to an entity controlled by, controlling
or under common control with Purchaser. This Agreement shall not be
assignable by Seller.
(d) Waiver; Modification. Failure by Purchaser or Seller to insist
upon or enforce any of its rights hereto shall not constitute a waiver or
modification thereof.
(e) Governing Law. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Virginia.
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<PAGE>
(f) Headings. The headings are herein used for convenience or
reference only and shall not be deemed to vary the content of this
Agreement or the covenants, agreements, representations and warranties
herein set forth, or the scope of any provision hereof.
(g) Continuing Documentation and Access. From and after Closing,
Seller shall afford Purchaser reasonable access to any and all information
in its possession concerning the ownership, use and operation of the
Property (including the right to copy same at the expense of Purchaser) for
purposes of any tax examination or audit or other similar purpose, subject
to the agreements of Purchaser concerning confidentiality set forth herein.
(h) Intentionally Omitted.
(i) Counterparts. To facilitate execution, this Agreement may be
executed in as many counterparts as may be required; it shall be sufficient
that the signature of, or on behalf of, each party, or that the signatures
of the persons required to bind any party, appear on one or more such
counterparts. All counterparts shall collectively constitute a single
agreement.
(j) Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be personally delivered or mailed
by first-class registered or certified mail, return receipt requested,
postage prepaid or delivered by commercial courier, telecopy or overnight
courier (e.g., Federal Express), against receipt, to the addresses
indicated below:
(i) if to Purchaser:
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Attn: William J. Wolfe
Telecopy: (301) 907-4911
with a copy to:
Jeffrey S. Distenfeld, Esquire
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Telecopy: (301) 907-4911
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(ii) if to Seller:
VOL Properties Corporation
c/o Ares Realty Capital, Inc.
1333 Butterfield Road
Suite 400
Downers Grove, IL 60515
Attn: James Postweiler
Telecopy: (708) 663-4615
with a copy to:
c/o Herbert Ehlers
123 North Wacker Drive
Chicago, IL 60606
Telecopy: (312) 701-3103
with a copy to:
Pedersen & Houpt
161 North Clark Street
Suite 3100
Chicago, IL 60601
Attn: Herbert J. Linn
Telecopy: (312) 641-6895
Such notice shall be deemed given ont he date of receipt by the
addressee or the date receipt would have been effectuated if delivery
were not refused. Each party may designate a new address by written
notice to the other in accordance with this Paragraph 17(j).
(k) Business Days. A "business day" shall be Mondays through Fridays,
less and expecting all legal holidays observed by the United States
Government or the Government of the State of Maryland. Any date specified
in this Agreement which does not fall on a business day shall be
automatically extended until the first business day after such date.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Real Estate
Purchase Agreement as of the day and year first written above.
PURCHASER:
----------
FIRST WASHINGTON REALTY
LIMITED PARTNERSHIP
By: First Washington Realty Trust, Inc.,
WITNESS: Its general partner
By: /s/
- ----------------------------------- --------------------------------
William J. Wolfe
President
Date of execution by
Purchaser: September 27, 1996
SELLER:
-------
WITNESS: VOL PROPERTIES CORPORATION
By: /s/
- ----------------------------------- ---------------------------------
Name:
Title:
Date of execution by
Seller: October 3, 1996
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<PAGE>
ACKNOWLEDGE BY TITLE COMPANY
The undersigned Title Company executes this Real Estate Purchase Agreement
solely to acknowledge receipt of the Deposit pursuant to Paragraph 3 hereof and
to evidence its agreement to serve as escrow agent pursuant to the terms of the
foregoing Agreement.
COMMERCIAL SETTLEMENTS, INC.
By: /s/
- ----------------------------------- ---------------------------------
Name:
Title:
Date: October 7, 1996
-------------------------------
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LIST OF EXHIBITS
EXHIBIT A. Legal Description of Land Recitals
EXHIBIT B. Leases and Rent Schedule Section 5(d)
EXHIBIT C. Service Contracts Section 5(e)
EXHIBIT D. Tax Bills Section 5(f)
EXHIBIT E. Intentionally Omitted
EXHIBIT F. Form of Tenant Estoppel Section 5(i)
EXHIBIT F-1 Tenant Estoppels Section 8(a)(viii)
EXHIBIT G. Intentionally Omitted
EXHIBIT H. Operating Statements and Operating Budget Section 5(p)
EXHIBIT I. Personal Property Section 5(r)
[Seller to Attach Foregoing at Acceptance of this Agreement]
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
<PAGE>
EXHIBIT B
LEASES AND RENT SCHEDULE
<PAGE>
EXHIBIT C
SERVICE CONTRACTS
<PAGE>
EXHIBIT D
TAX BILLS
<PAGE>
EXHIBIT E
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT F
[Form of Tenant Estoppel]
ESTOPPEL CERTIFICATE
, 199
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Re: Four Mile Fork Shopping Center
Lease dated 19 , with [name of Tenant]
----------------------------------------------------------
Gentlemen:
Please be advised that the undersigned tenant hereby certifies as of
the date hereof as follows with respect to the Lease:
Name of Tenant:
Description of Leased Premises:
Date of Commencement of Lease:
Date of Termination of Lease:
Options to Renew:
Base Rental: Annual Rental of $ , payable monthly in advance.
-------------
Real Estate Tax Charges: pro rata: yes no.
Percentage Rent: % of Gross Receipts over $
------
Common Area Maintenance Charges: pro rata: yes no.
Tenant in possession of the premises under the Lease?: Yes
The Lease is unmodified and in full force and effect except for modifications,
listed by number and date on Exhibit A attached hereto.
Amount of rent paid in advance: $
Amount of Security Deposit: $
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<PAGE>
Compliance with Construction Requirements: Landlord has complied with all
construction requirements of Tenant, and Tenant has accepted all of the leased
premises under the Lease.
Tenant has not made any claims against Landlord and has no knowledge of any
uncured default on the part of Landlord (If there is knowledge of any uncured
default, please note and attach separate sheet).
Tenant's Right to Purchase: Tenant has no option or right in the nature of a
right of first refusal to purchase or otherwise acquire any interest in the
leased premises.
Tenant's Right of Premature Termination or Option to Renew: Tenant has no right
to premature termination and no right or option to renew or extend the term
beyond its present term and no option to lease additional space, except as
expressly set forth in the Lease.
TENANT:
[Name of Tenant]
By:
Name:
Title:
STATE OF )
) ss:
COUNTY OF )
Signed and sealed in my presence this day of , 199 .
---- ------------ ---
Notary Public
[SEAL]
My Commission Expires:
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<PAGE>
EXHIBIT F-1
TENANT ESTOPPELS
o Safeway 31,238 s.f.
o CVS/Pharmacy 11,025 s.f.
o Fashion Bug 7,000 s.f.
o Merchant's Tire 5,080 s.f.
54,343 s.f.
o Tenant's occupying at least 80% of
the remaining space at the Property.
[(96,720 s.f. - 54,343 s.f.) x 80% = 33,902 s.f.]
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<PAGE>
EXHIBIT G
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT H
OPERATING STATEMENTS AND OPERATING BUDGET
<PAGE>
EXHIBIT I
PERSONAL PROPERTY
NONE
EXHIBIT 10.52
REAL ESTATE PURCHASE AGREEMENT
THIS REAL ESTATE PURCHASE AGREEMENT is made and entered as of September
23, 1996, by and between (I) NEWTOWN SQUARE ASSOCIATES, L.P., a Pennsylvania
limited partnership (hereinafter referred to as "Seller") and (ii) FIRST
WASHINGTON REALTY LIMITED PARTNERSHIP or its assignees (hereinafter referred to
as "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the record and beneficial owner of all that certain
real property located in Newtown Square, Delaware County, Pennsylvania, as more
particularly described on Exhibit A attached hereto (the "Land"), together with
a shopping center containing approximately 137,569 square feet of rentable area
and all other buildings and improvements situated thereon (collectively, the
"Building"), all personal property and fixtures located therein (the
"Personalty"), and all appurtenances, rights, easements, rights-of-way,
tenements and hereditaments incident thereto (the "Additional Property") (the
Land, Building, Personalty and Additional Property are hereinafter collectively
referred to as the "Property"); and
WHEREAS, Purchaser desires to purchase the Property from Seller and
Seller desires to sell and transfer the same to Purchaser.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Purchase and Sale. Purchaser agrees to buy and Seller agrees to sell
and convey the Property for and in consideration of the purchase price and upon
the terms and conditions set forth herein.
2. Purchase Price. The Purchase Price shall be paid as follows:
(a)(i) $7,700,000.00 or such lesser amount which represents
the outstanding principal balance with respect to the Prudential Loan (as
hereinafter defined) as of Closing (the "Actual Loan Amount"), by Purchaser
assuming the Prudential Loan as described below.
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<PAGE>
(ii) a sum equal to $11,700,000.00 minus the Actual Loan
Amount, as adjusted for closing or other adjustments herein provided, by cash or
wire transfer of immediately available federal funds, as Seller may direct at
Closing.
(b)(i) The Property is presently encumbered by a Mortgage and
Security Agreement ("Mortgage") from the Seller, as debtor, for the benefit of
Prudential Insurance Company of America, as secured party (the "Lender"), which
Mortgage secures an original principal indebtedness of $7,700,000.00 with
interest thereon payable over the term thereof (which ends on September 15,
2005) at a fixed interest rate of 7.77% per annum, as evidenced by a Mortgage
Note from Seller to Lender ("Note"). The Mortgage and Note and all documents and
instruments executed in connection therewith are collectively referred to as the
"Prudential Loan". The Prudential Loan is non-recourse to the Seller and
requires equal monthly installments of principal and interest in the amount of
the $55,270.00 per month. The outstanding principal balance under the Prudential
Loan as of the date hereof is approximately $7,682,246.67. Copies of the
Mortgage and Note are attached hereto as Exhibits J and K, respectively.
(ii) Purchaser's obligations under this Agreement shall be
expressly contingent on the condition that Seller obtains for and delivers to
Purchaser by Closing a letter (the "Letter") from Lender (i) permitting
Purchaser to assume the Prudential Loan, at no cost to Purchaser (other than an
assumption fee of up to 1% of the then outstanding balance of the Prudential
Loan) and on the same terms and conditions as presently exist, except that the
Lender shall release the Property from the lien of any other Prudential loans
that presently exist with Seller, (ii) confirming that the Prudential Loan is as
described above, (iii) certifying that, to the best knowledge of Lender, there
is no default, or event which with notice or lapse of time, or both, would
constitute a default under the Prudential Loan. At Closing, Seller shall execute
an estoppel certificate in favor of Purchaser certifying that, to the best
knowledge of Seller, there is no default, or event which with notice or lapse of
time, or both, would constitute a default under the Prudential Loan. Seller
shall use commercially reasonable efforts to deliver to Purchaser such Letter
from Lender before the end of the Feasibility Period (as defined below),
provided that Purchaser shall reasonably cooperate with Seller and Prudential
and shall deliver such financial information or execute such documents as
Prudential may reasonably request including, but not limited to, an Assumption
of Mortgage Loan Documents. If such Letter is not received by Purchaser by
Closing, Purchaser shall have the right to terminate this Agreement, in which
event the Deposit (as defined below), together with interest thereon, shall be
returned to Purchaser. If Lender denies the assumption of the Prudential Loan by
Purchaser or if Lender's Letter is other than as set forth above and is not
reasonably acceptable to Purchaser, Purchaser shall have the right, at its sole
election, to terminate this Agreement by giving written notice thereof to Seller
within ten (10) days thereafter, whereupon the Deposit, together with interest
thereon, shall be returned to Purchaser and neither party shall
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<PAGE>
have any further liability to the other. If Purchaser does not terminate this
Agreement as aforesaid, this Agreement shall continue in full force and effect.
3. Deposit.
(a) Within one (1) business day after the date of delivery to
Purchaser of an original of this Agreement executed by Seller, together with
completed Exhibits hereto (the date of such delivery by Seller being the
"Acceptance Date"), Purchaser shall deliver to Commercial Settlements, Inc.,
1413 K Street, N.W., Washington, DC 20005 (the "Title Company"), as escrow
agent, a deposit (the "Initial Deposit") of One Hundred Thousand Dollars
($100,000.00) by a check payable to the Title Company.
(b) In the event that Purchaser elects to extend the Closing
Date pursuant to Section 4(b) hereof, then, on the date of such election,
Purchaser shall deliver to the Title Company, as escrow agent, an additional
deposit (the "Extension Deposit") of Thirty Thousand Dollars ($30,000.00) by
check payable to the Title Company.
(c) The Initial Deposit and the Extension Deposit and all
accrued interest thereon are hereinafter referred to collectively as the
"Deposit". The Title Company will immediately provide Seller with written
evidence of receipt of such Deposit. The Title Company shall place the Deposit
in an interest-bearing account within one (1) business day after the date of
receipt thereof, and interest on the Deposit shall accrue to the benefit of the
party entitled to receive the Deposit hereunder. The Deposit shall be held by
the Title Company pursuant to the terms and conditions of this Agreement.
(d) In the event that, at any time prior to Closing, Seller or
Purchaser provides Title Company with a certification (a copy of which shall be
delivered contemporaneously to the other party) that the Seller or Purchaser, as
the case may be, is entitled to the Deposit pursuant to the terms of this
Agreement, Title Company shall deliver the Deposit to such party within five (5)
business days after receipt of said notice and upon 24-hours prior written
notice to each party, unless the other party disputes such certification by
written notice to Title Company (a copy of which shall be delivered
contemporaneously to the other party) delivered within three (3) business days
of Title Company's receipt of the initial certification. In such event, Title
Company shall hold the Deposit pending resolution of such dispute.
(e) The parties acknowledge that Title Company is acting
solely as a stakeholder at their request and for their convenience, that Title
Company shall not be deemed to be the agent of either of the parties, and Title
Company shall not be liable to either of the parties for any act or omission on
its part unless taken or suffered in bad faith, in willful disregard to this
Agreement or involving gross negligence. Seller and
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<PAGE>
Purchaser shall jointly and severally indemnify and hold Title Company harmless
from and against all costs, claims and expenses, including reasonable attorneys'
fees, incurred in connection with the performance of Title Company's duties
hereunder, except with respect to actions or omissions taken or suffered by
Title Company in bad faith, in willful disregard of this Agreement or involving
gross negligence on the part of Title Company.
4. Closing.
(a) Closing. Except as otherwise provided in this Agreement,
the purchase and sale contemplated herein shall be consummated at the "Closing",
which shall take place on the date (the "Closing Date") specified by Purchaser
on not less than ten (10) days notice to Seller, provided that the Closing Date
shall not be later than thirty (30) days after the end of the Feasibility Period
(as defined and described in Section 13(b) hereof). The Closing shall take place
at the offices of the Seller, or at such other place as may mutually agreed upon
by Seller and Purchaser.
(b) Extension of Closing. Notwithstanding the provisions
contained in Section 4(a), Purchaser may extend the Closing Date to a date not
later than sixty (60) days after the end of the Feasibility Period by (i)
delivery of the Extension Deposit to the Title Company as set forth in Section
3(b) above, and (ii) notifying Seller in writing, no later than five (5) days
before the original Closing Date, of Purchaser's intention to exercise said
right.
5. Representations and Warranties of Seller. In order to induce
Purchaser to enter into this Agreement and to purchase the Property, Seller
hereby makes the following representations and warranties, each of which shall
survive Closing for a period of one (1) year (unless expressly provided that it
will survive Closing without time limitation):
(a) Authority of Seller. Seller is a limited partnership duly
organized and existing and in good standing under the laws of the State of
Delaware. Seller has all necessary power and authority and has taken all
necessary partnership or corporate action to execute, deliver and perform this
Agreement and consummate all of the transactions contemplated by this Agreement.
This Agreement is the valid and binding obligation of Seller, enforceable
against it in accordance with its terms.
(b) Title. Seller is the sole owner of fee simple title to the
Property with the authority to sell and convey the Property to Purchaser without
the consent of any other party, and such title is marketable and good of record
and, to the best of Seller's knowledge, free and clear of all liens,
encumbrances, covenants, conditions, restrictions
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<PAGE>
and other matters affecting title, except for the Permitted Exceptions (as
defined in Section 8(a)(iii)).
(c) Compliance with Existing Laws. To the best of Seller's
knowledge, the present use of the property is not in violation of applicable
zoning laws and ordinances. To the best of Seller's knowledge, there does not
exist any notice of an uncorrected violation of the housing, building, safety or
fire ordinances.
