SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-14162
GLENBOROUGH REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter)
Maryland 94-3211970
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, 94402-1708
Suite 1100 San Mateo, California - (650) 343-9300 (Zip Code)
(Address of principal executive offices
and telephone number)
Securities registered under Section 12(b) of the Act:
Name of Exchange
Title of each class: on which registered:
Common Stock, $.001 par value New York Stock Exchange
7 3/4% Series A Convertible Preferred Stock,
$.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
As of March 20, 1998, the aggregate market value of the voting stock held
by nonaffiliates of the registrant was $886,666,791. The aggregate market value
was computed with reference to the closing price on the New York Stock Exchange
on such date. This calculation does not reflect a determination that persons are
affiliates for any other purpose.
As of March 20, 1998, 31,549,256 shares of Common Stock ($.001 par value)
and 11,500,000 shares of 7 3/4% Series A Convertible Preferred Stock ($.001 par
value) were outstanding.
DOCUMENTS INCORPORATED:
Part III: Portions of the Registrant's definitive proxy statement to be issued
in conjunction with the Registrant's annual stockholder's meeting to be held on
May 14, 1998.
EXHIBITS: The index of exhibits is contained in Part IV herein on page number
83.
1
<PAGE>
TABLE OF CONTENTS
Page No.
PART I
Item 1 Business 3
Item 2 Properties 6
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters 17
Item 6 Selected Financial Data 18
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 21
Item 8 Financial Statements and Supplementary Data 35
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 35
PART III
Item 10 Directors and Executive Officers of the Registrant 36
Item 11 Executive Compensation 36
Item 12 Security Ownership of Certain Beneficial Owners and
Management 36
Item 13 Certain Relationships and Related Transactions 36
PART IV
Item 14 Exhibits, Financial Statements, Schedules and Reports
on Form 8-K 37
2
<PAGE>
PART I
Item 1. Business
General Development and Description of Business
Glenborough Realty Trust Incorporated (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") engaged primarily in the
ownership, operation, management, leasing and acquisition of various types of
income-producing properties. As of December 31, 1997, the Company owned and
operated 128 income-producing properties (the "Properties," and each a
"Property") and held two mortgage receivables. The Properties are comprised of
30 office Properties, 43 office/flex Properties, 26 industrial Properties, 9
retail Properties, 14 multi-family Properties and 6 hotel Properties, located in
23 states.
The Company was incorporated in the State of Maryland on August 26, 1994. On
December 31, 1995, the Company completed a consolidation (the "Consolidation")
in which Glenborough Corporation, a California corporation, and eight public
limited partnerships (the "Partnerships") collectively, the "GRT Predecessor
Entities", merged with and into the Company. The Company (i) issued 5,753,709
shares (the "Shares") of the $.001 par value Common Stock of the Company to the
Partnerships in exchange for the net assets of the Partnerships; (ii) merged
with Glenborough Corporation, with the Company being the surviving entity; (iii)
acquired an interest in three companies (the "Associated Companies"), two of
which merged on June 30, 1997, that provide asset and property management
services, as well as other services; and (iv) through a subsidiary operating
partnership, Glenborough Properties, L.P. (the "Operating Partnership"),
acquired interests in certain warehouse distribution facilities from GPA, Ltd.,
a California limited partnership ("GPA"). A portion of the Company's operations
are conducted through the Operating Partnership, of which the Company is the
sole general partner, and in which the Company holds a 91.48% limited partner
interest. The Company operates the assets acquired in the Consolidation and in
subsequent acquisitions (see further discussion below) and intends to invest in
income property directly and through joint ventures. In addition, the Associated
Companies may acquire general partner interests in other real estate limited
partnerships. The Company has elected to qualify as a REIT under the Internal
Revenue Code of 1986, as amended. The common stock of the Company (the "Common
Stock") is listed on the New York Stock Exchange ("NYSE") under the trading
symbol "GLB".
The Company seeks to achieve sustainable long-term growth in Funds from
Operations primarily through the following strategies:
Acquiring diversified portfolios or individual properties on attractive
terms, often from public and private partnerships as well as from other
REITs, life insurance companies and other institutions;
Improving the performance of Properties in the Company's portfolio;
Constantly reviewing the Company's current portfolio for opportunities to
redeploy capital from certain existing Properties into other properties
which the Company believes have characteristics more suited to its overall
growth strategy and operating goals; and
Entering into real estate development joint ventures with selected real
estate developers.
Since the Consolidation, and consistent with its strategy for growth, the
Company has completed the following transactions:
Acquired 20 properties in the third and fourth quarters of 1996 and 90
properties in 1997. In addition, the Company has acquired 16 properties
subsequent to December 31, 1997. The total acquired Properties consist of
an aggregate of approximately 12.6 million rentable square feet, 2,147
multi-family units and 227 hotel suites and had aggregate acquisition
costs, including capitalized costs, of approximately $1.2 billion. In
addition, the Company has entered into two separate definitive agreements,
subject to a number of contingencies, to acquire 12 properties in 5 states,
aggregating 1,006,622 rentable square feet. However, there can be no
assurance that any or all of these properties will be acquired.
From January 1, 1996 to the date of this filing, sold four industrial
properties, 16 retail properties and one multi-family property to redeploy
capital into properties the Company believes have characteristics more
suited to its overall growth strategy and operating goals.
Entered into a $250 million unsecured line of credit (the "Acquisition
Credit Facility") with Wells Fargo Bank, N.A. ("Wells Fargo Bank") which
replaced its $50 million secured line of credit and closed a $150 million
unsecured loan agreement (the "Interim Loan") with Wells Fargo Bank.
3
<PAGE>
Completed four offerings of Common Stock in October 1996, March 1997, July
1997 and October 1997 (respectively, the "October 1996 Offering," the
"March 1997 Offering," the "July 1997 Offering," and the "October 1997
Offering"), resulting in aggregate gross proceeds of approximately $562
million.
Completed an offering of 7 3/4% Series A Convertible Preferred Stock (the
"January 1998 Convertible Preferred Stock Offering") for total gross
proceeds of approximately $287.5 million.
Issued $150 million of 75/8% Senior Notes which are due on March 15, 2005.
Paid off the Interim Loan with proceeds from the issuance of $150 million
of 7 5/8% Senior Notes.
The Company's principal business objectives are to achieve a stable and
increasing source of cash flow available for distribution to stockholders. By
achieving these objectives, the Company will seek to raise stockholder value
over time.
The Associated Companies
Glenborough Corporation. Glenborough Corporation ("GC"), a California
corporation formerly known as Glenborough Realty Corporation, serves as general
partner of several real estate limited partnerships (the "Controlled
Partnerships") for whom it provides asset and property management services. It
also provides property management services for a limited portfolio of property
owned by unaffiliated third parties. The majority of services to the
unaffiliated third parties were previously provided by Glenborough Inland Realty
Corporation ("GIRC"), a California corporation, which merged with GC effective
June 30, 1997. In the merger between GC and GIRC, the Company received preferred
stock of GC in exchange for its preferred stock of GIRC, on a one-for-one basis.
Following the merger, the Company holds the same preferences with respect to
dividends and liquidation distributions paid by GC as it previously held with
respect to GC and GIRC combined.
Following the merger, the Company owns 100% of the 38,000 shares (representing
95% of total outstanding shares) of non-voting preferred stock of GC. Five
individuals, including Sandra L. Boyle and Frank E. Austin, executive officers
of the Company, each own 20% of the 2,000 shares (representing 5% of total
outstanding shares) of voting common stock of GC. The Company and GC intend that
the Company's interest in GC complies with REIT qualification standards.