(d) Leases. True, correct and complete copies of all of the
leases of the Property and any amendments thereto (collectively, the "Leases")
have been delivered to Purchaser. Attached hereto as Exhibit B is a description
of all of the Leases and a current rent schedule ("Rent Schedule") covering the
Leases. There are no leases or tenancies of any space in the Property other than
those set forth in Exhibit B or any subleases or subtenancies unless otherwise
noted therein. Except as otherwise set forth in the Leases in Exhibit B or
elsewhere in this Agreement:
(i) The Leases are in full force and effect and are
assignable by Seller to Purchaser;
(ii) no tenant has an option to purchase the
Property;
(iii) no renewal or expansion options have been
granted to the tenants;
(iv) to the best of Seller's knowledge, Seller is not
in default under the Leases;
(v) the rents set forth on the Rent Schedule are
being collected on a current basis and there are no arrearages
in excess of one month (other than as noted thereon) nor has
any tenant paid any rent, additional rent or other charge of
any nature for a period of more than thirty (30) days in
advance;
(vi) all work for tenant alterations and other work
or materials contracted for by Seller and any tenant has been
completed, and all work and materials have been fully paid
for;
(viii) Seller has not sent written notice to any
tenant claiming that such tenant is in default, which default
remains uncured, and to the best of Seller's knowledge, no
tenant is in default under its Lease;
(ix) there are no security deposits other than those
set forth in Exhibit B.
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<PAGE>
(e) Service Contracts. Except as set forth in Exhibit C, to
the best of Seller's knowledge there are no service contracts relating to the
management, leasing, operation, maintenance or repair of the Property (the
"Service Contracts"). True and correct copies of all of the Service Contracts
have been delivered to Purchaser. No Service Contract which Purchaser notifies
Seller that it agrees to assume will be terminated, amended, modified or
supplemented prior to the Closing Date without Purchaser's prior written
approval; otherwise, Service Contracts will be terminated as of the Closing
Date.
(f) Tax Bills. Attached hereto as Exhibit D are true and
correct copies of tax bills issued by any applicable federal, state or local
governmental authority to Seller with respect to the Property for the most
recent past and current tax years, and any new assessment received with respect
to a current or future tax year.
(g) Insurance. Attached hereto as Exhibit E are certificates
of all hazard, liability and other insurance policies presently affording
coverage with respect to the Property. Seller shall maintain in full force and
effect all such policies until the Closing Date and shall cause its insurer to
name Purchaser as an additional insured as a contract party on its rent loss
policy with respect to the Property.
(h) Condition. Possession of Property shall be delivered to
Purchaser at Closing in "as is, where is" condition as of the date of
Purchaser's execution of this Agreement, and Purchaser is relying solely on its
own investigations, inspections and business judgment as to the condition of the
Property.
(i) Intentionally Omitted.
(j) Condemnation Proceedings. Seller has received no written
notice of any condemnation or eminent domain proceedings are pending or, to the
best of Seller's knowledge, threatened against the Property or any part thereof,
and Seller has made no commitments to and has received no written notice of the
desire of any public authority or other entity to take or use the Property or
any part thereof whether temporarily or permanently, for easements,
rights-of-way, or other public or quasi-public purposes.
(k) Litigation. Except as provided in Exhibit L, no litigation
is pending or, to the best of Seller's knowledge, threatened, including
administrative actions or orders relating to governmental regulations, affecting
the Property or any part thereof or Seller's right to sell the Property.
(l) No Defaults. Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will, except for the
Prudential Loan,: (i) conflict with, or result in a breach of, the terms,
conditions or provisions of, or
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<PAGE>
constitute a default under, any agreement or instrument to which Seller is a
party or by which the Property is bound, (ii) violate any restriction,
requirement, covenant or condition to which the Seller is subject or by which
the Property is bound, (iii) constitute a violation of any applicable code,
resolution, law, statute, regulation, ordinance, rule, judgment, decree or
order, or (iv) result in the cancellation of any lease pertaining to the
Property.
(m) Hazardous Waste. Except as provided in environmental
reports delivered by Seller to Purchaser, Seller has no knowledge of any
discharge, spillage, uncontrolled loss, seepage or filtration (a "Spill") of
oil, petroleum or chemical liquids or solids, liquid or gaseous products or any
hazardous waste or hazardous substance (as those terms are used in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery Act of 1976, as amended, or in
any other applicable federal, state or local laws, ordinances, rules or
regulations relating to protection of public health, safety or the environment,
as such laws may be amended from time to time) at, upon, under or within the
Land or any contiguous real estate. To the best of Seller's knowledge, there is
no proceeding or action pending or threatened by any person or governmental
agency regarding the environmental condition of the Property.
(n) Certificates of Occupancy. To the extent available,
attached hereto as Exhibit G are true and correct copies of the certificates of
occupancy for all of the Property. Seller will not amend such certificates and
will maintain them in full force and effect.
(o) Licenses and Permits. Seller has received no notice, nor
has any knowledge, that it is lacking any required permit or license (the
"Licenses") which are necessary for the ownership and operation of the Property.
(p) Operating Statements. Attached hereto as Exhibit H are
true and correct copies of the year-end operating statements of the Property for
1993, 1994, 1995 and, if audited, such operating statements fairly present the
operating results of the Property for the periods indicated. Also attached as
Exhibit H is a copy of the 1996 operating budget detailed as to amounts by month
and operating department in reasonably sufficient detail.
(q) Personal Property. Attached hereto as Exhibit I is a true,
correct and complete inventory of all personal property ("Personal Property"),
if any, used in the management, maintenance and operation of the Property (other
than trade fixtures or personal property of tenants).
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<PAGE>
For the purposes of the representations and warranties of Seller set
forth in this Agreement, the words "to the best of Seller's knowledge" or
"knowledge" shall be limited to being the actual knowledge and information (as
distinguished from, and shall exclude, constructive knowledge or receipt of
constructive notice) of those persons currently employed by Seller or its
affiliates who are responsible for the current management and operation of the
Property, and shall not include any information which Seller or its agents,
counsel, directors, officers or employees, management companies or leasing
agents, as a reasonably prudent person, should reasonably have known, and shall
expressly exclude any state of facts or matters of which Purchaser has actual
knowledge as of the Closing Date (provided that such inaccuracy of any
representation was not due to the willful misconduct or bad faith of Seller).
6. Obligations of Seller Pending Closing. From and after the date of
this Agreement through the Closing Date, Seller covenants and agrees as follows:
(a) Maintenance and Operation of Premises. Seller will cause
the Property to be maintained in its present order and condition, normal wear
and tear excepted, and will cause the continuation of the normal operation
thereof, including the repair of fixtures and equipment, and the continuation of
the normal practice with respect to maintenance and repairs so that the Property
will, except for normal wear and tear, be in substantially the same condition on
the Closing Date as of the Acceptance Date.
(b) Licenses. Seller shall use commercially reasonable efforts
to preserve in force all Licenses and to cause those expiring to be renewed.
(c) Changes in Representations. Seller shall notify Purchaser
promptly, and Purchaser shall notify Seller promptly, if either becomes aware of
any occurrence prior to the Closing Date which would make any of its
representations, warranties or covenants contained herein not true in any
material respect.
(d) Obligations as to Leases. From the Acceptance Date to the
expiration of the Feasibility Period provided for in Section 13, Seller shall
have the right to enter into new leases for space at the Property ("New
Lease(s)") or to amend, modify, renew, supplement or extend any Lease in any
respect or approve any assignment of leases or subletting of leased space, or
terminate any Lease (with respect to any provision amending, modifying,
renewing, supplementing or extending, etc. above, "Amended Lease(s)"), and as to
any Amended or New Leases entered into by the Seller during this period, the
Seller shall give Purchaser notice (including therewith copies of the New Leases
and all relevant data related to the particular Amended or New Lease) of such
Amended and/or New Leases within three (3) days after the entry into any Amended
or New Lease, but, in any event, not later than seven (7) days prior to the
expiration of the Feasibility Period. After the expiration of the
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<PAGE>
Feasibility Period, Seller shall not, without Purchaser's prior written consent
(which consent shall not be unreasonably withheld or delayed), amend, modify,
renew or extend any Lease in any respect unless required by law, or enter into
new leases or approve any assignment of leases or subletting of leased space, or
terminate any Lease. Seller hereby further agrees that if any space is vacant on
the Closing Date, Purchaser shall accept the Property subject to such vacancy,
provided that the vacancy was not permitted or created by Seller in violation of
any restrictions contained in this Agreement. Prior to Closing, Seller shall not
apply all or any part of the security deposit of any tenant unless such tenant
has vacated the Property or defaulted under its Lease.
(e) Tenant Estoppel. Seller shall use commercially reasonable
efforts to obtain and deliver to Purchaser within thirty (30) days after the
expiration of the Feasibility Period, a tenant estoppel letter substantially in
the form attached hereto as Exhibit F (or such other form as required by
Purchaser's mortgage lender or required by such tenant) from each of the tenants
of the Property.
7. Representations and Warranties of Purchaser. In order to induce
Seller to enter into this Agreement and to sell the Property, Purchaser hereby
makes the following representations and warranties, each of which is material
and shall survive Closing, notwithstanding any investigation at any time made by
or on behalf of Seller:
(a) Authority of Purchaser. Purchaser is a limited partnership
duly organized and existing and in good standing under the laws of the State of
Maryland. Subject to the approval of the Board of Directors of FWRT which must
occur before the expiration of the Feasibility Period, Purchaser has all
necessary power and authority to execute, deliver and perform this Agreement and
consummate all of the transactions contemplated by this Agreement. Subject to
the approval of the Board of Directors of FWRT which must occur before the
expiration of the Feasibility Period, this Agreement is the valid and binding
obligation of Purchaser, enforceable against it in accordance with its terms.
(b) No Defaults. Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will: (i) conflict
with, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, any agreement or instrument to which Purchaser is a
party, (ii) violate any restriction, requirement, covenant or condition to which
Purchaser is subject, and (iii) constitute a violation of any applicable code,
resolution, law, statute, regulation, ordinance, rule, judgment, decree or
order.
(c) Purchaser shall not contact any tenant of the Property
without the consent of Seller.
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<PAGE>
(d) If this Agreement shall be terminated by either party,
Purchaser shall delivery to Seller (at Seller's request and without cost to
Seller) copies of applications, licenses, permits, plans, drawings, surveys,
reports, studies, tests, analyses and other documents obtained by Purchaser from
third parties with respect to the Property.
8. Conditions Precedent to Closing.
(a) It shall be a condition precedent of Purchaser's
obligation to make a full settlement hereunder that each and every one of the
following conditions shall exist on the Closing Date:
(i) Representations and Warranties. Seller's
representations and warranties hereunder shall be true and
correct in all material respects in the same manner and with
the same effect as though such representations and warranties
had been made on and as of the Closing.
(ii) Zoning. No proceedings shall have occurred or
be pending to change, redesignate or redefine the zoning
classification of the Property to a more restrictive
classification than presently exists on the date of
Purchaser's execution of this Agreement.
(iii) Title. Title to the Property shall be
marketable, good of record, and insurable by the Title
Company, pursuant to a full coverage ALTA Form-B (Rev. 1992)
owner's title insurance policy in the amount of the Purchase
Price (or an unconditional commitment therefor) without any
exceptions ("Printed form" or otherwise) other than the
Permitted Exceptions, and in addition, providing affirmative
coverage insuring against any mechanic's or materialmen's lien
arising from goods, labor or materials provided to the
Property prior to the Closing Date. The "Permitted Exceptions"
are:
(A) the lien of current real estate taxes
and special assessments not yet due and payable; and
(B) such matters set forth in Exhibit M
attached hereto and such other matters which are not
reasonably unacceptable to Purchaser under this
subsection (B). Promptly after the date of execution
of this Agreement by Seller, Purchaser shall, at its
sole cost and expense, request an interim title
binder from the Title Company and within ten (10)
days after receipt thereof shall notify Seller of any
reasonable objection of any exceptions to title to
the Property which are unacceptable to Purchaser,
which is not set
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<PAGE>
forth on Exhibit B. If Purchaser fails to make an
objection within the aforementioned ten (10) day
period, all items shown on the title binder shall be
deemed Permitted Exceptions and Purchaser shall take
title to the Property subject thereto. Seller may, at
its sole option and its sole expense, correct such
conditions at least thirty (30) days prior the
Closing Date; provided however, that notwithstanding
anything to the contrary, Seller shall, at or prior
to Closing, cause all mortgages (other than the
Prudential Loan), deeds of trusts, financing
statements, mechanics liens, judgement liens and
other matters that may be satisfied by a liquidated
sum to be satisfied and released of record or bonded
over or to provide an indemnity or other assurance to
the Title Company so as to permit the Title Company
to issue the owner's title insurance policy required
above (provided Seller is diligently pursuing
resolution of such encumbrances). If Seller elects to
eliminate any such exceptions, Seller may extend the
Closing Date for an additional reasonable period of
time, not to exceed thirty (30) days from the Closing
Date. If Seller is unable or does not desire to
eliminate any of the exceptions, Seller shall notify
Purchaser within five (5) days; otherwise Seller
shall be deemed to have elected to eliminate such
exceptions. Upon receipt of such notice, Purchaser
shall have the option to either (i) to terminate this
Agreement, (ii) to close on the purchase of the
Property and waive such defects in title. In the
event of termination of this Agreement, Seller and
Purchaser shall be relieved of all liabilities under
this Agreement and the Deposit shall be returned to
Purchaser. If Purchaser does not terminate this
Agreement, Purchaser shall be deemed to have waived
all objections to such matters.
(iv) Existing Mortgages. Seller shall have delivered
to the Title Company such releases or other instruments
necessary to release of record and beneficially any and all
existing mortgages, deeds of trust, financing statements or
other security documents affecting the Property, other than
the Prudential Loan (collectively, the "Existing Mortgages").
(v) Leasing Brokerage and Property Management
Agreements. Seller shall have terminated any and all leasing
brokerage and property management agreements with respect to
the Property effective as of the Closing. Except as provided
in Section 11(e), all responsibility for dealings with any
such brokers, including the payment of any claims (if deemed
warranted by Seller) shall be the sole responsibility of
Seller. Seller agrees that it will indemnify and hold
Purchaser, its successors, assigns, partners, agents and
employees, harmless against any such
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claims and/or losses which might be incurred by such
indemnitees in connection with any additional and/or
contingent leasing commissions or fees or management fees. The
provisions of this subparagraph (vi) shall survive Closing
without time limitation.
(vi) Performance by Seller. Seller shall have
complied with and not be in breach of any of its covenants or
obligations under this Agreement.
(vii) Tenant Estoppels. Purchaser shall have received
a tenant estoppel letter substantially in the form attached
hereto as (A) Exhibit F from, at a minimum tenants satisfying
the requirements described on Exhibit F-1 (or from such
tenants and in such form as required by Purchaser's mortgage
lender), confirming the information set forth in Section 4(d)
and in the Lease and Rent Schedule attached hereto as Exhibit
B for such tenants and containing no material changes from the
Rent Schedule, and (B) any subordination and attornment
agreements required by Purchaser's mortgage lender.
(viii) FWRT Board Approval. The Board of Directors of
FWRT shall have approved this Agreement and the transactions
contemplated hereby. In the event that the aforesaid condition
is not satisfied by the end of the Feasibility Period,
Purchaser may elect to terminate this Agreement by giving
Seller written notice thereof before the expiration of the
Feasibility Period in which event the Deposit and any interest
thereon shall be returned to Purchaser and neither party shall
have any further obligations or liabilities to the other.
(b) Failure of Condition. In the event of the failure by the
Closing Date of any condition precedent set forth above, then Purchaser, at its
sole election, may (a) terminate this Agreement, in which event the Deposit and
any interest thereon shall be returned to Purchaser and, except as otherwise
provided in Paragraph 16 hereof, neither party shall have any further
obligations or liabilities to the other; or (b) waive such conditions and
proceed to Closing.
(c) It shall be a condition precedent of Seller's obligation
to make a full settlement hereunder that each and every one of the following
conditions shall exist on the Closing Date.
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<PAGE>
(i) Representations and Warranties. Purchaser's
representations and warranties hereunder shall be true and
correct in all material respects in the same manner and with
the same effect as though such representations and warranties
has been made on and as of the Closing
9. Seller's Deliveries. Seller shall execute, acknowledge and deliver
to Purchaser at the Closing the following documents, dated on the Closing Date:
(a) a special warranty deed, in form and substance
satisfactory to Title Company, conveying good and marketable fee simple title to
the Property, free and clear of all liens, encumbrances, easements and
restrictions except for the Permitted Exceptions;
(b) a bill of sale which shall convey to Purchaser good title
to all the Personalty, free and clear of all liens and encumbrances;
(c) an affidavit setting forth that all of Seller's
representations and warranties are true and correct in all material respects on
the Closing Date;
(d) an assignment and assumption of the Leases and security
deposits, together with all originally executed Leases, and the security
deposits shall be assigned to Purchaser;
(e) an assignment and assumption of Licenses, permits and
Service Contracts, if any, which are to be assumed by Purchaser at Purchaser's
request, together with the originally executed Service Contracts which are to be
assumed;
(f) a schedule updating the Rent Schedule and setting forth
all arrearages in rents and all prepayments of rents;
(g) copies of books, records, operating reports, files and
other materials related to the ownership, use and operation of the Property, to
the extent that any exist and are in the possession of Seller, which obligation
shall survive Closing;
(h) Tenant estoppel letters as required in Section 8(a)(vii);
(i) an original letter executed by Seller advising the tenants
of the sale of the Property to Purchaser and directing that rents and other
payments thereafter be sent to Purchaser or as Purchaser may direct;
(j) possession of the Property in the condition required by
this Agreement, and the keys therefore;
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<PAGE>
(k) the Certification of Non-foreign Status as provided in
Treas. Reg. 1.1445-2T(b)(2)(iii)(B) or in any other form as may be required by
the Internal Revenue Code or the regulations issued thereunder;
(l) such other items and instruments, at no additional cost or
expense to Seller, as shall be required by the Title Company in connection with
the issuance of its title insurance policy to Purchaser pursuant to Section
8(a)(iii) (including customary Seller's or owner's affidavit);
(m) any and all documents necessary to release the cash
constituting the Deposit from escrow with the Title Company and to have said
cash returned to Purchaser; and
(n) any other documents required by this Agreement to be
delivered by Seller.