The Company, through its ownership of preferred stock of GC, is entitled to
receive cumulative, preferred annual dividends of $4.53 per share, which GC must
pay before it pays any dividends with respect to the common stock of GC. Once GC
pays the required cumulative preferred dividend, it will pay any additional
dividends in equal amounts per share on both the preferred stock and the common
stock at 95% and 5%, respectively. Through the preferred stock, the Company is
also entitled to receive a preferred liquidation value of $114.50 per share plus
all cumulative and unpaid dividends. The preferred stock is subject to
redemption at the option of GC after December 31, 2005, for a redemption price
of $114.50 per share. As the holder of preferred stock of GC, the Company has no
voting power with respect to the election of the directors of GC; all power to
elect directors of GC is held by the owners of the common stock of GC.
This structure is intended to provide the Company with a significant portion of
the economic benefits of the operations of GC. The Company accounts for the
financial results of GC using the equity method.
Glenborough Hotel Group. The Company, through the Operating Partnership, leases
its hotel properties to Glenborough Hotel Group ("GHG"). The Company, through
the Operating Partnership, holds a first mortgage on another hotel, which is
managed by GHG under a contract with its owner. GHG also manages a hotel owned
by an affiliated entity as well as two resort condominium hotels and a hotel
owned by an unaffiliated third party.
The Company owns 100% of the 50 shares of non-voting preferred stock of GHG.
Three individuals, one of whom, Terri Garnick, is an executive officer of the
Company, each own 33 1/3% of the 1,000 shares of voting common stock of GHG. The
Company and GHG intend that the Company's interest in GHG complies with REIT
qualification standards.
The Company, through its ownership of preferred stock, is entitled to receive
cumulative, preferred annual dividends of $600 per share, which GHG must pay
before it pays any dividends with respect to the common stock. Once GHG pays the
required cumulative preferred dividend, it will pay 75% of any additional
dividends to holders of the preferred stock, and 25% to holders of the common
stock. Through the preferred stock, the Company is also entitled to receive a
preferred liquidation value of $40,000 per share plus all cumulative and unpaid
dividends. The preferred stock will be subject to redemption at the option of
GHG after December 31, 1999, for a redemption price of $40,000 per share. As the
holders of preferred stock of GHG, the Company has no voting power with respect
to the election of the directors of GHG; all power to elect directors of GHG is
held by the owners of the common stock of GHG.
4
<PAGE>
This structure is intended to provide the Company with a significant portion of
the economic benefits of the operations of GHG. The Company accounts for the
financial results of GHG using the equity method.
GHG owns approximately 80% of the common stock of Resort Group, Inc. ("RGI").
RGI manages homeowners associations and rental pools for two beachfront resort
condominium hotel properties and owns six units at one of the properties. GHG
receives 100% of the earnings of RGI and consolidates its operations with its
own.
GHG also owned 94% of the outstanding common stock of Atlantic Pacific Holdings,
Ltd., the sole owner of 100% of the common stock of Atlantic Pacific Assurance
Company, Limited (APAC), a Bermuda corporation formed to underwrite certain
insurable risks of certain of the Company's predecessor partnerships and related
entities. As anticipated, in July 1997, APAC was liquidated and GHG received a
liquidating distribution of approximately $2,136,000. GHG has recognized a gain
of $1,381,000 over its investment basis and costs of liquidation. GHG had
accounted for its investment in APAC using the cost method due to its
anticipated liquidation. The gain on liquidation was not subject to income
taxes.
Employees
As of December 31, 1997, the Company and the Associated Companies had
approximately 455 full-time employees.
Competition
The Company's Properties compete for tenants (or guests, in the case of hotels)
with similar properties located in their markets. Management believes that
characteristics influencing the competitiveness of a real estate project include
the geographic location of the property, the professionalism of the property
manager and the maintenance and appearance of the property, in addition to
external factors such as general economic circumstances, trends, and the
existence of new competing properties in the general area in which the Company
competes for tenants (or guests, in the case of hotels).
Additional competitive factors with respect to commercial properties include the
ease of access to the property, the adequacy of related facilities, such as
parking, and the ability to provide rent concessions and additional tenant
improvements commensurate with local market conditions. Such competition may
lead to rent concessions that could adversely affect the Company's cash flow.
Although the Company believes its Properties are competitive with comparable
properties as to those factors within the Company's control, continued
over-building and other external factors could adversely affect the ability of
the Company to attract and retain tenants. The marketability of the Properties
may also be affected (either positively or negatively) by these factors as well
as by changes in general or local economic conditions, including prevailing
interest rates.
The Company also experiences competition when attempting to acquire equity
interests in desirable real estate, including competition from domestic and
foreign financial institutions, other REITs, life insurance companies, pension
funds, trust funds, partnerships and individual investors.
Working Capital
The Company's practice is to maintain cash reserves for normal repairs,
replacements, improvements, working capital and other contingencies while
minimizing interest expense. Therefore, cash on hand is kept to a minimum by
frequently paying down on the Acquisition Credit Facility and drawing on the
Acquisition Credit Facility when necessary.
Other Factors
Compliance with laws and regulations regarding the discharge of materials into
the environment, or otherwise relating to the protection of the environment, is
not expected to have any material effect upon the capital expenditures, earnings
and competitive position of the Company.
The Properties have each been subject to Phase I Environmental Assessments and,
where such an assessment indicated it was appropriate, Phase II Environmental
Assessments (collectively, the "Environmental Reports") have been conducted.
These reports have not indicated any significant environmental issues.
In the event that pre-existing environmental conditions not disclosed in the
Environmental Reports which require remediation are subsequently discovered, the
cost of remediation will be borne by the Company. Additionally, no assurances
can be given that (i) future laws, ordinances, or regulations will not impose
any material environmental liability, (ii) the current environmental condition
of the Properties has not been or will not be affected by tenants and occupants
of the Properties, by the condition of properties in the vicinity of the
Properties or by third parties unrelated to the Company or (iii) that the
Company will not otherwise incur significant liabilities associated with costs
of remediation relating to the Properties.
5
<PAGE>
Item 2. Properties
The Location and Type of the Company's Properties
The Company's 128 Properties are diversified by type (office, office/flex,
industrial, retail, multi-family and hotel) and are located in four geographic
regions and 23 states within the United States comprising numerous local
markets. The following table sets forth the location, type and size of the
Properties (by rentable square feet and/or units) along with average occupancy
as of December 31, 1997.
<TABLE>
<CAPTION>
Office Office/Flex Industrial Retail Multi-
Square Square Square Square Family Hotel No. of
Region Footage Footage Footage Footage Units Rooms Properties
- ------------------ ------------ ------------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
West 694,654 1,820,480 977,926 394,222 866 440 53
Midwest 684,193 608,986 1,067,884 132,190 -- -- 18
East 910,322 303,630 577,868 45,546 1,385 -- 30
South 632,192 790,599 909,832 407,130 -- 304 27
------------ ------------- ------------ ------------- ------------- ------------- -------------
Total 2,921,361 3,523,695 3,533,510 979,088 2,251 744 128
============ ============= ============ ============= ============= ============= =============
No. of Properties
30 43 26 9 14 6
Average Occupancy
93% 91% 97% 96% 95% 70%
</TABLE>
For the years ended December 31, 1997 and 1996, no tenant contributed 10% or
more of the rental revenue of the Company. The largest tenant occupied 748,426
square feet, or 7% of the total square footage of the Office, Office/Flex,
Industrial and Retail Properties. For the year ended December 31, 1995, rental
revenue from the two Properties leased to Navistar International contributed
approximately 10% of the combined total rental revenue of the GRT Predecessor
Entities. A complete listing of Properties owned by the Company at December 31,
1997 is included as part of Schedule III in Item 14.
Office Properties
The Company owns 30 office Properties with total rentable square footage of
2,921,361. The leases for the office Properties have terms ranging from one to
35 years. The office leases generally require the tenant to reimburse the
Company for increases in building operating costs over a base amount. Many of
the leases provide for rent increases that are either fixed or based on a
consumer price index ("CPI"). As of December 31, 1997, the average occupancy of
the office Properties was 93%.
The following table sets forth, for the periods specified, the total rentable
area, average occupancy, average effective base rent per leased square foot and
total effective annual base rent.
<TABLE>
<CAPTION>
Office Properties
Historical Rent and Occupancy
Total Average Effective Total Effective
Rentable Average Base Rent per Annual Base
Year Area (Sq. Ft) Occupancy Leased Sq. Ft. (1) Rent ($000s) (2)
<C> <C> <C> <C> <C>
1997 2,921,361 93% $ 15.81 $ 42,954
1996 641,923 94 13.19 7,918
1995 106,076 97 11.91 1,228
1994 105,770 88 11.44 1,065
1993 104,666 80 12.04 1,008
<FN>
(1) Total Effective Annual Base Rent divided by average occupancy in square feet. As used herein, "Effective Base Rent"
represents base rent less concessions.
6
<PAGE>
(2) Total Effective Annual Base Rent adjusted for any free rent given for the period.
</FN>
</TABLE>
The following table sets forth the contractual lease expirations for leases for
the office Properties as of December 31, 1997.
<TABLE>
<CAPTION>
Office Properties
Lease Expirations
Number Rentable Square Annual Base Percentage of Total
of Footage Subject Rent Under Annual Base Rent
Expiration Expiring to Expiring Expiring Represented by
Year Leases Leases Leases ($000s) Expiring Leases (1)
<C> <C> <C> <C> <C>
1998 (4) 221 422,047 $ 6,612 15.0%
1999 103 503,429 6,886 15.6
2000 98 414,760 8,022 18.2
2001 81 504,181 7,991 18.1
2002 47 204,864 3,109 7.0
Thereafter 34 698,766 11,545 26.1
Total 584 2,748,047 (2) $44,165 (3) 100.0%
<FN>
(1) Annual base rent expiring during each period, divided by total annual base rent (both adjusted for contractual
increases).
(2) This figure is based on square footage actually leased (which excludes vacant space), which accounts for the
difference between this figure and "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This figure is based on square footage actually leased and incorporates contractual rent increases arising after
1997, and thus differs from "Total Effective Annual Base Rent" in the preceding table, which is based on 1997 rents.
(4) Includes leases that have initial terms of less than one year.
</FN>
</TABLE>
Office/Flex Properties
The Company owns 43 office/flex Properties aggregating 3,523,695 square feet.
The office/flex Properties are designed for a combination of office and
warehouse uses with greater than 10% of the leasable square footage containing
office finish. The office/flex Properties range in size from 27,414 square feet
to 202,540 square feet, and have lease terms ranging from one to 23 years. Most
of the office/flex leases are "triple net" leases whereby the tenants are
required to pay their pro rata share of the Properties' operating costs, common
area maintenance, property taxes, insurance, and non-structural repairs. Some of
the leases are "industrial gross" leases whereby the tenant pays as additional
rent its pro rata share of common area maintenance and repair costs and its
share of the increase in taxes and insurance over a specified base year cost.
Many of these leases call for fixed or CPI-based rent increases. As of December
31, 1997, the average occupancy of the office/flex Properties was 91%.
The following table sets forth, for the periods specified, the total rentable
area, average occupancy, average effective base rent per leased square foot and
total effective annual base rent.
<TABLE>
<CAPTION>
Office/Flex Properties
Historical Rent and Occupancy
Total Average Effective Total Effective
Rentable Average Base Rent per Annual Base
Year (4) Area (Sq. Ft) Occupancy Leased Sq. Ft. (1) Rent ($000s) (2)
<C> <C> <C> <C> <C>
1997 3,523,695 91% $ 7.17 $ 22,991
1996(3) 247,506 96 5.50 1,307
<FN>
(1) Total Effective Annual Base Rent divided by average occupancy in square feet. As used herein, "Effective Base Rent"
represents base rent less concessions.
(2) Total Effective Annual Base Rent adjusted for any free rent given for the period.
(3) Includes the TRP Properties. For these Properties, base rents are presented on an annualized basis based on
results since the acquisition as this information was not available for the year ended December 31, 1996.
(4) Prior to 1996, Properties currently classified as Office/Flex Properties were included in Industrial Properties.
See Industrial Properties table below.
</FN>
</TABLE>
7
<PAGE>
The following table sets forth the contractual lease expirations for leases for
the office/flex Properties as of December 31, 1997.
<TABLE>
<CAPTION>
Office/Flex Properties
Lease Expirations
Number Rentable Square Annual Base Percentage of Total
of Footage Subject Rent Under Annual Base Rent
Expiration Expiring to Expiring Expiring Represented by
Year Leases Leases Leases ($000s) Expiring Leases (1)
<C> <C> <C> <C> <C>
1998 237 1,069,040 $ 7,907 33.5%
1999 125 649,478 4,008 17.0
2000 85 511,434 3,506 14.9
2001 37 297,668 2,061 8.7
2002 27 273,013 1,931 8.2
Thereafter 18 455,110 4,182 17.7
Total 529 3,255,743 (2) $23,595 (3) 100.0%
<FN>
(1) Annual base rent expiring during each period, divided by total annual base rent (both adjusted for contractual
increases).
(2) This figure is based on square footage actually leased (which excludes vacant space), which accounts for the
difference between this figure and "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This figure is based on square footage actually leased and incorporates contractual rent increases arising after
1997, and thus differs from "Total Effective Annual Base Rent" in the preceding table, which is based on 1997 rents.
</FN>
</TABLE>
Industrial Properties
The Company owns 26 industrial Properties aggregating 3,533,510 square feet. The
industrial Properties are designed for warehouse, distribution and light
manufacturing, ranging in size from 23,826 square feet to 474,426 square feet.
As of December 31, 1997, 12 of the industrial Properties were leased to multiple
tenants, 14 were leased to single tenants, and all 14 of the single-tenant
Properties are adaptable in design to multi-tenant use. As of December 31, 1997,
the average occupancy of the industrial Properties was 97%.
Four of the single-tenant Properties are leased to a total of two tenants having
five years remaining on leases whose original terms were 20 years. The terms of
these leases include rent increases every three years based on all or a
percentage of the change in the CPI. Under these leases the tenants are required
to pay for all of the Properties' operating costs, such as common area
maintenance, property taxes, insurance, and all repairs including structural
repairs. The leases give the tenant a purchase option exercisable on March 1,
1999, and 2002 for an amount equal to the greater of the appraised value or a
specified minimum price. Management believes, based on discussions with both
tenants, that neither tenant has any present intention to exercise any option to
purchase.
The remaining industrial Properties have leases whose terms range from 1 to 29
years. Most of the leases are "triple net" leases whereby the tenants are
required to pay their pro rata share of the Properties' operating costs, common
area maintenance, property taxes, insurance, and non-structural repairs. Some of
the leases are "industrial gross" leases whereby the tenant pays as additional
rent its pro rata share of common area maintenance and repair costs and its
share of the increase in taxes and insurance over a specified base year cost.
Many of these leases call for fixed or CPI-based rent increases.
8
<PAGE>
The following table sets forth, for the periods specified, the total rentable
area, average occupancy, average effective base rent per leased square foot and
total effective annual base rent for the Industrial Properties.
<TABLE>
<CAPTION>
Industrial Properties
Historical Rent and Occupancy
Total Average Effective Total Effective
Rentable Average Base Rent per Annual Base
Year(4) Area (Sq. Ft) Occupancy Leased Sq. Ft. (1) Rent ($000s) (2)
<C> <C> <C> <C> <C>
1997 3,533,510 97% $ 3.36 $ 11,516
1996(3) 1,778,862 99 2.41 4,244
1995 1,491,827 100 2.29 3,405
1994 1,491,827 100 2.29 3,401
1993 1,491,827 98 2.24 3,294
<FN>
(1) Total Effective Annual Base Rent divided by average occupancy in square feet.
(2) Total Effective Annual Base Rent adjusted for any free rent given for the period.
(3) Includes the TRP Properties. For these Properties, base rents are presented on an annualized basis based on
results since the acquisition as this information was not available for the year ended December 31, 1996.
(4) Prior to 1996, Properties currently classified as Office/Flex Properties were included in Industrial Properties.