10. Purchaser's Performance. At Closing, simultaneously with the
deliveries of Seller pursuant to the provisions of Paragraph 9, Purchaser shall
pay to Seller the Purchase Price in the manner specified in Paragraph 2,
whereupon the Deposit, and any interest accrued thereon, shall be returned to
Purchaser by the Title Company or, at the option of Purchaser, shall be applied
against the payment of Purchase Price. Purchaser shall also execute and deliver
to Seller an assignment and assumption of Leases and such other documents
reasonably requested to effectuate the purposes of this transaction.
11. Settlement Charges; Prorations and Adjustments. Purchaser shall pay
for the title examination, the title insurance premium, notary fees, recording
fees (i.e., per page charges) and other such charges incident to Closing. The
cost of preparation of the deed for the Property shall be borne by Seller. Any
real estate transfer taxes in connection with this transaction shall be borne
equally by Seller and by Purchaser. Purchaser and Seller shall each pay its own
legal fees related to the preparation of this Agreement and all documents
required to settle the transaction contemplated hereby. Provided, however, that
in the event Purchaser is permitted to and does assign its rights under this
Agreement and such assignee makes additional payments of any kind in connection
with such assignment of this Agreement, Purchaser shall be solely responsible
for any additional transfer taxes assessed as a result thereof and Purchaser
shall pay such additional taxes at settlement and recording of the deed; Seller
shall have no liability for any taxes assessed based on any consideration
greater than the Purchase Price, and Purchaser shall indemnify Seller for any
such additional taxes. In addition to the foregoing, at the Closing, the
following adjustments and prorations shall be computed as of the Closing Date
and the Purchase Price shall be adjusted to reflect such prorations, as follows:
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(a) Taxes. Real estate and personal property taxes shall be
apportioned as of the Closing Date.
(b) Assessments. All special assessments and other similar
charges which have become a lien upon the Property or any part thereof and are
due and payable on or before the last day of the Feasibility Period, if any,
shall be paid in full by Seller at the Closing. All other special assessments or
similar charges shall be adjusted as of the Closing Date, if possible;
otherwise, they shall be the responsibility of Purchaser after Closing.
(c) Rent. Rent for the month of Closing and any month after
Closing collected by Seller prior to Closing shall be apportioned as of the
Closing Date. If any tenant is in arrears in the payment of rent on the Closing
Date, rents received from such tenant after the Closing shall be applied in the
following order of priority: (a) first, to the payment of current rent then due;
(b) second, to delinquent rent for any period after the Closing Date; and (c)
third, to delinquent rent for any period prior to the Closing Date. Such
delinquent rent shall be paid to Seller within thirty (30) days of receipt by
Purchaser. Purchaser does not guarantee or undertake any obligation to sue or
take other action for collection of arrearages in rents due from tenants as of
the Closing Date; provided, however, Seller shall have the right to pursue and
collect such delinquent rents by any remedies available to it at law or equity.
If rents or any portion thereof received by Seller or Purchaser after the
Closing Date are payable to the other party by reason of this allocation, the
appropriate sum, less a proportionate share of any reasonable attorneys' fee,
costs and expenses of collection thereof, if any, shall be promptly paid to the
other party, which obligation shall survive the Closing.
If any tenants are required to pay percentage rents,
escalation charges for real estate taxes, operating expenses, cost-of-living
adjustments or other charges of a similar nature ("Additional Rents") and any
Additional Rents are collected by Purchaser after the Closing which are
attributable in whole or in part to any period prior to the Closing, then
Purchaser shall promptly pay to Seller Seller's proportionate share thereof,
less a proportionate share of any reasonable attorneys' fees, costs and expenses
of collection thereof, if any, if and when the tenant paying the same has made
such payments of Additional Rent then due to Purchaser pursuant to the tenant's
Lease, which obligation shall survive the Closing.
(d) Miscellaneous. All other charges and fees customarily
prorated and adjusted in similar transactions, including utilities, insurance
premiums and charges for Service Contracts to be assumed by Purchaser, shall be
prorated as of the Closing Date. In the event that accurate prorations and other
adjustments cannot be made at Closing because current bills are not obtainable
or the amount to be adjusted is not yet ascertainable (as, for example, in the
case of utility bills) the parties shall prorate on the best available
information, subject to further adjustment promptly upon receipt of the
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final bill or upon completion of final computations. Seller agrees that an
appropriate amount in respect of water consumption charges may be held in escrow
by the Title Company in connection with its issuance of a title insurance policy
to Purchaser. Seller shall use commercially reasonable efforts to have all
utility meters read on the Closing Date so as to accurately determine its share
of current utility bills.
(e) Seller shall be reimbursed at the Closing for the full
amount of any leasing commissions or tenant improvement costs paid by Seller
pursuant to any new, expanded or renewed lease for space in the Property
executed by Seller after the date of this Agreement and consented to by
Purchaser pursuant to this Agreement.
12. Risk of Loss. The risk of loss or damage to the Property by fire or
other casualty until recordation of the deed of conveyance shall be borne by
Seller. If prior to Closing (i) condemnation proceedings are commenced against
all or any portion of the Property, or (ii) if the Property is damaged by fire
or other casualty to the extent that the cost of repairing such damage shall be
One Hundred Thousand Dollars ($100,000.00) or more, or (iii) if the Property is
damaged by an uninsured risk, or (iv) the Property becomes subject to litigation
which may deprive Purchaser of any material benefit to which it would become
entitled pursuant to this Agreement, then Purchaser shall have the right, upon
notice in writing to the Seller delivered within thirty (30) days after actual
notice of such condemnation or fire or other casualty or litigation, to
terminate this Agreement, and thereupon the parties shall be released and
discharged from any further obligations to each other and the discharged from
any further obligations to each other and the Deposit shall be refunded to
Purchaser. If Purchaser does not elect to terminate this Agreement, or in the
event of fire or other casualty not giving rise to a right to terminate this
Agreement by Purchaser, this Agreement shall continue in full force and effect
and the Purchaser Price shall not be reduced except as hereinafter set forth,
but Purchaser shall be entitled to an assignment of all of Seller's share of the
proceeds of fire or other casualty insurance and rent insurance proceeds payable
with respect to the period after Closing or of the condemnation award, as the
case may be, and Seller shall have no obligation to repair or restore the
Property; provided, however, that the Purchase Price shall be reduced (but only
if the total insurance proceeds are less than the Purchase Price) by an amount
equal to (a) the "deductible" applied by Seller's insurance policy, or (c) if
Seller is self-insured, the cost of repairing such damage. If Purchase elects
not to terminate this Agreement, Purchaser shall have the right to participate
in the negotiation and settlement of any litigation, casualty or
condemnation-related claim.
13. Inspection of Property.
(a) Purchaser's Right of Inspection. Purchaser shall have the
right, at its own risk, cost and expense, at any time or times prior to Closing
(upon at least 24 hours prior verbal notice to Seller and during reasonable
hours and with a
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representative of Seller, if required by Seller), to enter, or cause its agents
or representatives to enter, upon the Property for the purpose of making
surveys, or any tests, investigations and/or studies relating to the Property or
Purchaser's intended acquisition thereof which Purchaser deems appropriate, in
its sole discretion. Purchaser shall further have complete access to all
documentation, agreements and other information in the possession of Seller
related to the ownership, use and operation of the Property, to the extent it is
readily available to Seller, and shall have the right to make copies of same.
(b) Feasibility Period. Any other provisions of this Agreement
to the contrary notwithstanding, Purchaser may, prior to the expiration of sixty
(60) days after the Acceptance Date (such 60-day period herein referred to as
the "Feasibility Period"), cause at Purchaser's sole cost and expense, such
boring, engineering, economic, water, sanitary and storm sewer, utilities,
topographic, structural, environmental and other tests, investigations, market
studies and other studies as Purchaser shall elect; provided, however that any
intrusive testing by Purchaser (such as soil borings, and the like) shall be
subject to Seller's prior reasonable consent. In the event that any of such
tests, investigations and/or studies indicate, in Purchaser's sole and absolute
discretion, that Purchaser's plans for the Property would not be feasible for
any reason, then Purchaser shall have the right, at its sole election on or
before the last day of the Feasibility Period, to terminate this Agreement by
giving written notice thereof to Seller, in which event this Agreement shall
terminate, the Deposit shall be returned to Purchaser and neither party shall
have any further liabilities or obligations to each other. Purchaser agrees to
repair any damage to the Property that may be caused by its inspections and to
indemnify and defend Seller and its partners, affiliates, agents and employees,
and hold Seller and its partners, affiliates, agents and employees harmless
against any property damage or physical injury suffered as a result of such
inspections, investigations, studies or tests. Purchaser agrees not to enter
upon the Property until such time as Purchaser has furnished Seller with
evidence of a commercial general liability insurance policy with an insurer
reasonably satisfactory to Seller covering any activities of Purchaser on the
Property and containing limits of liability reasonably satisfactory to Seller.
(c) Audit. Seller hereby agrees to allow its books and records
related to the Property to be audited (at Purchaser's sole expense) by an
independent, certified public accounting firm selected by Purchaser, and Seller
will cooperate and cause its employees and other agents to cooperate in such
auditing process, including any customary certifications required by the
auditors. Purchaser shall provide Seller with prior notice of such audit.
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14. Indemnifications.
(a) Indemnification by Seller. Seller hereby indemnifies and
agrees to defend and hold harmless Purchaser and its partners and subsidiaries,
and any officer, director, employee or agent of any of them, and their
respective successors and assigns, from and against any and all claims,
expenses, costs, damages, losses and liabilities (including reasonable
attorneys' fees) which may at any time be asserted against or suffered by
Purchaser or the Property, or any part thereof, whether before or after the
Closing Date, as a result of, on account of or arising from (a) any breach of
any covenant, representation, warranty or agreement on the part of Seller made
herein or in any instrument or document delivered pursuant to this Agreement,
and/or (b) any third party claim relating to or arising out of any contract,
agreement, debt or other obligation, or encumbrance or other occurrence (other
than encumbrances expressly approved by Purchaser and other than occurrences
which are the subject of representations and/or warranties covered by clause (a)
above) created, arising or accruing prior to the Closing Date, regardless of
when asserted and relating to the Property or its operations, provided such
claim is derived from an occurrence or breach which took place prior to Closing.
The foregoing indemnifications set forth in this Section 14(a) shall survive
Closing without time limitation (other than indemnifications for breach of
representation or warranties on the part of Seller made herein which are subject
to a limited survival period under this Agreement, in which case the survival of
such indemnification shall be limited to the survival period of such
representation or warranty).
(b) Intentionally Omitted.
(c) Indemnification by Purchaser. Purchaser hereby indemnifies
and agrees to defend and hold harmless Seller and its partners and subsidiaries,
and any officer, director, employee or agent of any of them, and their
respective successors and assigns, from and against any and all claims,
expenses, costs, damages, losses and liabilities (including reasonable
attorneys' fees) which may at any time be asserted against or suffered by Seller
as a result of, on account of or arising from (a) any breach of any covenant,
representation, warranty or agreement on the part of Purchaser made herein or in
any instrument or document delivered pursuant to this Agreement, and/or (b) any
obligation, claims, suit, liability, contract, agreement, debt or encumbrance or
other occurrence created, arising or accruing on or after the Closing Date and
relating to the Property or its operations. The foregoing indemnifications set
forth in this Section 14 (c) shall survive closing without time limitation.
15. Brokerage Commission. Seller and Purchaser represent and warrant to
each other that no brokerage fee or real estate commission is or shall be due or
owing in connection with this transaction, and Seller and Purchaser hereby
indemnify and hold the other harmless from any and all claims of any other
broker or agent so claiming
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<PAGE>
based on action or alleged action of the other. The Legislature of the
Commonwealth of Pennsylvania has established a Real Estate Recovery Fund. The
purpose of the Fund is to compensate persons who obtain a judgment because of
fraud, misrepresentation or deceit of an agent. For further information call
(717) 783-3658.
16. Default Provisions; Remedies.
(a) Purchaser's Default. If Purchaser shall default in
performance of its obligations under this Agreement, and such default is not
cured within five (5) days after written notice thereof from Seller, or fails to
consummate the purchase and sale contemplated herein when required to do so
pursuant to the provisions hereof, then the Title Company shall deliver the
Deposit to Seller as full and complete liquidated damages, and as the exclusive
and sole right and remedy of Seller, whereupon this Agreement shall terminate
and neither party shall have any further obligations or liabilities to any other
party. Notwithstanding the foregoing, Purchaser agrees that Purchaser not be
exculpated from any personal liability with respect to the indemnifications set
forth in Section 13 (b) hereof.
(b) Seller's Default. Except for any breaches waived in
writing by Purchaser, if Seller has breached any of its covenants or obligations
under this Agreement or has failed, refused or is unable to consummate the
purchase and sale contemplated herein by the Closing Date or if any of the
representations and warranties made by Seller under this Agreement shall be
inaccurate or incorrect, then Purchaser shall be entitled to as its sole and
exclusive remedies to either (i) waive such breach, default or failure, (ii)
extend the Closing for such reasonable time or times as may be necessary in
order to enable Seller to remedy such breach, default or failure, (iii)
terminate this Contract and obtain the return of the Deposit, or (iv) pursue an
action for specific performance. In the event that Purchaser elects to pursue
specific performance and Purchaser prevails in such litigation, Seller shall be
obligated to pay all reasonable legal fees, costs and expenses incurred by
Purchaser.
17. Miscellaneous Provisions.
(a) Completeness and Modification. This Agreement (together
with Exhibits A to M attached hereto) with respect to the transactions
contemplated herein, and it supersedes all prior discussions, understandings or
agreements between the parties. This Agreement shall not be modified or amended
except by an instrument in writing signed by all of the parties hereto.
(b) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
assigns.
(c) Assignment. This Agreement shall not be freely assignable
by
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Purchaser, without the consent of Seller provided that this Agreement may be
assigned at Closing without Seller's consent to an entity controlled by,
controlling or under common control with FWRLP.
(d) Waiver; Modification. Failure by Purchaser or Seller to
insist upon or enforce any of its rights hereto shall not constitute a waiver or
modification thereof.
(e) Governing Law. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania without regard to
choice of law principles.
(f) Headings. The headings are herein used for convenience or
reference only and shall not be deemed to vary the content of this Agreement or
the covenants, agreements, representations and warranties herein set forth, or
the scope of any provision hereof.
(g) Continuing Documentation and Access. From and after
Closing, Seller shall cooperate with Purchaser to provide all information in its
possession concerning the ownership, use and operation of the Property
(including the right to copy same at the expense of Purchaser) for purposes of
any tax examination or audit or other similar purpose, subject to the agreements
of Purchaser concerning confidentiality set forth herein.
(h) All Warranties Joint and Several. Each and every warranty,
covenant, undertaking and agreement of Seller and Purchaser hereunder shall be
deemed a joint and several warranty, covenant, undertaking and agreement of each
person and entity collectively comprising the Seller and Purchaser.
(i) Counterparts. To facilitate execution, this Agreement may
be executed in as many counterparts as may be required; it shall be sufficient
that the signature of, or on behalf of, each party, or that the signatures of
the persons required to bind any party, appear on one or more such counterparts.
All counterparts shall collectively constitute a single agreement.
(j) Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be personally delivered
or mailed by first-class registered or certified mail, return receipt requested,
postage prepaid or delivered by commercial courier, telecopy or overnight
courier (e.g., Federal Express), against receipt, to the addresses indicated
below:
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(i) if to Purchaser:
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Attn: William J. Wolfe
Telecopy: (301) 907-4911
with a copy to:
Jeffrey S. Distenfeld, Esquire
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Telecopy: (301) 907-4911
(ii) if to Seller:
Newtown Square Associates, L.P.
c/o CMS Companies
1926 Arch Street, 2nd Floor
Philadelphia, PA 19103
Attn: Dean Adler
Telecopy: (215) 246-3083
with a copy to:
Bradley A. Krouse, Esquire
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telecopy: (215) 568-6603
Such notice shall be deemed given on the date of receipt by
the addressee or the date receipt would have been effectuated if delivery were
not refused. Each party may designate a new address by written notice to the
other in accordance with this Paragraph 17(j).