</FN>
</TABLE>
The following table sets forth the contractual lease expirations for leases for
the industrial Properties as of December 31, 1997.
<TABLE>
<CAPTION>
Industrial Properties
Lease Expirations
Number Rentable Square Annual Base Percentage of Total
of Footage Subject Rent Under Annual Base Rent
Expiration Leases to Expiring Expiring Represented by
Year Expiring Leases Leases ($000s) Expiring Leases (1)
<C> <C> <C> <C> <C>
1998 28 480,017 $ 1,730 15.6%
1999 25 299,068 1,292 11.6
2000 17 329,290 1,323 11.9
2001 14 255,106 1,131 10.2
2002 9 236,250 959 8.6
Thereafter 7 1,646,195 4,677 42.1
Total 100 3,245,926 (2) $11,112 (3) 100.0%
<FN>
(1) Annual base rent expiring during each period, divided by total annual base rent (both adjusted for contractual increases).
(2) This figure is based on square footage actually leased (which excludes vacant space), which accounts for the
difference between this figure and "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This figure is based on square footage actually leased (which excludes vacant space) and incorporates contractual
rent increases arising after 1997, and thus differs from "Total Effective Annual Base Rent" in the preceding table,
which is based on 1997 rents.
</FN>
</TABLE>
Retail Properties
The Company owns nine retail Properties with total rentable square footage of
979,088. The leases for the retail Properties have terms ranging from one to 38
years. Eight of the retail Properties, representing 933,542 square feet or 95%
of the total rentable area, are anchored community shopping centers. The anchor
tenants of these centers are national or regional supermarkets and drug stores.
As of December 31, 1997, the average occupancy of the retail Properties was 96%.
The leases for the retail Properties generally include fixed or CPI-based rent
increases and some include provisions for the payment of additional rent based
on a percentage of the tenants' gross sales that exceed specified amounts.
Retail tenants also typically pay as additional rent their pro rata share of the
Properties' operating costs including common area maintenance, property taxes,
insurance and non-structural repairs. Some leases contain options to renew at
market rates or specified rates.
9
<PAGE>
The following table sets forth, for the periods specified, the total rentable
area, average occupancy, average effective base rent per leased square foot and
total effective annual base rent for the retail properties.
<TABLE>
<CAPTION>
Retail Properties
Historical Rent and Occupancy
Total Average Effective Total Effective
Rentable Average Base Rent per Annual Base
Year Area (Sq. Ft) Occupancy Leased Sq. Ft. (1) Rent ($000s) (2)
<C> <C> <C> <C> <C>
1997 979,088 96% $ 7.98 $ 7,501
1996(3) 630,700 96 7.82 (4) 4,726
1995 285,658 95 10.76 2,915
1994 285,722 94 10.76 2,890
1993 285,722 90 11.11 2,858
<FN>
(1) Total Effective Annual Base Rent divided by average occupancy in square feet.
(2) Total Effective Annual Base Rent adjusted for any free rent given for the period.
(3) Includes the Carlsberg Properties and the TRP Properties. For these Properties, base rents are presented on an
annualized basis based on results since the acquisition as this information was not available for the year ended
December 31, 1996.
(4) Average effective base rent per leased square foot declined in 1996 due to the acquisition of properties with lower
base rents.
</FN>
</TABLE>
The following table sets forth the contractual lease expirations for the retail
Properties as of December 31, 1997.
<TABLE>
<CAPTION>
Retail Properties
Lease Expirations
Rentable Square Annual Base Percentage of Total
Number of Footage Subject Rent Under Annual Base Rent
Expiration Leases to Expiring Expiring Represented by
Year Expiring Leases Leases ($000s) Expiring Leases (1)
<C> <C> <C> <C> <C>
1998 39 90,664 $ 911 12.6%
1999 45 76,059 944 13.1
2000 24 42,249 542 7.5
2001 31 101,301 926 12.8
2002 7 13,560 176 2.4
Thereafter 40 567,531 3,719 51.6
Total 186 891,364 (2) $ 7,218 (3) 100.0%
<FN>
(1) Annual base rent expiring during each period, divided by total annual base rent (both adjusted for contractual
increases).
(2) This figure is based on square footage actually leased (which excludes vacant space), which accounts for the
difference between this figure and "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This figure is based on square footage actually leased (which excludes vacant space) and incorporates contractual
rent increases arising after 1997, and thus differs from "Total Effective Annual Base Rent" in the preceding table
which is based on 1997 rents.
</FN>
</TABLE>
10
<PAGE>
Tenant Improvements and Leasing Commissions
The following table summarizes by year the capitalized tenant improvement and
leasing commission expenditures incurred in the renewal or re-leasing of
previously occupied space since January 1, 1993.
<TABLE>
<CAPTION>
Capitalized Tenant Improvements and Leasing Commissions
1993 1994 1995 1996 1997
Office Properties
<S> <C> <C> <C> <C> <C>
Square footage renewed or re-leased 23,909 18,384 79,745 39,706 174,354
Capitalized tenant improvements and
commissions ($000s) $ 59 $ 58 $ 468(1) $ 617(2) $ 850
Average per square foot of renewed or
re-leased space $ 2.47 $ 3.18 $ 5.87 $ 15.54(2) $ 4.87
Office/Flex Properties
Square footage renewed or re-leased (3) (3) (3) 9,000 138,658
Capitalized tenant improvements and
commissions ($000s) (3) (3) (3) $ 23 $ 418
Average per square foot of renewed or
re-leased space (3) (3) (3) $ 2.56 $ 3.01
Industrial Properties
Square footage renewed or re-leased 66,500 89,000 141,523 60,000 198,055
Capitalized tenant improvements and
commissions ($000s) $ 64 $ 60 $ 114 $ 51 $ 235
Average per square foot of renewed or
re-leased space $ 0.96 $ 0.67 $ 0.81 $ 0.85 $ 1.19
Retail Properties
Square footage renewed or re-leased 31,443 46,833 33,294 32,998 12,080
Capitalized tenant improvements and
commissions ($000s) $ 59 $ 59 $ 98 $ 83 $ 42
Average per square foot of renewed or
re-leased space $ 1.87 $ 1.25 $ 2.94 $ 2.53 $ 3.51
All Properties
Square footage renewed or re-leased 121,852 154,217 254,562 141,704 523,147
Capitalized tenant improvements and
commissions ($000s) $ 182 $ 177 $ 680 $ 774 $ 1,545
Average per square foot of renewed or
re-leased space $ 1.49 $ 1.14 $ 2.67 $ 5.46 $ 2.95
<FN>
(1) The significant increase in capitalized tenant improvements and commissions in 1995 over the previous year is
primarily the result of re-leasing 15,491 sq. ft. at Regency Westpointe. The re-lease is for a term of ten years.
There were no commissions paid in this transaction. Tenant improvements totaled $405,000. This tenant occupies 43%
of Regency Westpointe.
(2) The significant increase in capitalized tenant improvements and commissions in 1996 over the previous years is
primarily the result of tenant improvements provided in connection with a lease extension of space for the
principal tenant of the UCT Property. The lease was extended 10 years and expires in 2010.
(3) Prior to 1996, Properties currently classified as Office/Flex Properties were included in Industrial Properties.
</FN>
</TABLE>
11
<PAGE>
Multi-family Properties
The Company owns 14 multi-family Properties, aggregating 2,251 units, and
1,971,887 square feet of space. All of the units are rented to residential
tenants on either a month-to-month basis or for terms of one year or less. As of
December 31, 1997, the multi-family properties were approximately 95% leased.
The following table sets forth, for the periods specified, total units, average
occupancy, monthly average effective base rent per unit and total effective
annual base rent for the multi-family Properties.