(k) Business Days. A "business day" shall be Mondays through
Fridays, less and excepting all legal holidays observed by the United States
Government or the Government of the State of Maryland. Any date specified in
this Agreement which does not fall on a business day shall be automatically
extended until the first business day after such date.
(l) Time of Essence. TIME SHALL BE OF THE ESSENCE IN THE
PAYMENT OF ALL SUMS, PERFORMANCE OF ALL OBLIGATIONS, GIVING OF ALL NOTICES AND
THE EXERCISE OF ALL RIGHTS UNDER THIS AGREEMENT.
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(m) Confidentiality. Before Closing, Purchaser shall not issue
any press release or other publicity of any kind whatsoever with respect to this
Agreement or any of the transactions contemplated hereby, without the prior
written consent of Seller in each instance. Seller shall notify Purchaser of its
consent or refusal within two (2) business days after Seller's requests for
consent. Before Closing, Purchaser agrees that it will keep confidential, and
will make reasonable efforts to have the respective partners, employees,
officers, directors, shareholders, agents, counsel, accountants and affiliates
of Purchaser, keep confidential, the terms of this Agreement, and all
information, records, materials and other data pertaining to the Property which
was acquired or learned from this Agreement or the negotiations relating thereto
or arising out of the transactions contemplated hereby, except (i) to the extent
necessary to effect the transactions contemplated hereby, (ii) pursuant to
compulsion by due process of law, (iii) in connection with the resolution of any
dispute between Purchaser and Seller, or (iv) if such information was obtained,
or is otherwise available, in the public domain or from other sources. The
provisions of this paragraph shall survive the Closing and the termination of
this Agreement.
(n) Recording. Neither this Agreement nor any memorandum or
assignment hereof shall be filed in any public place of record. If recorded,
such recording shall not constitute constructive or other notice to any third
party. The recording or attempt to record this Agreement or any memorandum or
assignment hereof, by or on behalf of Purchaser, shall constitute a default of
this Agreement by Purchaser and a waiver and release by Purchaser of all rights
of Purchaser under this Agreement.
(o) Except as expressly set forth in this Agreement or in the
documents to be delivered at Closing, Seller hereby expressly disclaims any and
all warranties, express or implied, relating in any way to the Property,
including, without limitation, any warranty provided for under statutory or
common law or the uniform commercial code, including but not limited to
warranties of merchantability and fitness for a particular purpose. Both
Purchaser and Seller are acting at arm's length to protect their own interests,
and both Purchaser and Seller shall use their own independent business judgment
concerning the sale and purchase of the Property. Purchaser shall complete to
its satisfaction, all investigations, inspections and tests which Purchaser
deems necessary.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Real Estate
Purchase Agreement as of the day and year first written above.
PURCHASER:
FIRST WASHINGTON REALTY
LIMITED PARTNERSHIP
By: First Washington Realty Trust, Inc.,
WITNESS: Its general partner
By: /s/
- --------------------------- ------------------------------------
William J. Wolfe
President
Date of execution by
Purchaser: August 8 , 1996
SELLER:
NEWTOWN SQUARE ASSOCIATES, L.P.
By: JCF/CMS Joint Venture
Its general partner
By: CMS Newton, L.P.
Its general partner
By: MSPS Newton, Inc.
WITNESS: Its general partner
By: /s/
- ---------------------------- --------------------------
Name: Ingrid R. Welch
Title: Vice President
Date of execution by
Seller: September 20 , 1996
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<PAGE>
ACKNOWLEDGE BY TITLE COMPANY
The undersigned Title Company executes this Real Estate Purchase
Agreement solely to acknowledge receipt of the Deposit pursuant to Paragraph 3
hereof and to evidence its agreement to serve as escrow agent pursuant to the
terms of the foregoing Agreement.
COMMERCIAL SETTLEMENTS, INC.
By: /s/
------------------------------------
Name:
Title:
Date: September 24, 1996
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LIST OF EXHIBITS
EXHIBIT A. Legal Description of Land Recitals
EXHIBIT B. Leases and Rent Schedule Section 5(d)
EXHIBIT C. Service Contracts Section 5(e)
EXHIBIT D. Tax Bills Section 5(f)
EXHIBIT E. Insurance Certificates Section 5(g)
EXHIBIT F. Form of Tenant Estoppel Section 6(f)
EXHIBIT F-1. Tenant Estoppels Section 8(a)(vii)
EXHIBIT G. Certificates of Occupancy Section 5(n)
EXHIBIT H. Operating Statements and Operating Budget Section 5(p)
EXHIBIT I. Personal Property Section 5(q)
EXHIBIT J. Prudential Mortgage Section 2(b)(i)
EXHIBIT K. Prudential Note Section 2(b)(i)
EXHIBIT L. Litigation Section 5(k)
EXHIBIT M. Permitted Exceptions Section 8(a)(iii)(B)
[Seller to Attach Foregoing at Acceptance of this Agreement]
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EXHIBIT A
LEGAL DESCRIPTION OF LAND
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<PAGE>
EXHIBIT B
LEASES AND RENT SCHEDULE
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EXHIBIT C
SERVICE CONTRACTS
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EXHIBIT D
TAX BILLS
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<PAGE>
EXHIBIT E
INSURANCE CERTIFICATES
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<PAGE>
EXHIBIT F
[Form of Tenant Estoppel]
ESTOPPEL CERTIFICATE
, 199
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Re: Collegeville Shopping Center
Lease dated 19 , with [name of Tenant]
----------------------------------------------------------
Gentlemen:
Please be advised that the undersigned tenant hereby certifies as of
the date hereof as follows with respect to the Lease:
Name of Tenant:
Description of Leased Premises:
Date of Commencement of Lease:
Date of Termination of Lease:
Options to Renew:
Base Rental: Annual Rental of $ , payable monthly in arrears.
-------------
Real Estate Tax Charges: pro rata: yes no.
Percentage Rent: % of Gross Receipts over $
------
Common Area Maintenance Charges: pro rata: yes no.
Tenant in possession of the premises under the Lease?: Yes
The Lease is unmodified and in full force and effect except for modifications,
listed by number and date on Exhibit A attached hereto.
Amount of rent paid in advance: $
Amount of Security Deposit: $
-i-
<PAGE>
Compliance with Construction Requirements: Landlord has complied with all
construction requirements of Tenant, and Tenant has accepted all of the leased
premises under the Lease.
Tenant has not made any claims against Landlord and has no knowledge of any
uncured default on the part of Landlord (If there is knowledge of any uncured
default, please note and attach separate sheet).
Tenant's Right to Purchase: Tenant has no option or right in the nature of a
right of first refusal to purchase or otherwise acquire any interest in the
leased premises.
Tenant's Right of Premature Termination or Option to Renew: Tenant has no right
to premature termination and no right or option to renew or extend the term
beyond its present term and no option to lease additional space, except as
expressly set forth in the Lease.
TENANT:
[Name of Tenant]
By:
Name:
Title:
STATE OF )
) ss:
COUNTY OF )
Signed and sealed in my presence this day of , 199 .
---- -------- ---
Notary Public
[SEAL]
My Commission Expires:
F:\SHAVER\SHAVER\REIT\NEWTCLEA.AGT
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EXHIBIT F-1
TENANT ESTOPPELS
o Acme Markets 35,282 s.f.
o Thrift Drug 13,179 s.f.
o Mellon Bank 4,200 s.f.
o True Value Hardware 9,416 s.f.
o Dress Barn 5,017 s.f.
--------
67,094 s.f.
o Tenant's occupying at least 75% of
the remaining space at the Property.
[(137,569 s.f. - 67,094 s.f.) x 75% = 52,856]
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EXHIBIT G
CERTIFICATES OF OCCUPANCY
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EXHIBIT H
OPERATING STATEMENTS AND OPERATING BUDGET
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EXHIBIT I
PERSONAL PROPERTY
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EXHIBIT J
PRUDENTIAL MORTGAGE
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EXHIBIT K
PRUDENTIAL NOTE
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EXHIBIT L
LITIGATION
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EXHIBIT M
PERMITTED EXCEPTIONS
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EXHIBIT 10.53
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT is made and entered as the 22nd day of
October, 1996, by and between (i) KINGS PARK ASSOCIATES, a Virginia general
partnership (the "Contributor") and (ii) FIRST WASHINGTON REALTY LIMITED
PARTNERSHIP, a Maryland limited partnership (hereinafter referred to as
"FWRLP").
W I T N E S S E T H:
WHEREAS, Contributor is the record and beneficial owner of all of those
certain parcels of real property as more particularly described on Exhibit A
hereto (collectively, the "Land"), together with the shopping center known as
Kings Park Shopping Center located in Springfield, Fairfax County, Virginia, and
all other buildings and improvements not owned by tenants situated thereon
(collectively, the "Building"), and all personal property and fixtures not owned
by tenants located therein (the "Personal Property"), and all appurtenances,
rights, easements, rights-of-way, tenements and hereditaments incident thereto
(the "Additional Property") (the Land, Building, Personal Property and
Additional Property are hereinafter collectively referred to as the "Property");
and
WHEREAS, Contributor and FWRLP desire to enter into this Agreement
relating to the contribution by Contributor to FWRLP of the Property in exchange
for cash and certain interests in FWRLP.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Contribution. Subject to the terms and conditions set forth in this
Agreement, Contributor and FWRLP agree to the contribution by Contributor to
FWRLP (the "Contribution") of all of the Property.
2. Consideration.
(a) In consideration of the Contribution of the Property to
FWRLP, FWRLP shall pay cash (in the form of cash, certified check or bank wire
transfer) and shall issue common partnership units of FWRLP (the "Units") in an
aggregate amount (cash and Units) calculated as follows: Five Million Seven
Hundred Thousand and 00/100 Dollars ($5,700,00.00) less the outstanding and
unpaid principal balance of the Lutheran Loan (as defined below) at Closing and
adjusted for any closing adjustments and prorations (the "Consideration
Amount"). The number of Units to be issued shall be determined at Closing by
dividing sixty percent (60%) of the Consideration Amount by a price per Unit
(the "Unit Price") equal to the average closing price of First
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Washington Realty Trust, Inc. ("REIT") common stock for the fifteen (15)
business days immediately preceding the Closing Date (as defined below), rounded
to the nearest one (1) Unit. The balance of the consideration shall be paid in
cash.
(b) At Closing, the Property shall be contributed to FWRLP
with the Property then being subject to the indebtedness, lien and operation of
the First Trust (as defined below). Contributor and FWRLP shall provide to the
Lender any and all information reasonably requested by the Lender.
(c) (i) The Property is presently encumbered by a Deed of
Trust and Security Agreement dated October 21, 1994 (the "First Trust") from the
Contributor, as debtor, for the benefit of Aid Association for Lutherans, as
secured party (the "Lender"), which First Trust secures an original principal
indebtness of $4,500,000.00 with interest thereon payable over the term thereof
(which ends on November 1, 2014) at a fixed interest rate of 9% per annum, as
evidenced by a Deed of Trust Note from Contributor to Lender ("Note"). The First
Trust and Note and all documents and instruments executed in connection
therewith are collectively referred to as the "Lutheran Loan." The Lutheran Loan
is non-recourse (except for environmental and other standard carve outs) to
Contributor and requires equal monthly installments of principal and interest in
the amount of the $40,488.00 per month. The outstanding principal balance under
the Lutheran Loan as of the date hereof is approximately $4,340,000.00. True and
correct copies of the First Trust and Note are attached hereto as Exhibits L and
M, respectively.
(ii) FWRLP's obligations under this Agreement shall
be expressly contingent on the condition that FWRLP receive by Closing a letter
(the "Letter") from Lender (i) consenting to the Contribution of the Property
subject to the Lutheran Loan, and such modifications to the Lutheran Loan as
FWRLP shall determine, in its sole discretion, are necessary (to the extent that
FWRLP determines that modifications are necessary, FWRLP shall so notify
Contributor prior to the end of the Feasibility Period), (ii) confirming that
the Lutheran Loan is as described above, (iii) certifying that, to the best
knowledge of the Lender, there is no default or event which with notice or lapse
of time, or both, would constitute a default under the Lutheran Loan. FWRLP and
Contributor shall cooperate in obtaining the Letter from Lender. FWRLP shall be
responsible for all fees charged by Lender in connection with the assumption of
the Lutheran Loan. At Closing, Contributor shall execute an estoppel certificate
in favor of FWRLP certifying that, to the best knowledge of Contributor, there
is no default, or event of default which with notice or lapse of time, or both,
would constitute a default under the Lutheran Loan. Contributor shall use
commercially reasonable efforts to deliver to FWRLP such Letter from Lender
before the end of the Feasibility Period (as defined below). If such Letter is
not received by FWRLP by Closing, FWRLP shall have the right to terminate this
Agreement, in which event the Deposit (defined below), together with interest
thereon, shall be returned to FWRLP. If
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Lender does not consent or if Lender's Letter is other than as set forth above
and is not acceptable to FWRLP, FWRLP shall have the right, at its sole
election, to terminate this Agreement by giving written notice thereof to
Contributor, whereupon the Deposit, together with interest thereon, shall be
returned to Contributor and neither party shall have any further liability to
the other.
3. Deposit.
(a) Within one (1) business day after the date of delivery to
FWRLP of an original of this Agreement executed by Contributor together with
completed Exhibits hereto (the date of such delivery to FWRLP being the
"Acceptance Date") in order to evidence and provide comfort to Contributor with
respect to FWRLP's intention to close hereunder, FWRLP shall deliver to the
Title Company, as escrow agent, a deposit of Fifty Thousand Dollars ($50,000.00
) by check payable to the Commercial Settlements, Inc., 1413 K Street, N.W.,
Washington, DC 20005 (the "Title Company").
(b) Within two (2) business days after the end of the
Feasibility Period (as defined in Section 13(b)), FWRLP shall deliver to the
Title Company, as escrow agent, an additional deposit (the "Additional Deposit")
of Fifty Thousand Dollars ($50,000.00) by check payable to the Title Company.
(c) In the event that FWRLP elects to extend the Closing Date
pursuant to Section 4(b) hereof, then, on the date of such election, FWRLP shall
deliver to the Title Company, as escrow agent, an additional deposit (the
"Extension Deposit") of Twenty-five Thousand Dollars ($25,000.00) by check
payable to the Title Company.
(d) The Initial Deposit, Additional Deposit and the Extension
Deposit and all accrued interest thereon are hereinafter referred to
collectively as the "Deposit." The Title Company will immediately provide
Contributor with written evidence of receipt of such Deposit. The Title Company
shall place the Deposit in an interest-bearing account within three (3) days
after the date of receipt thereof, and interest on the Deposit shall accrue to
the benefit of the party entitled to the Deposit and shall constitute a part of
the Deposit for all purposes hereof. The Deposit shall be held by the Title
Company pursuant to the terms and conditions of this Agreement.
(e) In the event that, at any time prior to Closing,
Contributor or FWRLP provides Title Company with a certification (a copy of
which shall be delivered contemporaneously to the other party) that the
Contributor or FWRLP, as the case may be, is entitled to the Deposit pursuant to
the terms of this Agreement, Title Company shall deliver the Deposit to such
party no less than five (5) business days and no more than seven (7) business
days after receipt of said notice, unless the other party disputes such
certification by written notice to Title Company (a copy of which shall be
delivered contemporaneously to the other party) delivered within five (5)
business days of Title Company's receipt of the initial certification. In such
event, Title Company shall hold the Deposit pending resolution of such dispute.
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(f) The parties acknowledge that (i) Title Company is acting
solely as escrow agent at their request and for their convenience, (ii) Title
Company shall not be deemed to be the agent of either of the parties, and (iii)
Title Company shall not be liable to either of the parties for any act or
omission on its part unless taken or suffered in bad faith, in willful disregard
to this Agreement or involving gross negligence. Contributor and FWRLP shall
jointly and severally indemnify and hold Title Company harmless from and against
all costs, claims and expenses, including reasonable attorneys' fees, incurred
in connection with the performance of Title Company's duties hereunder, except
with respect to actions or omissions taken or suffered by Title Company in bad
faith, in willful disregard of this Agreement or involving gross negligence on
the part of Title Company; provided, however, that if any litigation shall arise
between the Contributor and FWRLP in connection therewith, the non-prevailing
party shall pay all such costs, claims and expenses of the Title Company. In the
event any dispute shall arise between the parties hereto as to the disposition
of the Deposit, the Title Company's sole responsibility may be met, at the Title
Company's option, by paying the Deposit into the court in which relevant
litigation is pending between the parties, or by initiating an interpleader
action, and upon payment of the Deposit into court, neither Contributor nor
FWRLP shall have any further right, claim, demand, or action against the Title
Company.