<TABLE>
<CAPTION>
Multi-family Properties
Historical Rent and Occupancy
Average Monthly Average Total Effective
Total Occupancy Effective Base Rent Annual Base
Year Units for the Period per Leased Unit (1) Rent ($000s) (2)
<C> <C> <C> <C> <C>
1997 2,251 95% $ 619 $ 15,884
1996(3) 642 94 598 (4) 4,328
1995 104 94 630 739
1994 104 98 632 774
1993 104 93 632 734
<FN>
(1) Total Effective Annual Base Rent divided by average occupied unit.
(2) Total Effective Annual Base Rent adjusted for any free rent given for the period.
(3) Includes the TRP Properties. For these Properties, occupancy rates are presented as of December 31, 1996, and base
rents are presented on an annualized basis based on results since the acquisition as this information was not
available for the year ended December 31, 1996.
(4) Average effective monthly base rent per unit declined in 1996 due to the acquisition of properties with lower base
rents.
</FN>
</TABLE>
Hotels
The Hotel portfolio consists of six hotels (the "Hotels," and each a "Hotel")
ranging from 64 to 163 rooms each. Four of the Hotels are all-suite Hotels which
consist primarily of one-bedroom suites, but each also includes some studio
suites and two-bedroom suites. All of the Hotels are currently operating under
license agreements with Country Lodging by Carlson, Inc. The four all-suite
Hotels are marketed as Country Suites by Carlson ("Country Suites") and of the
other two Hotels, one is marketed as a Country Inn by Carlson and one is
marketed as a Country Inn and Suites by Carlson. Country Lodging is part of the
Carlson Companies, based in Minneapolis, Minnesota. The Carlson Companies own,
operate and franchise Radisson Hotels, TGI Friday's Restaurants, Country Kitchen
Restaurants and the Carlson Travel Agency Network.
12
<PAGE>
The following table contains, for the periods indicated, occupancy, average
daily rate ("ADR") and revenue per available room ("REVPAR") information for the
Company's Hotels as well as comparative information for all U.S. Hotels and all
Country Lodging hotels.
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1994 1995 1996 1997
Irving, TX
<S> <C> <C> <C> <C> <C>
Occupancy 76.3% 77.5% 76.0% 75.2% 66.8%
ADR $ 50.22 $ 58.52 $ 66.55 $ 76.56 $ 70.38
REVPAR $ 38.33 $ 45.36 $ 50.57 $ 57.28 $ 47.19
Ontario, CA
Occupancy 59.6% 56.4% 65.5% 71.6% 75.3%
ADR $ 51.61 $ 52.02 $ 48.38 $ 54.89 $ 62.45
REVPAR $ 30.74 $ 29.35 $ 31.67 $ 38.95 $ 47.02
Arlington, TX
Occupancy 61.0% 63.4% 70.2% 68.7% 70.0%
ADR $ 51.58 $ 62.73 $ 64.96 $ 67.61 $ 66.34
REVPAR $ 31.46 $ 39.79 $ 45.63 $ 45.75 $ 46.45
Tucson, AZ
Occupancy 77.4% 77.4% 79.0% 81.4% 77.7%
ADR $ 54.46 $ 57.21 $ 58.93 $ 63.85 $ 66.42
REVPAR $ 42.16 $ 44.29 $ 46.53 $ 50.42 $ 51.60
San Antonio, TX (3)
Occupancy -- -- 53.3%(5) 54.6%(6) 63.2%
ADR -- -- $ 57.80(5) $ 58.68(6) $ 51.51
REVPAR -- -- $ 30.79(5) $ 32.03(6) $ 32.55
Scottsdale, AZ (4)
Occupancy -- -- -- 62.7%(7) 66.8%(8)
ADR -- -- -- $ 84.82(7) $ 92.84(8)
REVPAR -- -- -- $ 53.18(7) $ 62.05(8)
All U.S. Hotels (1)
Occupancy 63.7% 65.2% 66.0% 65.7% 64.5%
ADR $ 60.99 $ 63.63 $ 66.88 $ 71.66 $ 75.16
REVPAR $ 38.85 $ 41.49 $ 44.14 $ 47.06 $ 48.48
Country Lodging System (2)
Occupancy 71.4% 75.0% 75.4% 73.0% 70.0%
ADR $ 50.00 $ 53.00 $ 56.00 $ 62.42 $ 63.00
REVPAR $ 35.72 $ 39.75 $ 41.00 $ 45.45 $ 44.10
<FN>
(1) Source: Smith Travel Research and Country Hospitality.
(2) Source: Country Hospitality. Data for all years is limited to U.S. properties.
(3) The San Antonio Hotel opened in 1995.
(4) The Scottsdale Hotel opened in 1996.
(5) Information supplied for historical comparison only as this hotel was not acquired by the Company until August
1996. Source: Unaudited operating statements provided by previous owner of the hotel.
(6) Information represents a full year of operations including operations prior to the Company's acquisition of the
hotel in August 1996.
(7) Information supplied for historical comparison only as this hotel was not acquired by the Company until February
1997. Source: Unaudited operating statements provided by previous owner of the hotel.
(8) Information represents a full year of operations including operations prior to the Company's acquisition of the
hotel in February 1997.
</FN>
</TABLE>
The Percentage Leases
In order for the Company to qualify as a REIT, neither the Company nor the
Operating Partnership can operate the Hotels. Therefore, the Operating
Partnership has leased five of the Hotels to GHG, each for a term of five years
pursuant to percentage leases ("Percentage Leases") which provide for rent equal
to the greater of the Base Rent (as defined in the Percentage Leases) or a
specified percentage of room revenues (the "Percentage Rent"). Each Hotel is
separately leased to GHG. GHG's ability to make rent payments will, to a large
degree, depend on its ability to generate cash flow from the operations of the
Hotels. Each Percentage Lease contains the provisions described below.
13
<PAGE>
Each Percentage Lease has a non-cancelable term of five years, subject to
earlier termination upon the occurrence of certain contingencies described in
the Percentage Lease. The lessee under the Percentage Lease has one five-year
renewal option at the then current fair market rent.
During the term of each Percentage Lease, the lessee is obligated to pay the
greater of Base Rent or Percentage Rent. Base Rent accrues and is required to be
paid monthly in advance. Percentage Rent is calculated by multiplying fixed
percentages by room revenues for each of the five Hotels owned by the Company.
The applicable percentage changes when revenue exceeds a specified threshold,
and the threshold may be adjusted annually in accordance with changes in the
applicable CPI. Percentage Rent accrues monthly and is due quarterly.
The table below sets forth the annual Base Rent and the Percentage Rent formulas
for each of the five Hotels owned by the Company.
<TABLE>
<CAPTION>
Percentage Rent Incurred
Hotel Initial Annual for the year ended
Location Base Rent December 31, 1997 Annual Percentage Rent Formulas
<S> <C> <C> <C>
Ontario, CA $ 240,000 $ 324,000 24% of the first $1,668,000 of room revenue plus
40% of room revenue above $1,668,000 and 5% of
other revenue
Arlington, TX $ 360,000 $ 333,000 27% of the first $1,694,000 of room revenue plus
42% of room revenue above $1,694,000 and 5% of
other revenue
Tucson, AZ $ 600,000 $ 682,000 40% of the first $1,429,000 of room revenue plus
46% of room revenue above $1,429,000 and 5% of
other revenue
San Antonio, TX $ 312,000 $ 3,000 33% of the first $1,240,000 of room revenue plus
40% of room revenue above $1,240,000 and 5% of
other revenue
Scottsdale, AZ $ 720,000 (1) $ 548,000 41% of the first $2,600,000 of room revenue plus
60% of room revenue above $2,600,000 and 5% of
other revenue
<FN>
(1) Hotel was acquired in February 1997, therefore, rent incurred for the year ended December 31, 1997 was less than
a full year's rent.
</FN>
</TABLE>
Other than real estate and personal property taxes, casualty insurance, a fixed
capital improvement allowance and maintenance of underground utilities and
structural elements, which are the responsibility of the Company, the Percentage
Leases require the lessee to pay rent, insurance, salaries, utilities and all
other operating costs incurred in the operation of the Hotels.