4. Closing.
(a) Closing. Except as otherwise provided in this Agreement,
the Contribution contemplated herein shall be consummated at the "Closing",
which shall take place on the date (the "Closing Date") specified by FWRLP on
not less than ten (10) days notice to Contributor, provided that the Closing
Date shall not be later than forty-five (45) days after the end of the
Feasibility Period. The Closing shall take place at the offices of First
Washington Realty Limited Partnership, 4350 East-West Highway, Suite 400,
Bethesda, Maryland 20814, or at such other place as may mutually agreed upon by
Contributor and FWRLP.
(b) Extension of Closing. Notwithstanding the provisions
contained in Section 4(a), FWRLP may extend the Closing Date to a date not later
than February 15, 1997 by (i) delivery prior to the date specified as the
Closing Date in Section 4(a) above of the Extension Deposit to the Title Company
as set forth in Section 3(c) above, and (ii) notifying Contributor in writing,
no later than five (5) days before the original Closing Date, of FWRLP's
intention to exercise said right.
5. Representations and Warranties of Contributor. In order to induce
FWRLP to enter into this Agreement and to issue the Common Units in
consideration for the Property, Contributor hereby makes the following
representations and warranties, each of which is material and shall, together
with all covenants, agreements and indemnities set forth in or made pursuant to
this Agreement, survive Closing for to the extent provided in Section 18(m):
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(a) Authority of Contributor. Contributor is a general
partnership duly organized and in good standing under the laws of the
Commonwealth of Virginia. Contributor has all necessary power and authority and
has taken all necessary partnership action to execute, deliver and perform this
Agreement. No consents of any persons other than those executing this Agreement
as Contributor are required for such execution or to enable Contributor to
consummate the transactions contemplated hereby. This Agreement is the valid and
binding obligation of Contributor, enforceable against it in accordance with its
terms, except that such enforcement may be subject to bankruptcy,
conservatorship, receivership, reorganization, insolvency, moratorium or similar
laws or procedures relating to or affecting creditors' rights generally and to
general principles of equity.
(b) Title. To the Contributor's knowledge, Contributor is the
sole owner of fee simple title to the Property, and such title is marketable and
good of record and free and clear of all liens, encumbrances, covenants,
conditions, restrictions and other matters affecting title, except for the
Permitted Exceptions (as defined in Section 8(a)(iii)).
(c) Compliance with Existing Laws. To the knowledge of
Contributor, Contributor has not received notice from any governmental authority
asserting that the Contributor is in violation of any applicable building,
zoning, environmental or other ordinances, statutes or regulations of any
governmental agency, in respect to the ownership, use, maintenance, condition
and operation of the Property or any part thereof. To the knowledge of the
Contributor, the Contributor possesses all licenses, certificates, permits and
authorizations necessary for the use and operation of the Property in the manner
in which it is currently being operated by Contributor, and the requisite
certificates of the fire marshalls or board of fire underwriters have been
issued for the Property. To the best of Contributor's knowledge, the Building
and all related facilities do not rely on any other property in order to comply
with applicable zoning laws.
(d) Leases. True, correct and complete copies of all of the
leases of the Property and any amendments thereto (collectively, the "Leases")
have been delivered to FWRLP. Attached hereto as Exhibit B is a description of
all of the Leases and a current rent schedule ("Rent Schedule") covering the
Leases. There are no leases or tenancies of any space in the Property other than
those set forth in Exhibit B or, to Contributor's knowledge, any subleases or
subtenancies unless otherwise noted therein. Except as otherwise set forth in
Exhibit B or elsewhere in this Agreement:
(i) to the knowledge of Contributor, the Leases are
in full force and effect and constitute a legal, valid and
binding obligation of the respective tenants;
(ii) no tenant has an option to purchase the
Property;
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(iii) no renewal or expansion options have been
granted to the tenants, except as provided in the Leases;
(iv) to the Contributor's knowledge, Contributor is
not in default under any of the Leases;
(v) the rents set forth on the Rent Schedule are
being collected on a current basis and there are no arrearages
in excess of one month, except as indicated in Exhibit B
hereto, nor has any tenant paid any rent, additional rent or
other charge of any nature for a period of more than thirty
(30) days in advance;
(vi) all work for tenant alterations and other work
or materials contracted for by Contributor and any tenant has
been completed, and all work and materials have been fully
paid for or will be paid for by Closing and all contributions
to tenants for tenant improvements have been paid in full;
(vii) Contributor has not sent written notice to any
tenant claiming that such tenant is in default, which default
remains uncured, and to Contributor's knowledge, no tenant is
in default under its Lease, except as indicated in Exhibit B
hereto;
(ix) no action or proceeding instituted against
Contributor by any tenant is presently pending in any court;
and
(x) no security deposits are in the possession of
Contributor other than those set forth in Exhibit B.
(e) Service Contracts. Attached hereto as Exhibit C is a
complete and correct list of all contracts or agreements relating to the
management, leasing, operation, maintenance or repair of the Property (the
"Service Contracts"). All of the Service Contracts set forth on Exhibit C shall
be assumed by FWRLP as of the Closing Date. No Service Contract will be
terminated, amended, modified or supplemented prior to the Closing Date without
FWRLP's prior written approval.
(f) Tax Bills. Attached hereto as Exhibit D are true and
correct copies of tax bills issued by any applicable Federal, state or local
governmental authority to Contributor with respect to the Property for the most
recent past and current tax years, and any new assessment received with respect
to a current or future tax year.
(g) Insurance. The Property is insured for its replacement
value against loss or damage sustained as a result of fire or other casualty and
Contributor has rent loss insurance in place for the Property. Contributor shall
maintain in full force and effect all such policies until the Closing Date and
shall cause its insurer to name
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FWRLP as an additional insured as a contract party on its rent loss policy with
respect to the Property. Contributor shall cancel such policies as of the
Closing Date (with Contributor being entitled to any reimbursement of any
advance premiums paid by Contributor), unless a loss in rental income has
resulted from a casualty prior to Closing for which the Contributor may be
entitled to make a claim under such policies, in which event the policies shall
not be canceled.
(h) Condition of Property. Possession of the Property shall be
delivered to FWRLP at Closing in its "as is, where is" condition as of the date
of FWRLP's execution of this Agreement. Contributor hereby represents, warrants
and covenants to FWRLP that, ordinary wear and tear excepted, to its knowledge
there is no material defect in the condition of the Property, the structural
elements thereof or the mechanical systems therein. FWRLP acknowledges that the
acreage and square footage descriptions of the Property set forth in the
Recitals hereto are approximate, and that the consideration to be delivered to
Contributor pursuant to this Agreement is not subject to offset in the event
such descriptions are inaccurate.
(i) Tenant Estoppel. Contributor represents and warrants that
it shall use reasonable efforts to obtain tenant estoppel letters in the form of
Exhibit F from all tenants of the Property.
(j) Condemnation Proceedings. No condemnation or eminent
domain proceedings are pending or, to the best of Contributor's knowledge,
threatened against the Property or any part thereof, and Contributor has made no
commitments to and has received no notice, oral or written, of the desire of any
public authority or other entity to take or use the Property or any part thereof
whether temporarily or permanently, for easements, rights-of-way, or other
public or quasi-public purposes.
(k) Litigation. No litigation is pending or, to the best of
Contributor's knowledge, currently threatened, including administrative actions
or orders relating to governmental regulations, affecting the use, operation or
ownership of the Property or any part thereof or Contributor's right to
contribute the Property as contemplated herein, except as set forth on Exhibit G
hereof.
(l) No Defaults. Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will: (i) conflict
with, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, any agreement or instrument to which Contributor is
a party or by which the Contributor or the Property is bound, (ii) violate any
restriction, requirement, covenant or condition to which the Contributor is
subject or by which Contributor or the Property is bound, (iii) constitute a
violation of any applicable code, resolution, law, statute, regulation,
ordinance, rule, judgment, decree or order, or (iv) result in the cancellation
of any contract or lease pertaining to the Property.
(m) Entrances. To the best of Contributor's knowledge, access
to any
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portion of the Land is not obtained from adjoining public roads by means of
easements, rights-of-way or licenses across lands or premises not included
within the Property.
(n) Separate Tax Lot and Subdivision. To the best of
Contributor's knowledge, each parcel of Land is the subject of a separate
subdivision, and each parcel of Land is assessed for tax purposes as one or more
separate and distinct parcels.
(o) Hazardous Waste. Contributor has no knowledge of any
discharge, spillage, uncontrolled loss, seepage or filtration (a "Spill") of
oil, petroleum or chemical liquids or solids, liquid or gaseous products or any
hazardous waste or hazardous substance (as those terms are used in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery Act of 1976, as amended, or in
any other applicable federal, state or local laws, ordinances, rules or
regulations relating to protection of public health, safety or the environment,
as such laws may be amended from time to time) at, upon, under or within the
Land or any contiguous real estate. To the best of Contributor's knowledge,
there is no proceeding or action pending or threatened by any person or
governmental agency regarding the environmental condition of the Property. To
the Contributor's knowledge, the Building is totally free of asbestos. Without
intending to limit the foregoing representations and warranties, FWRLP
acknowledges that the Property has been leased to a dry cleaner, a service
station, various restaurants and other tenants that may use regulated products
in the normal course of their business and that Contributor does not control or
actively monitor such use.
(p) Operating Statements. Attached hereto as Exhibit J are
true and correct operating statements of the Property for fiscal years 1993,
1994, 1995 and 1996 (through September 30, 1996). To Contributor's knowledge,
there has been no adverse change in the Property or the operation thereof which
would materially adversely affect the economic condition of the Property.
(q) Utilities. To the best of Contributor's knowledge,
adequate, usable public sewers, public water facilities, gas and electrical
facilities necessary to the operation of the Property are installed in and are
duly connected to the Property and can be used without any charge except the
normal deposits, if any, and usual metered utility charges and sewer charges.
(r) Personal Property. Attached hereto as Exhibit K is a true,
correct and complete inventory of all personal property ("Personal Property"),
if any, owned by Contributor and used in the management, maintenance and
operation of the Property (other than trade fixtures or personal property of
tenants).
(s) Leasing Commissions. To the best of Contributor's
knowledge, there are, and at Closing shall be, no outstanding or contingent
leasing commissions or fees payable with respect to the Property.
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(t) Securities Law Matters.
(i) Contributor and each of its partners who receive
Units is an "accredited investor" as such term is defined
under Rule 501 promulgated under the Securities Act of 1933,
as amended (the "Securities Act");
(ii) The general partners (the "Partners") of
Contributor are Marvin L. Kaye, Lawrence Kirstein and the
Estate of Richard A. Kirstein;
(iii) Marvin L. Kay has his primary residence in the
State of Maryland and Lawrence Kirstein has his primary
residence in the District of Columbia;
(iv) Contributor will hold the Units for its own
account for investment purposes only and not with a view to
distribution and does intend to distribute or resell the
Units, except as expressly set forth at the end of this
Section 5(t) below;
(v) Taking into account the personnel and resources
Contributor can practically bring to bear on the acquisition
of the Units in FWRLP contemplated hereby, Contributor is
knowledgeable, sophisticated and experienced in making, and is
qualified to make, decisions with respect to investments in
securities presenting an investment decision like that
involved in the acquisition of the Units, including
investments in securities issued by FWRLP, and has requested,
received, reviewed and considered all information it deems
relevant in making an informed decision to acquire the Units
(including the Confidential Information Statement, as
supplemented through the date hereof, attached hereto as
Exhibit N which contains the First Amended and Restated
Agreement of Limited Partnership of FWRLP and any Amendments
thereto (the "Partnership Agreement");
(vi) Contributor will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose
of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Units except in
compliance with the Securities Act and the rules and
regulations promulgated thereunder and with the terms and
conditions of the Partnership Agreement;
(vii) Contributor acknowledges that the Units to be
issued must be held until they are subsequently registered
under the Securities Act and under applicable state securities
or blue sky laws, unless exemptions from such registrations
are available at the time of resale;
(viii) Prior to the issuance of the Units,
Contributor will execute all
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such other documents and instruments as may be reasonably
necessary to allow FWRLP to comply with Federal and state
securities law requirements with respect to the issuance of
the Units and to comply with the terms of the Partnership
Agreement;
(ix) Contributor acknowledges and agrees that,
notwithstanding Section 8.6 of the Partnership Agreement, the
Units to be issued hereunder shall not be redeemable for cash
or exchangeable for Common Stock in the REIT for a period of
thirteen (13) months from the date of issuance to Contributor;
and
FWRLP hereby agrees that, at Closing, Contributor may transfer the
Units to Marvin L. Kay and Lawrence Kirstein, or may request FWRLP to issue the
Units directly to Marvin L. Kay and Lawrence Kirstein, provided that the
Partners receiving such Units shall acknowledge and agree to be bound (on a
several basis with respect to matters pertaining to such partners) by all of the
provisions of this Section 5(t) and any other provision of this Agreement
relating to the Units (in lieu of Contributor), and by accepting such Units
hereby agree to be so bound. The Estate of Richard Kirstein shall not have any
direct or indirect liability for any of the representations set forth in Section
5(t).
6. Obligations of Contributor Pending Closing. From and after the date
of this Agreement through the Closing Date, Contributor covenants and agrees as
follows:
(a) Maintenance and Operation of the Property. Contributor
will cause the Property to be maintained in its present order and condition,
normal wear and tear excepted, and will cause the continuation of the normal
operation thereof, including the purchase and replacement of fixtures and
equipment, and the continuation of the normal practice with respect to
maintenance and repair in the ordinary course of business so that the Property
will, except for normal wear and tear, be in substantially the same condition on
the Closing Date as on the date hereof.
(b) Licenses. Contributor shall use its best efforts to
preserve in force all Licenses and to cause those expiring to be renewed.
(c) Changes in Representations. Contributor shall notify FWRLP
promptly, and FWRLP shall notify Contributor promptly, if either becomes aware
of any occurrence prior to the Closing Date which would make any of its
representations, warranties or covenants contained herein not true in any
material respect.
(d) Obligations as to Leases. Contributor shall not, without
FWRLP's prior written consent, amend, modify, renew or extend any Lease in any
respect unless required by law or the terms of any existing lease (and then only
in accordance with the terms of such lease), or enter into new leases or approve
any assignment of leases or subletting of leased space, or terminate any Lease.
Prior to Closing, Contributor shall
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not apply all or any part of the security deposit of any tenant unless such
tenant has vacated the Property or is material default under its lease.
(e) Obligations as to Lutheran Loan. The Contributor shall
not, without FWRLP's prior written consent, (i) prepay the Lutheran Loan, or
(ii) modify or amend any of the documents evidencing or securing the Lutheran
Loan or otherwise entered into in connection with the Lutheran Loan. Contributor
shall make all payments required to be made under the Lutheran Loan when due,
shall perform all obligations under the Lutheran Loan and shall keep the
Lutheran Loan free from default.
7. Representations, Warranties and Covenants of FWRLP. In order to
induce Contributor to enter into this Agreement and to contribute the Property
to FWRLP, FWRLP and (solely as to the representations and warranties contained
in Sections 7(h), (j), (k) and (n) First Washington Realty Trust, Inc. (the
"REIT") hereby make the following representations, warranties and covenants,
each of which is material and shall together with all covenants, agreements and
indemnities set forth or made pursuant to this Agreement survive Closing to the
extent provided in Section 18(m).
(a) Authority of FWRLP. FWRLP is a limited partnership duly
organized and existing and in good standing under the laws of the State of
Maryland. Subject to the approval of the Board of Directors of REIT as set forth
in Section 8(a) (viii), FWRLP has all necessary power and authority to execute,
deliver and perform this Agreement and consummate all of the transactions
contemplated by this Agreement. Subject to the approval of the Board of
Directors of REIT as set forth in Section 8(a) (viii), this Agreement is the
valid and binding obligation of FWRLP, enforceable against it in accordance with
its terms.
(b) No Defaults. Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will: (i) conflict
with, or result in a breach of, the terms, conditions or provisions of, or
constitute a default under, the Partnership Agreement or any agreement or
instrument to which FWRLP is a party, (ii) violate any restriction, requirement,
covenant or condition to which the FWRLP is subject, and (iii) constitute a
violation of any applicable code, resolution, law, statute, regulation,
ordinance, rule, judgment, decree or order.
(c) Vacant Space. FWRLP hereby further agrees that if any
rentable space in the Property is vacant on the Closing Date, FWRLP shall accept
the Property subject to such vacancy, provided that the vacancy was not
permitted or created by Contributor in violation of any restrictions contained
in this Agreement.
(d) Additional Matters Regarding Authority. The execution,
delivery and performance by FWRLP of this Agreement and each other agreement,
document or instrument contemplated hereby to which FWRLP is a party and which
is required to be delivered to Contributor at Closing (together with this
Agreement, the "FWRLP
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Documents"), the fulfillment of and the compliance with the respective terms and
provisions hereof and thereof by FWRLP, and the due consummation of the
transactions contemplated hereby or thereby by FWRLP have been, or by Closing
will be, duly and validly authorized and approved by all requisite partnership
actions of FWRLP.
(e) Disclosure Documents. Attached hereto as Exhibit N is a
true and correct copy of the Confidential Information Statement, as supplemented
through the date hereof. The FWRLP Partnership Agreement, as contained in the
Confidential Information Statement, as supplemented through the date hereof, has
not been amended or modified except as set forth in Exhibit N, and, to the
knowledge of FWRLP, is in full force and effect as of the date hereof, and, to
the knowledge of FWRLP, no default or condition which, with the passage of time
or the giving of notice could become a default, exists on the part of any party
thereunder.
(f) Binding Obligation. This Agreement constitutes, and all
other agreements, documents and instruments to be executed by FWRLP pursuant
hereto, when duly executed and delivered by FWRLP, will each constitute, valid
and binding obligations of FWRLP, enforceable in accordance with their
respective terms, except that such enforcement may be subject to bankruptcy,
conservatorship, receivership, reorganization, insolvency, moratorium or similar
laws or procedures relating to or affecting creditors' rights generally or the
rights of creditors of limited partnerships and to general principles of equity.
(g) No Capital Calls or Loans. Following Closing, neither
Contributor, as holder of the Units, nor any subsequent transferees of the Units
from Contributor, shall have any obligation to make additional capital
contributions or loans to FWRLP.
(h) Financial Information. The financial statements of FWRLP
and the REIT (including the notes thereto) included in the Confidential
Information Statement, as supplemented through the date hereof, present fairly
the financial position of the respective entity or entities presented therein at
the respective dates indicated and the results of their operations for the
respective periods specified, and except as otherwise stated in any such
registration statement or periodic report, such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis. Since the date of the most recent financial statements
included in the Confidential Information Statement, as supplemented through the
date hereof, there has been no material adverse change, when considered as a
whole, in the condition, financial or otherwise, or in the earnings, assets,
business affairs or business prospects of FWRLP or the REIT.
(i) Issuance of Units. The FWRLP Partnership Agreement
provides, or prior to Closing will provide, for the issuance of the Units. The
Units to be issued in connection with the transactions herein contemplated have
been, or prior to their issuance on the Closing Date will have been, duly
authorized for issuance by FWRLP to
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Contributor, and on the date of their issuance on the Closing Date will be
validly issued, fully paid and non-assessable. The Units conform to the
description thereof contained in the Confidential Information Statement, as
supplemented through the date hereof, and such description conforms to the
rights set forth in the FWRLP Partnership Agreement.
(j) Disclosure. The Confidential Information Statement, as
supplemented through the date hereof, on the date hereof, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(k) Status of REIT. First Washington Realty Trust, Inc. is
organized in conformity with the requirements for qualification as a real estate
investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"), and its proposed method of operation will enable it to meet the
requirements for taxation as a real estate investment trust under the Code.
(l) Anti-Dilution: FWRLP hereby covenants and agrees as
follows:
(i) If at any time prior to Closing there shall be
(a) a reorganization of FWRLP (other than a combination,
reclassification, exchange or subdivision of Units otherwise
provided for herein), (b) a merger or consolidation of FWRLP
with or into another entity in which FWRLP is not the
surviving entity, or a reverse triangular merger in which
FWRLP is the surviving entity but the Units outstanding
immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities,
cash or otherwise, or (c) a sale or transfer of FWRLP's
properties and assets as, or substantially as, an entirety to
any other person, then, as a part of such reorganization,
merger, consolidation, sale or transfer, lawful provision
shall be made so that Contributor shall thereafter be entitled
to receive at Closing the number of shares of stock or other
securities or property of the successor entity resulting from
such reorganization, merger, consolidation, sale or transfer
that Contributor would have been entitled to receive if the
Closing had been held immediately before such reorganization,
merger consolidation, sale or transfer and Contributor had
received at such Closing the Units which it was entitled to
receive under this Agreement, subject to further adjustments
as provided in this Agreement. The foregoing provisions of
this Section shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers
occurring prior to Closing and to the stock or securities of
any other entity that are at the time receivable by holders of
the Units as a result thereof.
(ii) If FWRLP, at any time prior to Closing, by
reclassification of
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securities or otherwise, shall change the Units into the same
or a different number of securities of any other class or
classes, at Closing Contributor shall have the right to
receive such number or kind of securities as would have been
issuable to Contributor as the result of such change as if
Contributor held the Units immediately prior to such
reclassification or other change, all subject to further
adjustment as provided in this Section.
(iii) If FWRLP at any time prior to Closing shall
split, subdivide or combine the Units into a different number
of securities of the same class, the number of Units to be
received by Contributor at Closing shall be proportionately
increased in the case of a split or subdivision or
proportionately decreased in the case of a combination, and
the Unit Price used in this Agreement to calculate certain
adjustments to the number of Units shall be proportionately
decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(iv) If, prior to Closing, all holders of Units
("Unitholders") shall have received, or, on or after the
record date fixed for the determination of eligible
Unitholders, shall have become entitled to receive, without
payment therefor, other or additional Units or other
securities or property (other than cash) of FWRLP by way of
distribution, then and in each case, Contributor shall have
the right to acquire upon Closing, in addition to the number
of Units to which Contributor is entitled hereunder, and
without payment of any additional consideration therefor, the
amount of such other or additional Units or other securities
or property (other than cash) of FWRLP that Contributor would
hold on the Closing Date had Contributor been the holder of
record of the Units on the date hereof through and including
the Closing Date, and had retained such Units and all other
additional Units and other securities or property as aforesaid
during such period, giving effect to all adjustments called
for during such period by the provisions of this Agreement.
(m) Holding Period. Except in connection with a sale of all or
substantially all of FWRLP's assets or a merger or consolidation of FWRLP, in no
event shall FWRLP voluntarily or involuntarily sell or otherwise dispose of the
Property (other than (i) pursuant to a condemnation or (ii) in connection with a
like-kind exchange for a property with debt having a principal amount not less
than that encumbering the Property at such time) for a period of five (5) years
following the Closing Date, unless FWRLP indemnifies and agrees to hold harmless
Contributor from any adverse Federal and state income tax consequences
attributable to such sale or other disposition. In the event of a condemnation
or involuntary conversion of a material part of the Property, FWRLP shall use
reasonable efforts to reinvest the condemnation proceeds in such property or
properties, and within such time periods, as are required by the Internal
Revenue Code to avoid Federal income tax being payable by Contributor with
respect to such condemnation proceeds.
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8. Conditions Precedent to Closing.
(a) It shall be a condition precedent of FWRLP's obligation to
make a full settlement hereunder that each and every one of the following
conditions shall exist on the Closing Date:
(i) Representations and Warranties. Contributor's
representations and warranties hereunder shall be true and
correct in the same manner and with the same effect as though
such representations and warranties had been made on and as of
the Closing.
(ii) Zoning. No proceedings shall have occurred or be
pending to change, redesignate or redefine the zoning
classification of the Property to a more restrictive
classification than presently exists.
(iii) Title. Title to the Property shall be
marketable, good of record, and insurable by the Title Company
at standard rates or less, pursuant to a full coverage ALTA
Form-B (Rev. 1970 and 1984) owner's title insurance policy (or
an unconditional commitment therefor) without any exceptions
("Printed form" or otherwise) other than the Permitted
Exceptions, and in addition, providing affirmative coverage
satisfactory to FWRLP insuring against any mechanic's or
materialmen's lien arising from goods, labor or materials
provided to the Property prior to the Closing Date. The
"Permitted Exceptions" are:
(A) the lien of current real estate taxes and special
assessments not yet due and payable; and
(B) such other matters which are listed on Exhibit J
attached hereto. Notwithstanding anything to the
contrary contained in this paragraph (B),
Contributor, at or prior to Closing, shall cause to
be satisfied and released of record all mortgages,
deeds of trust, financing statements, judgements,
liens and matters that may be satisfied by payment of
a liquidated sum and that first appears of record
after the date hereof, other than the First Trust;
provided, however, that if the amount thereof exceeds
$200,000 and was not voluntarily created by the
Contributor subsequent to the effective date of the
Title Commitment, Contributor needs not satisfy and
release such matters, in which event FWRLP shall have
the right and option either (i) to terminate this
Agreement, or (ii) to close on the contribution of
the Partnership Interests and waive such defects in
title. In the event of termination of this Agreement,
Contributor and FWRLP shall be relieved of all
liabilities under this Agreement, except the
indemnities provided in Sections 13(a) and 15 hereof,
and the Deposit shall be returned to FWRLP.
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(iv) Leasing Brokerage/Property Management
Agreements. Contributor shall have terminated any and all
leasing brokerage agreements (excluding leasing brokerage
agreements relating solely to contingent brokerage commissions
for leases previously entered into which do not constitute
violations of Contributor's representation and warranty under
subsection 5(s)) and property management agreements with
respect to the Property effective as of the Closing. All
responsibility for dealings with any such brokers and agents,
including the payment of any claims (if deemed warranted by
Contributor), shall be the sole responsibility of Contributor.
Contributor agrees that it will indemnify and hold FWRLP, its
successors, assigns, partners, agents and employees, harmless
against any such claims and/or losses which might be incurred
by such indemnitees in connection with any management or other
fees due under any such property management agreements or
under those leasing agreements which Contributor is obligated
to terminate as provided above outstanding and/or contingent
leasing commissions or fees or management fees.
(v) Performance by Contributor. Contributor shall
have complied in all material respects with and not be in
material breach of any of its covenants or obligations under
this Agreement.
(vi) FWRT Board Approval. The Board of Directors of
FWRT shall have approved this Agreement and the transactions
contemplated hereby. In the event that the aforesaid condition
is not satisfied by the end of the Feasibility Period,
Purchaser may elect to terminate this Agreement by giving
Seller written notice thereof on or before the end of the
Feasibility Period in which event the Deposit and any interest
thereon shall be returned to Purchaser and neither party shall
have any further obligations or liabilities to the other.
(b) Failure of Condition. In the event of the failure by the
Closing Date of any condition precedent set forth above, FWRLP shall notify
Contributor in writing, and if Contributor does not correct such failure (if
valid) within five (5) business days after such notice, then FWRLP, at its sole
election, may (a) terminate this Agreement, in which event the Deposit and any
interest thereon shall be returned to FWRLP and, except as otherwise provided in
Section 16 hereof, neither party shall have any further obligations or
liabilities to the other (but the indemnities provided in Section 13(a) and 15
hereof shall survive in all events); or (b) proceed to Closing and, if a
default, avail itself of any legal or equitable remedy FWRLP may have, except as
to any default of Contributor waived in writing by FWRLP or deemed to be waived
pursuant to the provisions of this Agreement on or before the Closing Date; or
(c) extend the Closing Date for such reasonable time period as may be determined
by FWRLP (but in no event for more than three (3) months from the Closing Date
then in effect) in order to permit the satisfaction of any condition precedent
not so fulfilled.
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(c) Anything to the contrary notwithstanding, the parties to
this Agreement expressly agree that the obligations of Contributor pursuant to
this Agreement are conditioned upon the satisfaction, in the reasonable
discretion of Contributor, of the following conditions:
(i) All of the covenants, agreements, representations
and warranties made by FWRLP and/or the REIT in this Agreement
(including the attached Exhibits), the Confidential
Information Statement, as supplemented through the date
hereof, or the FWRLP Documents shall be true, accurate and
complete in all material respects, and shall have been
fulfilled in all material respects, as of the date of the
Closing Date; and
(ii) Contributor and its Partners shall be released
by the First Trustholder in writing from all liabilities they
may have on account of or in any way in connection with the
Lutheran Loan.
In the event any of the foregoing conditions are not satisfied as of the Closing
Date, Contributor shall notify FWRLP in writing, and if FWRLP does not correct
such failure (if valid) within five (5) business days after such notice, then
Contributor, in its sole discretion, (A) may avail itself of the remedies
provided in Paragraph 16(a) hereof if such non-satisfaction constitutes a
default by FWRLP hereunder or (B) terminate this Agreement, in which event the
Deposit and any interest thereon shall be returned to FWRLP and neither party
shall have any further obligation or liabilities to the other (but the
indemnities provided in Sections 13(a) and 15 hereof shall survive in all
events).
9. Contributor's Deliveries. Contributor shall execute, acknowledge and
deliver to FWRLP at the Closing the following documents, each dated on the
Closing Date:
(a) a special warranty deed, in form and substance
satisfactory to FWRLP, and Title Company, conveying good and marketable fee
simple title to the Property, free and clear of all liens, encumbrances,
easements and restrictions of every nature and description, except for the
Permitted Exceptions;
(b) a bill of sale which shall convey to FWRLP good title to
all the Property, free and clear of all liens and encumbrances;
(c) an affidavit setting forth that all of Contributor's
representations and warranties are true and correct in all material respects on
the Closing Date;
(d) an assignment of the Leases, together with all originally
executed Leases, and the security deposits shall be paid to FWRLP;
(e) an assignment of Licenses and Service Contracts, if any,
which are
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to be assumed by FWRLP at FWRLP's request, together with the originally executed
Service Contracts which are to be assumed;
(f) a schedule updating the Rent Schedule for the Property and
setting forth all arrearages in rents and all prepayments of rents;
(g) copies of books, records, operating reports, files and
other materials related to the ownership, use and operation of the Property, to
the extent that any exist and are in the possession of Contributor, which
obligation shall survive Closing;
(h) Tenant estoppel letters in the form attached hereto as
Exhibit F from Giant Food, CVS/Pharmacy, King Park Hardware and First Union Bank
and tenants leasing in the aggregate at least 70% of the remaining leased space
in the Property dated within thirty (30) days of Closing, which tenant estoppel
letters shall not contradict the information set forth in Exhibit B hereto or
the Contributor's representations and warranties in Section 5(d) hereof.
(i) an original letter executed by Contributor advising the
tenants of the Property of the contribution of the Property to FWRLP and
directing that rents and other payments thereafter be sent to FWRLP or as FWRLP
may direct;
(j) possession of the Property in the condition required by
this Agreement, and the keys therefore;
(k) the Certification of Non-foreign Status as provided in
Treas. Reg. 1.1445-2(b)(2)(iii)(B) or in any other form as may be required by
the Internal Revenue Code or the regulations issued thereunder;
(l) such other items and instruments as shall be required by
the Title Company in connection with the issuance of its title insurance policy
to FWRLP pursuant to Section 8(a)(iii) or as shall be reasonably requested by
counsel to FWRLP and consistent with the terms of this Agreement;
(m) any and all documents necessary to release the cash
constituting the Deposit from escrow with the Title Company and to have said
Deposit returned to FWRLP;
(n) an amendment to the Partnership Agreement of FWRLP, in a
form reasonably acceptable to FWRLP and Contributor, admitting the Contributor
(or the Partners receiving Units, if applicable) as a limited partner(s) of
FWRLP and issuing the Units to Contributor (or the Partners who are to receive
Units, if applicable) computed in accordance with Section 2 herein; and
(o) any other documents required by this Agreement to be
delivered by
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Contributor.
10. FWRLP's Performance. At Closing, simultaneously with the deliveries
of Contributor pursuant to the provisions of Section 9 above, FWRLP shall pay
the cash and issue the Units to Contributor in the manner specified in Section
2, whereupon the Deposit, and any interest accrued thereon, shall be returned to
FWRLP by the Title Company. In addition to the Units, FWRLP shall deliver to
Contributors at the Closing the following item:
(a) Executed copies of such documents as Lutheran may
reasonably require in connection with the assumption of the Lutheran Loan (the
"Lutheran Assumption Documents"), including, if required by Lutheran, an
indemnity agreement with regard to hazardous wastes and toxic substances on the
Property (and a release from Lutheran of all obligations which Contributor
and/or any related entity may have with respect to the Lutheran Loan).
11. Settlement Charges; Prorations and Adjustments.
(a) FWRLP shall pay for the title examination, the title
insurance premium, notary fees and other such charges incident to Closing. Any
real estate transfer and recording fees and taxes and documentary stamps in
connection with this transaction shall be borne equally by Contributor and
FWRLP, but any taxes and costs/incurred in connection with the modification of
the Lutheran Loan shall be borne solely by FWRLP. FWRLP and Contributor shall
each pay its own legal fees related to the preparation of this Agreement and all
documents required to settle the transaction contemplated hereby.
(b) In addition to the foregoing, at the Closing, the
following adjustments and prorations shall be computed as of the Closing Date,
as follows:
(i) Taxes. Real estate and personal property taxes
shall be apportioned as of the Closing Date.
(ii) Assessments. All special assessments and other
similar charges which have become a lien upon the Property or
any part thereof at the Closing Date and are due and payable
through the Closing Date, if any, shall be paid in full by
Contributor at the Closing. All other special assessments or
similar charges shall be adjusted as of the Closing Date.
(iii) Rent and Security Deposits. Rent for the month
of, and any month after, Closing collected by Contributor
prior to Closing shall be adjusted as of the date of Closing.