GHG will not be permitted to sublet all or any part of the Hotels or to assign
its interest under any of the Percentage Leases, other than to an affiliate,
without the prior written consent of the Company. No assignment or subletting
will release GHG from any of its obligations under the Percentage Leases.
If the Company enters into an agreement to sell or otherwise transfer a Hotel,
the Company has the right to terminate the Percentage Lease with respect to such
Hotel upon paying GHG the fair market value of its leasehold interest in the
remaining term of the Percentage Lease to be terminated.
Mortgage Loans Receivable
Although the Company does not intend to engage in the business of making real
estate loans, the Company holds two notes receivable, secured by first priority
real property liens, which had a total outstanding principal balance of
$3,692,000 at December 31, 1997. As of the date of this filing, all payments are
current. In connection with the Grunow loan, the Company entered into an Option
Agreement which provides the Operating Partnership the option to purchase the
Grunow Medical building based on an agreed upon formula. See Note 5 in Item 14
for further discussion. The following table summarizes these two mortgages.
14
<PAGE>
<TABLE>
<CAPTION>
Summary of Mortgage Loans Receivable
Principal Current
Collateral Property Balance at Interest
Name Type 12/31/97 Rate Maturity
<S> <C> <C> <C> <C>
Laurel Cranford Industrial $ 507,000 9.00% 6/1/01
Grunow Medical Office $ 3,185,000 11.00% 11/19/99
</TABLE>
Item 3. Legal Proceedings
Blumberg. On February 17, 1998, the California state court of appeals affirmed
the Company's settlement of a class action complaint filed on February 21, 1995
in the Superior Court of the State of California in and for San Mateo County in
connection with the Consolidation. The plaintiff is Anthony E. Blumberg, an
investor in Equitec B, one of the GRT Predecessor Entities, on behalf of himself
and all others (the "Blumberg Action") similarly situated. The defendants are GC
(formerly known as Glenborough Realty Corporation), Glenborough Realty
Corporation ("GRC"), Robert Batinovich, the Partnerships and the Company.
The complaint alleged breaches by the defendants of their fiduciary duty and
duty of good faith and fair dealing to investors in the Partnerships. The
complaint sought injunctive relief and compensatory damages. The complaint
alleged that the valuation of GC was excessive and was done without appraisal of
GC's business or assets. The complaint further alleged that the interest rate
for the Notes to be issued to investors in lieu of shares of Common Stock, if
they so elected was too low for the risk involved and that the Notes would
likely sell, if at all, at a substantial discount from their face value (as a
matter entirely distinct from the litigation and subsequent settlement, the
Company, as it had the option to, paid in full the amounts due plus interest in
lieu of issuing Notes).
On October 9, 1995 the parties entered into an agreement to settle the action.
The defendants, in entering into the settlement agreement, did not acknowledge
any fault, liability or wrongdoing of any kind and continue to deny all material
allegations asserted in the litigation. Pursuant to the settlement agreement,
the defendants will be released from all claims, known or unknown, that have
been, could have been, or in the future might be asserted, relating to, among
other things, the Consolidation, the acquisition of the Company's shares
pursuant to the Consolidation, any misrepresentation or omission in the
Registration Statement on Form S-4, filed by the Company on September 1, 1994,
as amended, or the prospectus contained therein ("Prospectus/Consent
Solicitation Statement"), or the subject matter of the lawsuit. In return, the
defendants agreed to the following: (a) the inclusion of additional or expanded
disclosure in the Prospectus Consent Solicitation Statement, and (b) the
placement of certain restrictions on the sale of the stock by certain insiders
and the granting of stock options to certain insiders following consummation of
the Consolidation. Plaintiff's counsel indicated that it would request that the
court award it $850,000 in attorneys' fees, costs and expenses. In addition,
plaintiffs' counsel indicated it would request the court for an award of $5,000
payable to Anthony E. Blumberg as the class representative. The defendants
agreed not to oppose such requests.
On October 11, 1995, the court certified the class for purposes of settlement,
and scheduled a hearing to determine whether it should approve the settlement
and class counsel's application for fees. A notice of the proposed settlement
was distributed to the members of the class on November 15, 1995. The notice
specified that, in order to be heard at the hearing, any class member objecting
to the proposed settlement must, by December 15, 1995, file a notice of intent
to appear, and a detailed statement of the grounds for their objection.
Objections were received from a small number of class members. The objections
reiterated the claims in the original Blumberg complaint, and asserted that the
settlement agreement did not adequately compensate the class for releasing those
claims. One of the objections was filed by the same law firm that brought the
BEJ Action described below.
At a hearing on January 17, 1996, the court heard the arguments of the objectors
seeking to overturn the settlement, as well as the arguments of the plaintiffs
and the defendants in defense of the settlement. The court granted all parties a
period of time in which to file additional pleadings. On June 4, 1996, the court
granted approval of the settlement, finding it fundamentally fair, adequate and
reasonable to the respective parties to the settlement. However, the objectors
gave notice of their intent to appeal the June 4 decision. All parties filed
their briefs and a hearing was held on February 3, 1998. On February 17, 1998,
the court of appeals rendered its decision rejecting the objectors' contentions
and upholding the settlement.
15
<PAGE>
BEJ Equity Partners. On December 1, 1995, a second class action complaint
relating to the Consolidation was filed in Federal District Court for the
Northern District of California (the "BEJ Action"). The plaintiffs are BEJ
Equity Partners, J/B Investment Partners, Jesse B. Small and Sean O'Reilly as
custodian f/b/o Jordan K. O'Reilly, who as a group held limited partner
interests in certain of the GRT Predecessor Entities known as Outlook Properties
Fund IV, Glenborough All Suites Hotels, L.P., Glenborough Pension Investors,
Equitec Income Real Estate Investors-Equity Fund 4, Equitec Income Real Estate
Investors C and Equitec Mortgage Investors Fund IV, on behalf of themselves and
all others similarly situated. The defendants are GRC, GC, the Company, GPA,
Ltd., Robert Batinovich and Andrew Batinovich. The Partnerships are named as
nominal defendants.
This action alleges the same disclosure violations and breaches of fiduciary
duty as were alleged in the Blumberg Action. The complaint sought injunctive
relief, which was denied at a hearing on December 22, 1995. At that hearing, the
court also deferred all further proceedings in this case until after the
scheduled January 17, 1996 hearing in the Blumberg Action. Following several
stipulated extensions of time for the Company to respond to the complaint, the
Company filed a motion to dismiss the case. Plaintiffs in the BEJ Action
voluntarily dismissed the action pending resolution of the Blumberg Action.
It is management's position that the BEJ Action, and the objections to the
settlement of the Blumberg Action, are without merit, and management intends to
pursue a vigorous defense in both matters. However, given the inherent
uncertainties of litigation, there can be no assurance that the ultimate outcome
in these two legal proceedings will be in the Company's favor.
Item 4. Submission of Matters to a Vote of Security Holders
The company did not submit any matters to a vote of security holders in the
fourth quarter of the year ended December 31, 1997.
16
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Preferred Stock and
Related Stockholder Matters
(a) Market Information
On January 31, 1996, the Company's Common Stock began trading on the NYSE at
$12.00 per share under the symbol "GLB". On December 31, 1997, the closing price
of the Company's Common Stock was $29.625. On January 28, 1998, the Company's 7
3/4% Series A Convertible Preferred Stock (the "Preferred Stock") began trading
on the NYSE at $25.00 per share under the symbol "GLB Pr A". On March 20, 1998,
the last reported sales prices per share of the Company's Common Stock and
Preferred Stock on the NYSE were $29.5625 and $26.875, respectively. The
following table sets forth the high and low closing prices per share of the
Company's Common Stock and Preferred Stock for the periods indicated, as
reported on the NYSE composite tape.
Common Stock Preferred Stock
Quarterly Period High Low High Low
1996
First Quarter (1) $ 14.375 $ 12.000 (2) (2)
Second Quarter 15.250 13.375 (2) (2)
Third Quarter 14.750 13.375 (2) (2)
Fourth Quarter 17.625 13.625 (2) (2)
1997
First Quarter $ 20.500 $ 16.750 (2) (2)
Second Quarter 25.250 19.375 (2) (2)
Third Quarter 28.188 22.313 (2) (2)
Fourth Quarter 30.125 24.250 (2) (2)
1998
First Quarter (3) $ 31.750 $ 26.125 $ 27.000 $ 25.500
(1) Although the Consolidation occurred on December 31, 1995 and the Company
began paying distributions on its Common Stock based on earnings in the first
quarter of 1996, the Common Stock did not begin trading on the NYSE until
January 31, 1996.
(2) The Company's Preferred Stock did not begin trading on the NYSE until
January 28, 1998.
(3) High and low stock closing prices through March 20, 1998.
Holders
The approximate number of holders of record of the shares of the Company's
Common Stock and Preferred Stock were 4,951 and 19, respectively, as of March
20, 1998.
Distributions
Since the Consolidation, the Company has paid regular quarterly distributions to
holders of its Common Stock. During the years ended December 31, 1996 and 1997,
the Company declared and/or paid the following quarterly distributions:
Distributions Total
Quarterly Period per share Distributions
1996
First Quarter $ 0.30 $ 1,726,000
Second Quarter $ 0.30 $ 1,737,000
Third Quarter $ 0.30 $ 2,891,000
Fourth Quarter $ 0.32(1) $ 3,092,000(1)
1997
First Quarter $ 0.32 $ 4,222,000
Second Quarter $ 0.32 $ 6,456,000
Third Quarter $ 0.32 $ 10,072,000
Fourth Quarter $ 0.42(2) $ 13,250,000(2)
(1) Distributions for the fourth quarter of 1996 were paid on February 19, 1997.
(2) Distributions for the fourth quarter of 1997 were paid on January 27, 1998.
17
<PAGE>
The Company intends to declare regular quarterly distributions to its
stockholders. Federal income tax law requires that a REIT distribute annually at
least 95% of its REIT taxable income. Future distributions by the Company will
be at the discretion of the Board of Directors and will depend upon the actual
Funds from Operations of the Company, its financial condition, capital
requirements, the annual distribution requirements under the REIT provisions of
the Internal Revenue Code, applicable legal restrictions and such other factors
as the Board of Directors deems relevant. The Company intends to continue its
policy of paying quarterly distributions, but there can be no assurance that
distributions will continue or be paid at any specific level.
(b) Recent Sales of Unregistered Securities
In December 1997, the Company and Glenborough Properties, L.P. (the "Operating
Partnership," as to which the Company is general partner) issued approximately
$14.1 million in the form of 433,362 partnership units in the Operating
Partnership and 72,564 unregistered shares of Common Stock of the Company (based
on an agreed per unit and per share value of $27.896) to acquire all of the
limited partnership interests of GRC Airport Associates, a California limited
partnership ("GRCAA"). The units and shares were issued to the limited partners
of GRCAA, all of whom the Company believes are accredited investors. The units
are redeemable for cash, or, at the election of the Company, for shares of
Common Stock of the Company on a one-for-one basis. GRCAA's sole asset consisted
of one property that was sold to a third party in February 1998 and generated
net cash proceeds of approximately $14.1 million. The units and shares were
issued in reliance on the exemption provided by Section 4(2) of the Securities
Act of 1933, as amended.
Other sales of unregistered securities by the Company during 1997 are described
in the Company's Quarterly Reports on Form 10-Q for the quarters ended June 30,
1997 and September 30, 1997.
Item 6. Selected Financial Data
Set forth below are selected financial data for:
Glenborough Realty Trust Incorporated: Consolidated balance sheet data
is presented as of December 31, 1997, 1996 and 1995. Consolidated
operating data is presented for the years ended December 31, 1997 and
1996, and As Adjusted consolidated operating data is presented for the
years ended December 31, 1995 and 1994, and assumes the Consolidation
and related transactions occurred on January 1, 1994.
The GRT Predecessor Entities: Combined operating data is presented for
the years ended December 31, 1995, 1994 and 1993. The combined balance
sheet data is presented as of December 31, 1994 and 1993.
This selected financial data should be read in conjunction with the financial
statements of Glenborough Realty Trust Incorporated, including the notes
thereto, included in Item 14.
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
Historical Historical As Adjusted Historical As Adjusted Historical Historical
1997 1996 1995 1995 1994 1994 1993
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenue......... $ 61,393 $ 17,943 $ 13,495 $ 15,454 $ 12,867 $ 13,797 $ 13,546
Fees and reimbursements 719 311 260 16,019 260 13,327 15,439
Interest and other income 1,802 1,080 982 2,698 1,109 3,557 3,239
Equity in earnings of
Associated Companies 2,743 1,598 1,691 -- 1,649 -- --
Total Revenues(1)...... 68,148 21,253 16,428 34,171 15,885 30,681 32,224
Property operating expenses 18,958 5,266 4,084 8,576 3,673 6,782 7,553
General and administrative 3,319 1,393 983 15,947 954 13,454 14,321
Interest expense....... 9,668 3,913 2,767 2,129 2,767 1,140 1,301
Depreciation and
Amortization......... 14,873 4,575 3,654 4,762 3,442 4,041 4,572
Income (loss) from
operations before minority
interest and extraordinary
items 21,330 (1,131) 4,077 524 (2,721) 1,580 2,144
Net income (loss)(2)... 19,368 (1,609) 3,796 524 (3,093) 1,580 4,418
Diluted amounts per share(3):
Net income (loss) before
extraordinary items $ 1.09 $ (0.21) $ 0.66 -- $ (0.47) -- --
Net income (loss).... 1.05 (0.24) 0.66 -- (0.54) -- --
Distributions(4)..... 1.38 1.22 1.20 -- 1.20 -- --
</TABLE>
continued
18
<PAGE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
Historical Historical As Adjusted Historical As Adjusted Historical Historical
1997 1996 1995 1995 1994 1994 1993
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment in real estate $ 825,218 $ 161,945 -- $ 77,574 -- $ 63,994 $ 70,245
Mortgage loans receivable,
net.................. 3,692 9,905 -- 7,465 -- 19,953 18,825
Total assets........... 865,774 185,520 -- 105,740 -- 117,321 102,635
Total debt............. 228,299 75,891 -- 36,168 -- 17,906 12,172
Stockholders' equity... 580,123 97,600 -- 55,628 -- 80,558 85,841
Other Data:
EBIDA(5)............... $ 44,380 $ 14,273 $ 11,361 $ 9,291 $ 11,258 $ 10,269 $ 10,326
Cash flow provided by (used
for):
Operating activities. 24,078 4,138 4,656 (10,608) 5,742 22,426 12,505
Investing activities. (569,242) (61,833) 3,263 8,656 1,710 (1,947) (2,002)
Financing activities. 548,879 (54,463) (7,933) (17,390) (6,408) (2,745) (8,927)
FFO(6)................. 36,087 11,491 9,638 7,162 9,536 9,129 9,025
CAD(7),(8)............. 32,335 10,497 8,856 3,237 8,754 6,919 6,921
Debt to total market
capitalization(9).... 18.5% 29.5% -- -- -- -- --
<FN>
(1) Certain revenues which are included in the historical combined amounts for 1995 and prior are not included on an adjusted
basis. These revenues are included in two unconsolidated Associated Companies, GHG and GC, on an as adjusted basis,
from which the Company receives lease payments and dividends.
(2) Historical 1996 and as adjusted 1994 net losses reflect $7,237 of Consolidation and litigation costs incurred in connection
with the Consolidation. As adjusted 1994 data give effect to the Consolidation and related transactions as if such
transactions had occurred on January 1, 1994, whereas historical 1996 data reflect such transactions in the periods
they were expensed. The Consolidation and litigation costs were expensed on January 1, 1996, the Company's first
day of operations.