If any tenant is in arrears in the payment of rent on the
Closing Date, rents received from such tenant after the
Closing shall be applied in the following order of priority:
(a) first, to the payment of current rent then due; (b)
second, to delinquent rent for
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any period after the Closing Date; and (c) third, to
delinquent rent for any period prior to the Closing Date.
FWRLP shall use reasonable efforts (other than the institution
of suit) to collect arrearages due as of the Closing Date
(including, without limitation, unpaid Additional Rent
attributable to periods prior to Closing); provided, however,
that at Contributor's election (i) FWRLP will institute suit
at the request of Contributor to collect such arrearages
provided all costs (including attorney's fees) in connection
therewith are paid by Contributor, or (ii) FWRLP shall assign
to Contributor all rights with respect to such arrearages and
Contributor may pursue collection thereof. FWRLP agrees to
cooperate with Contributor in ascertaining any amounts due,
permitting Contributor to avail itself of any audit rights
with respect to any tenants and otherwise assisting
Contributor in collection of such arrearages. If rents or any
portion thereof received by Contributor or FWRLP after the
Closing Date are payable to the other party by reason of this
allocation, the appropriate sum, less a proportionate share of
any reasonable attorneys' fee, costs and expenses of
collection thereof, shall be promptly paid to the other party,
which obligation shall survive the Closing.
If any tenants are required to pay percentage rents,
escalation charges for real estate taxes, operating expenses,
cost-of-living adjustments or other charges of a similar
nature ("Additional Rents") and any Additional Rents are
collected by FWRLP after the Closing which are attributable in
whole or in part to any period prior to the Closing, then
FWRLP shall promptly pay to Contributor its proportionate
share thereof, less a proportionate share of any reasonable
attorneys' fees, costs and expenses of collection thereof (if
any), if and when the tenant paying the same has made all
payments of rents and Additional Rent then due to FWRLP
pursuant to the tenant's Lease, which obligation shall survive
the Closing.
(iv) Debt Service on the Lutheran Loan. The amount of
interest payable under the Lutheran Loan shall be apportioned
as of the Closing Date.
(v) Miscellaneous. All other charges and fees
customarily prorated and adjusted in similar transactions,
including utilities, insurance premiums and charges for
Service Contracts and other liabilities incurred in the
ordinary course of business to be assumed by FWRLP, shall be
prorated as of the Closing Date. In the event that accurate
prorations and other adjustments cannot be made at Closing
because current bills are not obtainable or the amount to be
adjusted is not yet ascertainable (as, for example, in the
case of utility bills) the parties shall prorate on the best
available information, subject to further adjustment promptly
upon receipt
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of the final bill or upon completion of final computations.
Contributor agrees that an appropriate amount in respect of
water consumption or other utility charges may be held in
escrow by the Title Company in connection with its issuance of
a title insurance policy to FWRLP. Contributor shall use its
best efforts to have all utility meters read on the Closing
Date so as to accurately determine its share of current
utility bills.
(c) Distributions. The quarterly distributions payable to
Contributor on the Units for the first record date after Closing shall be pro
rated based upon the number of days within the quarter occurring after Closing.
12. Risk of Loss. The risk of loss or damage to the Property by fire or
other casualty until delivery of the deed of conveyance shall be borne by
Contributor. If prior to Closing (i) condemnation proceedings are commenced
against all or any material portion of the Property, or (ii) if the Property is
damaged by fire or other casualty to the extent that the cost of repairing such
damage shall be Two Hundred Thousand Dollars ($200,000.00) or more or to the
extent that Giant Food, CVS/Pharmacy, Kings Park Hardware, First Union Bank or a
tenant(s) of the Property (occupying in excess of 2,000 square feet in the
aggregate) shall exercise a termination right available under its lease because
of such damage), or (iii) if the Property is damaged by an uninsured risk; or
(iv) if the Property becomes subject to litigation which may deprive FWRLP of
any material benefit to which it would become entitled pursuant to this
Agreement, then FWRLP shall have the right, upon notice in writing to the
Contributor delivered within ten (10) days after actual notice of such
condemnation or fire or other casualty or litigation, to terminate this
Agreement, and thereupon the parties shall be released and discharged from any
further obligations to each other (except the indemnities provided in Sections
13(a) and 15 hereof shall survive such termination) and the Deposit shall be
refunded to FWRLP. If FWRLP does not timely elect to terminate this Agreement or
in the event of fire or other casualty not giving rise to a right to terminate
this Agreement by FWRLP, FWRLP shall be entitled to an assignment of all of
Contributor's share of the proceeds of fire or other casualty insurance and rent
insurance proceeds payable with respect to the period after Closing or of the
condemnation award, as the case may be, and Contributor shall have no obligation
to repair or restore the Property; provided, however, that the cash portion and
the Unit portion (based on the Unit Price) of the Consideration (i.e., on a
40/60 basis) shall be reduced by an amount equal to the sum of (a) the
"deductible" applied by the Contributor's insurance policy, or (b) if the
Contributor is self-insured, the cost of repairing such damage. FWRLP shall have
the right to participate in the negotiation and settlement of any casualty or
condemnation- related claim, provided FWRLP shall have previously elected not to
terminate this Agreement or has no such right of termination.
13. Inspection of Property.
(a) FWRLP's Right of Inspection. FWRLP shall have the right,
at its own risk, cost and expense, at any time or times prior to Closing, to
enter, or cause its
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agents or representatives to enter, upon the Property for the purpose of making
surveys, or any tests, investigations and/or studies relating to the Property or
FWRLP's intended acquisition thereof which FWRLP deems appropriate, in its sole
discretion, during reasonable hours and upon reasonable notice to Contributor.
FWRLP's entry shall be subject to the rights of all tenants of the Property, and
FWRLP shall use reasonable efforts not to interfere with the business being
conducted by the tenants. FWRLP shall further have complete access to all
documentation, agreements and other information in the possession of Contributor
related to the ownership, use and operation of the Property, to the extent it is
readily available to Contributor, and shall have the right, at FWRLP's cost, to
make copies of same. FWRLP agrees to repair any damage to the Property that may
be caused by its inspections and to indemnify and defend Contributor and hold
Contributor harmless against any injury, loss, damage or lien suffered upon the
Property as a result of such inspections. The foregoing indemnification
obligation shall survive Closing and/or any termination of this Agreement.
(b) Feasibility Period. Any other provisions of this Agreement
to the contrary notwithstanding, FWRLP may cause at FWRLP's sole cost and
expense, such boring, engineering, economic, water, sanitary and storm sewer,
utilities, topographic, structural, environmental and other tests,
investigations, market studies and other studies as FWRLP shall elect, subject
to the provisions of Section 13(a) above. In the event that any of such tests,
investigations and/or studies indicate, in FWRLP's sole discretion, that FWRLP's
plans for the Property would not be feasible, then FWRLP shall have the right,
at its sole election on or before the expiration of forty-five (45) days after
the Acceptance Date (such period herein referred to as the "Feasibility
Period"), to terminate this Agreement by giving written notice thereof to
Contributor, in which event this Agreement shall terminate, the Deposit shall be
returned to FWRLP and neither party shall have any further liabilities or
obligations to each other, other than the indemnities provided in Sections 13(a)
and 15, FWRLP shall return to Contributor all information provided by
Contributor, shall deliver to Contributor the written reports of any and all
studies and tests performed by FWRLP, shall keep confidential all information
disclosed by Contributor or otherwise obtained by FWRLP and shall not use any
such information to the detriment of Contributor.
(c) Audit. Contributor hereby agree to allow books and records
related to the Property to be audited (at FWRLP's sole expense) prior to Closing
at the Contributor's office by an independent, certified public accounting firm
selected by FWRLP, and Contributor will cooperate and cause its employees and
other agents to cooperate in such auditing process, provided Contributor shall
incur out of pocket costs or expenses in connection therewith. FWRLP shall
provide Contributor with prior notice of such audit.
14. Indemnifications.
(a) Indemnification by Contributor. Subject to the provisions
of Section
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18(m), Contributor hereby indemnifies and agrees to defend and hold harmless
FWRLP and its partners and subsidiaries and any officer, director, employee,
agent of any of them, and their respective successors and assigns from and
against any and all claims, expenses, costs, damages, losses and liabilities
(including reasonable attorneys' fees) which may at any time be asserted against
or suffered by FWRLP, any indemnitee, or the Property, or any part thereof,
whether before or after the Closing Date, as a result of, on account of or
arising from (i) any breach of any covenant, representation, warranty or
agreement on the part of Contributor or its Partners made herein or in any
instrument or document delivered pursuant to this Agreement, and/or (ii) any
obligation, claims, suit, liability, contract, agreement, debt or encumbrance or
other occurrence (other than any of the foregoing approved, consented or taken
subject to by FWRLP in accordance with the provisions of this Agreement)
created, arising or accruing on or prior to the Closing Date, regardless of when
asserted, and relating to the Contributor or the Property, or its operations. To
the extent an indemnification obligation under clause (i) above arises out of a
breach by any Partner of the several representations and warranties set froth in
Section 5(t) hereof, only the Partner responsible for such breach shall be
obligated to indemnify FWRLP hereunder.
(b) Indemnification by FWRLP. Subject to the provisions of
Section 18(m), FWRLP hereby indemnifies and agrees to defend and hold harmless
Contributor and its Partners and their respective heirs, executors,
administrators, personal or legal representatives, successors and assigns from
and against any and all claims, expenses, costs, damages, losses and liabilities
(including reasonable attorneys' fees) which may at any time be asserted against
or suffered by Contributor or its Partners and/or their heirs, executors,
administrators, personal or legal representatives, successors or assigns as a
result of, on account of or arising from (i) any breach of any covenant,
representation, warranty or agreement on the part of FWRLP made herein or in any
instrument or document delivered pursuant to this Agreement, and/or (ii) any
obligation, claims, suit, liability, contract, agreement, debt or encumbrance or
other occurrence created, arising or accruing after the Closing Date and
relating to the Property or its operations or pertaining to tenant security
deposits delivered to FWRLP, adjusted at Closing or set forth on Exhibit B
(whether or not adjusted).
15. Brokerage Commission. Contributor and FWRLP represent and warrant
to each other that no brokerage fee or real estate commission is or shall be due
or owing in connection with this transaction, and Contributor and FWRLP hereby
indemnify and hold the other harmless from any and all claims of any broker or
agent so claiming based on action or alleged action of the other. The provisions
of this Section 15 shall survive Closing or any termination of this Agreement.
16. Default Provisions; Remedies.
(a) FWRLP's Default. If FWRLP fails to consummate the
Contribution contemplated herein when required to do so pursuant to the
provisions hereof, then the Title Company shall deliver the Deposit and all
interest thereon to Contributor as full
-23-
<PAGE>
and complete liquidated damages, and as the exclusive and sole right and remedy
of Contributor, at law or in equity, whereupon this Agreement shall terminate
and neither party shall have any further obligations or liabilities to any other
party. In the event this Agreement is terminated, the indemnities set forth in
Section 13(a) and 15 shall nevertheless remain in full force and effect.
(b) Contributor's Default. Except for any breaches waived in
writing by FWRLP, if Contributor breaches any of its covenants or obligations
under this Agreement at or prior to Closing or has failed, refused or is unable
to consummate the Contribution contemplated herein by the Closing Date or if any
of the representations and warranties made by Contributor under this Agreement
shall be inaccurate or incorrect in any material respect, then FWRLP shall
notify Contributor of such breach in writing and, should Contributor not cure
same within five (5) business days of receipt of such default notice, then FWRLP
shall be entitled to (i) waive such breach, default or failure, and proceed to
Closing, (ii) extend the Closing for such reasonable time or times as may be
necessary in order to enable Contributor to remedy such breach, default or
failure (not to exceed three (3) months), (iii) terminate this Agreement and
obtain the return of the Deposit, (iv) maintain an action for specific
performance and/or (v) if and only if the breach, failure or refusal is due to
the wrongful act or omission of Contributor, maintain an action for damages
against Contributor in an amount not to exceed $200,000 (exclusive of court
costs and reasonable attorneys' fees). In the event this Agreement is
terminated, the indemnities set forth in Sections 13(a) and 15 shall
nevertheless remain in full force and effect.
(c) The provisions of Sections 16(a) and (b) above shall not
be applicable to any breach or default by a party occurring or first becoming
actually known to the other party after Closing, and, as to any said breach or
default, the non-defaulting party may exercise any and all remedies available at
law or in equity, subject, however, to the provisions of Section 18(m) and to
the following sentence. The foregoing notwithstanding, as to any such breach or
default other than a breach of the warranty and representation contained in
Section 5(t), any execution by FWRLP for damages awarded to FWRLP against
Contributor or its Partners shall not exceed $1,400,000 in the aggregate (and
the liability of each of the Partners of Contributor for any such damages shall
be limited to his/its pro rata share of the lesser of the loss or the $1,400,000
limitation in accordance with his/its respective current ownership interest in
Contributor).
(d) In the event that any litigation shall arise between the
parties hereto as to the subject matter hereof, the prevailing party in such
litigation shall be entitled to recover from the non-prevailing party all of its
court costs and reasonable attorneys' fees.
17. Registration Rights. (a) The REIT hereby agrees to use its best
efforts to file a registration statement within thirteen (13) months after
Closing to register the issuance and resale, if required, of REIT Common Stock
which may be issued to
-24-
<PAGE>
Contributor in exchange for its Units, to use its best efforts to cause such
registration statement to become effective and to keep such registration
continuously effective (subject to certain exceptions) for a period for four (4)
years thereafter; provided, however, that the REIT shall be permitted to
postpone such filing or suspend the effectiveness of such shelf registration
statement for such periods as the REIT reasonably determines are in the best
interest of the REIT or which are necessary to comply with securities law
requirements (including suspending sales under the shelf registration statement
for such periods as the managing underwriter in an underwritten offering deems
necessary).
(b) Piggyback Registration Rights. If the REIT has a shelf
registration statement effective with respect to any of its equity securities,
the REIT will use its best efforts to cause such registration statement to
include the Common Stock issuable upon exchange of the Contributor's Common
Units, unless the REIT reasonably determines that inclusion of such Common Units
would have a material adverse effect on the REIT and its stockholders.
(c) Survival. The obligations of the REIT under this Section
17 shall survive Closing.
18. Miscellaneous Provisions.
(a) Completeness and Modification. This Agreement (together
with Exhibits A to N attached hereto) represents the complete understanding
between the parties hereto with respect to the transactions contemplated herein,
and it supersedes all prior discussions, understandings or agreements between
the parties. This Agreement shall not be modified or amended except by an
instrument in writing signed by all of the parties hereto.
(b) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective heirs,
executors, administrators, personal and legal representatives, successors and
assigns.
(c) Assignment. This Agreement shall not be assignable by
FWRLP without the consent of Contributor, provided that this Agreement may be
assigned without Contributor's consent to an entity controlled by, controlling
or under common control with FWRLP, without Contributor's consent. This
Agreement shall not be assignable by Contributor.
(d) Waiver; Modification. Failure by FWRLP or Contributor to
insist upon or enforce any of its rights hereto shall not constitute a waiver or
modification thereof.
(e) Governing Law. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Virginia.
-25-
<PAGE>
(f) Headings. The headings are herein used for convenience or
reference only and shall not be deemed to vary the content of this Agreement or
the covenants, agreements, representations and warranties herein set forth, or
the scope of any provision hereof.
(g) Continuing Documentation and Access. From and after
Closing, Contributor shall afford FWRLP reasonable access to any and all
information in its possession concerning the ownership, use and operation of the
Property (including the right to copy same at the expense of FWRLP) for purposes
of any tax examination or audit or other similar purpose, subject to the
agreements of FWRLP concerning confidentiality set forth herein.
(h) All Warranties Joint and Several. Except on set forth in
Section 5(t) hereof, each and every warranty, covenant, undertaking and
agreement of Contributor hereunder shall be deemed a joint and several warranty,
covenant, undertaking and agreement of each person and entity collectively
comprising the Contributor.
(i) Counterparts. To facilitate execution, this Agreement may
be executed in as many counterparts as may be required; it shall be sufficient
that the signature of, or on behalf of, each party, or that the signatures of
the persons required to bind any party, appear on one or more such counterparts.
All counterparts shall collectively constitute a single agreement.
(j) Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered by hand or
mailed by first-class registered or certified mail, return receipt requested,
postage prepaid or delivered by commercial courier, telecopy or overnight
courier (e.g., Federal Express) against receipt, to the addresses indicated
below:
(i) if to FWRLP:
First Washington Realty Limited Partnership
4350 East-West Highway, Suite 400
Bethesda, MD 20814
Attn: Stuart D. Halpert
Jeffrey S. Distenfeld, Esq.
Telecopy: (301) 907-4911
(ii) if to Contributor:
Kings Park Associates
8120 Woodmont Avenue, Suite 300
Bethesda, MD 20814
Attn: Marvin L. Kay
Telecopy: (301) 664-8019
-26-
<PAGE>
with a copy to:
Stefan F. Tucker, Esq.
Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Telecopy: (202) 429-3231
and
Robert E. Falb, Esq.
Robins, Kaplan, Miller and Ciresi
1801 K Street, N.W.
Suite 1200
Washington, D.C. 20006
Telecopy: (202) 223-8604
Such notice shall be deemed given on the date of receipt by
the addressee or the date receipt would have been effectuated if delivery were
not refused. Each party may designate a new address by written notice to the
other in accordance with this Paragraph 18(j).
(k) Further Assurances. Contributor and FWRLP agree to
execute, acknowledge and deliver any further agreements, documents or
instruments that are reasonably necessary or desirable to carry out the
transactions contemplated by this Agreement, provided that such execution,
acknowledgment and delivery does not impose any additional costs on such party
(other than such party's attorneys' fees in the review thereof and de minimis
recording costs).
(l) Business Days. A "business day" shall be Mondays through
Fridays, less and expecting all legal holidays observed by the United States
Government or the Government of the State of Maryland. Any date specified in
this Agreement which does not fall on a business day shall be automatically
extended until the first business day after such date.
(m) Survival. All of the covenants, indemnities,
representations and warranties of this Agreement shall survive Closing and shall
thereafter remain in effect, except as follows:
(i) the covenants, representations and warranties
contained in Section 5(a) through (r) and Section 7(a) through
(f) and (h) through (l) shall terminate one (1) year after the
Closing Date except as to claims for breach thereof asserted
by a party within such one (1) year period;
(ii) the indemnifications and other covenants and
agreements contained in Sections 14(a) and (b) shall terminate
one (1) year after the Closing Date, except as to claims as to
which a party hereto has asserted a right of indemnification
within said period; and
-27-
<PAGE>
(iii) any breach of any representation, warranty or
covenant made by any party hereto which is actually known on
the Closing Date to the party benefitted thereby shall be
deemed waived once the Closing has occurred (and in this
regard each of Contributor, FWRLP and the REIT covenant to
disclose the existence of any such breaches to the other party
promptly upon learning of the same); provided, however, that
such breach shall not be deemed waived if (x) the breaching
party had actual knowledge that it was in breach on the date
of execution of this Agreement, or (y) the breach consists of
an intentional or wrongful act or omission by the breaching
party after the date of execution of this Agreement.
(n) Definition of Knowledge. For purposes of this Agreement,
whenever a statement is made to a party's "knowledge" or "to the best of the
knowledge" of a party, such statement is made only to the actual knowledge of
the party without any independent inquiry.
19. Tax Matters.
(a) FWRLP covenants that, during the period beginning on the
Closing Date and ending five years thereafter, the principal balance of the
mortgage loan secured by the Property shall not be reduced below an amount equal
to the outstanding principal balance of the Lutheran Loan as of the Closing Date
(other than for (i) scheduled amortization of the mortgage loan, (ii) any
principal prepayment once each calendar year in an amount not to exceed ten
percent (10%) of the then outstanding principal balance of the mortgage loan,
and (iii) non-scheduled principal curtailments of the mortgage loan due to
application required by mortgage lender of insurance or condemnation proceeds
beyond FWRLP's reasonable control.
(b) If (1) FWRLP intends to make a principal prepayment of the
mortgage loan pursuant to clause (ii) or (iii) under subsection (a) above, or
(2) FWRLP intends to refinance the mortgage loan secured by the Property after
the fifth anniversary of the Closing Date, then FWRLP will give each Partner who
receives Units at least ten (10) days' prior written notice thereof, and each
such Partner, at his written election but with no obligation to do so, may
affirmatively make a Bottom Guaranty Election (as described below). Any such
election shall be made by notice delivered to FWRLP no later than the date on
which the tax return for FWRLP is filed for the fiscal year in question.
(c) A Bottom Guaranty Election shall state that, if FWRLP
shall be in default with respect to the mortgage loan securing the Property, the
Contributor agrees to contribute to the capital of FWRLP a designated portion of
the principal balance of such mortgage loan (the "Contribution Limit"); however,
such contribution shall only occur if the mortgage lender shall have exhausted
all of its remedies against the Property in order to collect the amount owing
the mortgage lender, and such Contribution Limit shall be reduced on a
dollar-for-dollar basis for every dollar received by the mortgage lender from
exercising its remedies. Any such contribution shall be made by the end of the
fiscal year during which FWRLP is liquidated. For example, if the amount of the
mortgage loan were $4,000,000.00 and the amount of other Contributor Limit were
$400,000.00, the capital contribution would be required if, and only if, the
Property were sold in foreclosure and the proceeds ( whether cash or other
proceeds) of sale were less than $400,000.00
-28-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Contribution
Agreement as of the day and year first written above.
FWRLP:
FIRST WASHINGTON REALTY
LIMITED PARTNERSHIP
By: First Washington Realty Trust, Inc.,
ATTEST: Its general partner
By: /s/
- ------------------------- -----------------------------
[Assistant Secretary] William J. Wolfe
President
[Corporate Seal]
Date of execution: October 22 , 1996
CONTRIBUTOR:
WITNESS: KINGS PARK ASSOCIATES
By: /s/
-------------------------------------
Marvin L. Kay
General Partner
By: /s/
--------------------------------------
Lawrence Kirstein
General Partner
By: Estate of Richard Kirstein
General Partner
By: /s/
---------------------------------
Name: Robert E. Falb
Title: Personal Representative
Date of execution: October 23 , 1996
-29-
<PAGE>
First Washington Realty Trust, Inc. joins herein solely for the purpose
of making the representations, warranties and covenants contained in Sections
7(d), 7(e) and 17 hereof.
FIRST WASHINGTON REALTY
WITNESS: TRUST, INC.
By: /s/
- -------------------------- ---------------------------------
William J. Wolfe
President
Date of execution: October 22, 1996
-30-
<PAGE>
ACKNOWLEDGE BY TITLE COMPANY
The undersigned Title Company executes this Contribution Agreement
solely to acknowledge receipt of the Deposit pursuant to Paragraph 3 hereof and
to evidence its agreement to serve as escrow agent pursuant to the terms of the
foregoing Agreement.
COMMERCIAL SETTLEMENTS, INC.
By: /s/
- ------------------------ -----------------------
Stuart S. Levin
Vice President
Date: October 29, 1996
-31-
<PAGE>
LIST OF EXHIBITS
EXHIBIT A. Legal Description of Land Recitals
EXHIBIT B. Leases and Rent Schedule Section 5(d)
EXHIBIT C. Service Contracts Section 5(e)
EXHIBIT D. Tax Bills Section 5(f)
EXHIBIT E. Intentionally Omitted
EXHIBIT F. Form of Tenant Estoppel Section 5(i)
EXHIBIT G. Litigation Section 5(k)
EXHIBIT H. Intentionally Omitted
EXHIBIT I. Intentionally Omitted
EXHIBIT J. Operating Statements Section 5(p)
EXHIBIT K. Personal Property Section 5(r)
EXHIBIT L. Mortgage Section 2(c)(i)
EXHIBIT M. Note Section 2(c)(i)
EXHIBIT N. Confidential Information Statement Sections 5(t)(v), 7(e)
[Contributor to Attach Foregoing at Acceptance of this Agreement]
-32-
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
-33-
<PAGE>
EXHIBIT B
LEASES AND RENT SCHEDULE
-34-
<PAGE>
EXHIBIT C
SERVICE CONTRACTS
-35-
<PAGE>
EXHIBIT D
TAX BILLS
-36-
<PAGE>
EXHIBIT E
Intentionally Omitted
-37-
<PAGE>
EXHIBIT F
Form of Tenant Estoppel
ESTOPPEL CERTIFICATE
, 199
First Washington Realty Limited Partnership
4350 East-West Highway
Suite 400
Bethesda, MD 20814
Re: Kings Park Shopping Center
Lease dated , 199 , with [Name of Tenant]
-------------------------------------------------------------
Gentlemen:
Please be advised that the undersigned tenant hereby certifies as of
the date hereof as follows with respect to the Lease:
The Lease is unmodified and in full force and effect except for modifications,
listed by number and date on Exhibit A attached hereto.
Name of Tenant:
Description of Leased Premises:
Date of Commencement of Lease:
Date of Termination of Lease:
Options to Renew:
Base Rental: Annual Rental of $ , payable monthly in advance.
---------------
Percentage Rent: ____% of Gross Receipts over $__________.
Tax Charges: pro rata: ___ yes ___ no. ($ payable monthly in advance.)
---------
Common Area Maintenance Charges: pro rata: ___ yes ___ no. ($
-
payable monthly in advance.)
Tenant in possession of the premises under the Lease?: Yes
Amount of rent paid in advance: $
Amount of Security Deposit: $
Compliance with Construction Requirements: Landlord has complied with all
-i-
<PAGE>
construction requirements of Tenant, and Tenant has accepted all of the leased
premises under the Lease.
Tenant has not made any claims against Landlord and has no knowledge of any
uncured default on the part of Landlord (If there is knowledge of any uncured
default, please note and attach separate sheet).
Tenant's Right of Premature Termination or Option to Renew: Tenant has no right
to premature termination and no right or option to renew or extend the term
beyond its present term and no option to lease additional space, except as
expressly set forth in the Lease.
Tenant's Right to Purchase: Tenant has no option or right in the nature of a
right of first refusal to purchase or otherwise acquire any interest in the
leased premises.
Anything in the Lease to the contrary notwithstanding, Tenant agrees that it
will not terminate the Lease or withhold any rents due thereunder because of
Landlord's default in the performance thereof until tenant has first given
notice to Landlord and to the holder of any deed of trust specifying the nature
of any such default by Landlord and allowing the said holder, at its option,
thirty (30) days after date of such notice to cure the default, or a reasonable
period of time in addition thereto if circumstances are such that the default
cannot be cured within a thirty (30) day period.
Tenant agrees to subordinate the Lease to any deed of trust on the leased
premises.
In the event of foreclosure, Tenant agrees to attorn to the purchaser of the
leased premises at the foreclosure sale.
TENANT:
By:
Name:
Title:
STATE OF )
) ss:
COUNTY OF )
Signed and sealed in my presence this day of , 199 .
---- ---------------------
Notary Public
[SEAL]
My Commission Expires:
-ii-
<PAGE>
EXHIBIT G
LITIGATION
NONE
-iii-
<PAGE>
EXHIBIT H
Intentionally Omitted
-iv-
<PAGE>
EXHIBIT I
Intentionally Omitted
-v-
<PAGE>
EXHIBIT J
OPERATING STATEMENTS AND BUDGET
-vi-
<PAGE>
EXHIBIT K
PERSONAL PROPERTY
NONE
-vii-
<PAGE>
EXHIBIT L
MORTGAGE
-viii-
<PAGE>
EXHIBIT M
NOTE
-ix-
<PAGE>
EXHIBIT N
CONFIDENTIAL INFORMATION STATEMENT
-x-
EXHIBIT 12
FIRST WASHINGTON REALTY TRUST, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO PRO
FORMA HISTORICAL FORMA HISTORICAL
----- ---------- ----- --------------------------------
09/30/96 09/30/96 12/31/95 12/31/95 12/31/94 12/31/93
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary item and minority
interest.................................................. $ 4,748 $ 3,431 $ 6,236 $ 2,931 $ (836) $ (1,240)
Add:
Interest on indebtedness................................ 11,764 9,351 14,704 8,968 7,993 7,693
Amortization of debt expense............................ 1,703 1,674 2,384 2,262 1,308 216
----- ----- ----- ----- ----- ---
Income as adjusted.................................... $ 18,215 $ 14,456 $ 23,324 $ 14,161 $ 8,465 $ 6,669
========= ========= ========= ========= ========= =========
Fixed charges:
Interest on indebtedness................................ $ 11,764 $ 9,351 $ 14,704 $ 8,968 $ 7,993 $ 7,693
Amortization of debt expense............................ 1,703 1,674 2,384 2,262 1,308 216
Capitalized interest.................................... -- -- -- -- -- --
Preferred dividends..................................... 4,231 4,231 6,668 5,975 2,142 --
----- ----- ----- ----- -----
Total fixed charges................................... $ 17,698 $ 15,256 $ 23,756 $ 17,205 $ 11,443 $ 7,909
========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges........................ 103% -- -- -- -- --
========= ========= ========= ========= ========= =========
Earnings Deficiency....................................... $ -- $ 800 $ 432 $ 3,044 $ 2,978 $ 4,593
========= ========= ========= ========= ========= =========
<CAPTION>
12/31/92 12/31/91
-------- --------
<S> <C> <C>
Income (loss) before extraordinary item and minority
interest.................................................. $ (2,096) $ (2,807)
Add:
Interest on indebtedness................................ 7,872 8,552
Amortization of debt expense............................ 272 395
Income as adjusted.................................... $ 6,048 $ 6,140
Fixed charges:
Interest on indebtedness................................ $ 7,872 $ 8,552
Amortization of debt expense............................ 272 395
Capitalized interest.................................... 92 245
Preferred dividends..................................... -- --
--------- ---------
Total fixed charges................................... $ 8,236 $ 9,192
========= =========
Ratio of earnings to fixed charges........................ -- --
========= =========
Earnings Deficiency....................................... $ 1,240 $ 2,188
========= =========
</TABLE>
EXHIBIT 21
State of
Incorporation
Subsidiary or Formation
- ---------- ------------
First Washington Realty Limited Partnership Maryland
First Washington Management, Inc. District of Columbia
First Capital Realty, Inc. District of Columbia
JFD, Inc. Maryland
Bryans QRS, Inc. Maryland
Valley Centre, Inc. Maryland
Southside Marketplace Limited Partnership Maryland
Cloppers Mill Village Center, L.L.C. Maryland
Allenbeth Associates Limited Partnership Maryland
Branchwood, Inc. Maryland
Branchwood Apartments Limited Partnership Maryland
Woodholme Properties Limited Partnership Maryland
SP Associates Limited Partnership Maryland
JFD Limited Partnership Maryland
FW-Bryans Road Limited Partnership Maryland
Greenspring Associates Limited Partnership Maryland
1
EXHIBIT 24.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 of
First Washington Realty Trust, Inc. (the 'Company'), of our report, dated
February 9, 1996, on our audits of the consolidated balance sheets of the
Company as of December 31, 1995 and 1994 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1995; our report dated February 9, 1996 on our
audits of the financial statement schedules listed in Item 35(a)3; our report,
dated October 18, 1996, on our audit of the combined statement of revenues and
certain expenses of the New Retail Properties for the year ended December 31,
1995; and our report dated July 2, 1996, on our audit of the combined statement
of revenues and certain expenses of the 1996(B) Acquisition Properties for the
year end December 31, 1995. We also consent to the reference to our firm under
the caption 'Experts'.
COOPERS & LYBRAND L.L.P.
Washington, DC
November 22, 1996
EXHIBIT 25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bethesda,
State of Maryland on November 1, 1996.
FIRST WASHINGTON REALTY TRUST, INC.
By: /S/ WILLIAM J. WOLFE
------------------------------
William J. Wolfe
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below hereby constitutes and appoints
William Wolfe as his attorney-in-fact and agent, with full power of
substitution and resubstitution for him in any and all capacities, to sign any
or all amendments or post-effective amendments to this Registration Statement,
or any Registration Statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with exhibits thereto and other documents in connection
therewith or in connection with the registration of the Common Stock under the
Securities Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that such attorney-in-fact and agent or his substitutes may do or cause to
be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ STUART D. HALPERT Chairman of the Board of Directors November 1, 1996
Stuart D. Halpert
/S/ WILLIAM J. WOLFE President, Chief Executive Officer, November 1, 1996
William J. Wolfe Director
/S/ LESTER ZIMMERMAN Executive Vice President, Director November 1, 1996
Lester Zimmerman
/S/ JAMES G. BLUMENTHAL Chief Financial Officer November 1, 1996
James G. Blumenthal
/S/ STANLEY T. BURNS Director November 1, 1996
Stanley T. Burns
/S/ MATTHEW J. HART Director November 1, 1996
Matthew J. Hart
/S/ WILLIAM M. RUSSELL Director November 1, 1996
William M. Russell
/S/ HEYWOOD WILANSKY Director November 1, 1996
Heywood Wilansky
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at September 30, 1996 (Unaudited) and the Statements of Income for the six
months ended September 30, 1996 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,870
<SECURITIES> 0
<RECEIVABLES> 4,692
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 285,774
<DEPRECIATION> 28,324
<TOTAL-ASSETS> 274,964
<CURRENT-LIABILITIES> 0
<BONDS> 187,346
0
23
<COMMON> 32
<OTHER-SE> 69,780
<TOTAL-LIABILITY-AND-EQUITY> 274,969
<SALES> 0
<TOTAL-REVENUES> 30,113
<CGS> 0
<TOTAL-COSTS> 7,623
<OTHER-EXPENSES> 8,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,025
<INCOME-PRETAX> (1,286)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,286)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