(3) Diluted amounts are computed in accordance with SFAS No. 128 - "Earnings Per Share" and include the dilutive effects of all
classes of securities outstanding at year-end, including units of Operating Partnership interests and options to
purchase stock of the Company. As adjusted net income per share is based upon as adjusted weighted average shares
outstanding of 5,753,709 for 1995 and 1994.
(4) Historical distributions per unit for the years ended December 31, 1997 and 1996 consist of distributions declared for the
periods then ended. As adjusted distributions per unit for each of the years ended December 31, 1995 and 1994 are
based on $0.30 per unit per quarter.
(5) EBIDA represents and is computed as earnings before interest expense, depreciation, amortization, loss provisions, gain or
loss on disposal of real estate properties, extraordinary items and minority interests. The Company believes that
in addition to cash flows and net income, EBIDA is a useful financial performance measurement for assessing the
operating performance of an equity REIT because, together with net income and cash flows, EBIDA provides investors
with an additional basis to evaluate the ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. To evaluate EBIDA and the trends it depicts, the components of EBIDA, such as rental
revenues, rental expenses, real estate taxes and general and administrative expenses, should be considered. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations." Excluded from EBIDA are
financing costs such as interest as well as depreciation and amortization, each of which can significantly affect a
REIT's results of operations and liquidity and should be considered in evaluating a REIT's operating performance.
Further, EBIDA does not represent net income or cash flows from operating, financing and investing activities as
defined by generally accepted accounting principles and does not necessarily indicate that cash flows will be
sufficient to fund cash needs. It should not be considered as an alternative to net income as an indicator of the
Company's operating performance or to cash flows as a measure of liquidity.
(6) Funds from Operations represents income (loss) from operations before minority interests, loss provisions, extraordinary
items and other non-recurring items plus depreciation and amortization except amortization of deferred financing
costs. In 1996, consolidation and litigation costs were also added back to net income to determine FFO. FFO is not
necessarily indicative of cash flow available to fund cash needs and is not the same as cash flow from operations
as defined by GAAP, and should not be considered as an alternative to net income (loss) as an indicator of the
Company's operating performance, or as an alternative to cash flows from operating, investing and financing
activities as a measure of liquidity or ability to make distributions. Management generally considers FFO to be a
useful financial performance measure of the operating performance of an equity REIT because, together with net
income and cash flows, FFO provides investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. FFO does not represent net income or cash
flows from operations as defined by GAAP and does not necessarily indicate that cash flows will be sufficient to
fund all of the Company's cash needs including principal amortization, capital improvements and distributions to
stockholders. FFO also does not represent cash flows generated from operating, investing or financing activities as
defined by GAAP. FFO as disclosed by other REITs may not be comparable to the Company's calculation of FFO.
(7) Cash available for distribution ("CAD") represents net income (loss) before minority interests, loss provisions, extraordinary
items and other non-recurring items plus depreciation and amortization including amortization of deferred financing
costs, less lease commissions and recurring capital expenditures. CAD should not be considered an alternative to
net income as a measure of the Company's financial performance or to cash flow from operating activities (computed
in accordance with GAAP) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient
cash flow to fund all of the Company's cash needs.
(8) CAD for the year ended December 31, 1995 excludes approximately $6,782 that represents the net proceeds received from the
prepayment of a mortgage loan receivable and the repayment of a related wrap note payable.
19
<PAGE>
(9) Debt to total market capitalization is calculated as total debt at period end divided by total debt plus the market
value of the Company's outstanding common stock, on a fully converted basis, based upon the closing price of the
Common Stock of $29.625 on December 31, 1997, and $17.625 on December 31, 1996.
</FN>
</TABLE>
Funds from Operations
The Company believes that FFO is a measure of cash flow which, when considered
in conjunction with other measures of operating performance, affects the value
of equity REITs such as the Company. FFO means income (loss) from operations
before minority interests, loss provisions, extraordinary items and other
non-recurring items plus depreciation and amortization, except amortization of
deferred financing costs.
FFO is not necessarily indicative of cash flow available to fund cash needs and
is not the same as cash flow from operations as defined by GAAP, and should not
be considered as an alternative to net income (loss) as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating, investing and financing activities as a measure of liquidity or
ability to make distributions. Management generally considers FFO to be a useful
financial performance measure of the operating performance of an equity REIT
because, together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. FFO does not represent net
income or cash flows from operations as defined by GAAP and does not necessarily
indicate that cash flows will be sufficient to fund all of the Company's cash
needs including principal amortization, capital improvements and distributions
to stockholders. FFO also does not represent cash flows generated from
operating, investing or financing activities as defined by GAAP. FFO as
disclosed by other REITs may not be comparable to the Company's calculation of
FFO.
The following table sets forth the Company's calculation of FFO and CAD for the
three months ended March 31, June 30, September 30 and December 31, 1997 and the
year ended December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Year to
March 31, June 30, Sept 30, Dec 31, Date
1997 1997 1997 1997 1997
------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net income before minority interest $ 2,594 $ 4,639 $ 4,958 $ 9,139 $ 21,330
Gain on collection of mortgage loan receivable (154) (498) -- -- (652)
Net gain on sales of rental properties -- (570) 15 (284) (839)
Prepayment penalty on payoff of mortgage loan -- -- 75 -- 75
Depreciation and amortization 1,537 2,507 4,823 6,006 14,873
Adjustment to reflect FFO of Associated
Companies (1) 623 248 (776) 1,205 1,300
------------- ------------- ------------- -------------- --------------
FFO $ 4,600 $ 6,326 $ 9,095 $ 16,066 $ 36,087
============= ============= ============= ============== ==============
Amortization of deferred financing fees 64 64 46 47 221
Capital reserve (110) (220) (204) (748) (1,282)
Capital expenditures (421) (541) (853) (876) (2,691)
------------- ------------- ------------- -------------- --------------
CAD $ 4,133 $ 5,629 $ 8,084 $ 14,489 $ 32,335
============= ============= ============= ============== ==============
Distributions per share (2) $ 0.32 $ 0.32 $ 0.32 $ 0.42 $ 1.38
============= ============= ============= ============== ==============
Fully converted weighted average shares
outstanding 10,935,951 14,466,852 21,194,507 31,512,511 19,688,489
============= ============= ============= ============== ==============
<FN>
(1) Reflects the adjustments to FFO required to reflect the FFO of the Associated Companies allocable to the Company.
The Company's investments in the Associated Companies are accounted for using the equity method of accounting.
(2) The distributions for the three months ended December 31, 1997, were paid on January 27, 1998.
</FN>
</TABLE>
20
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the selected data in
Item 6 and the Consolidated Financial Statements of Glenborough Realty Trust
Incorporated and the GRT Predecessor Entities, including the notes thereto,
included in Item 14.
Background
The Company commenced operations on December 31, 1995, through the merger (the
"Consolidation") of eight public limited partnerships (the "Partnerships") and a
management company, Glenborough Corporation ("GC", and with the Partnerships,
collectively, the "GRT Predecessor Entities") with and into the Company. A
portion of the Company's operations is conducted through Glenborough Properties,
L.P. (the "Operating Partnership") in which the Company holds a 1% interest as
the sole general partner and a 91.48% limited partner interest as of December
31, 1997. The Company has made an election to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code.
The statements of operations, equity and cash flows for the year ended December
31, 1995, of the GRT Predecessor Entities includes the historical operations of
GC and the Partnerships. This statement has been adjusted to reflect the
consolidation of two joint ventures which were, in aggregate, wholly owned by
the Partnerships. The statements of operations, equity and cash flows for the
year ended December 31, 1995, of the GRT Predecessor Entities are included as
the Consolidation of these entities to form the Company did not occur until
December 31, 1995.
Certain components of the Company's results of operations are not comparable to
those of the GRT Predecessor Entities. The primary reason for the difference is
the segregation in 1996 of the operations (management fees and reimbursements,
as well as related expenses) of GC and Glenborough Hotel Group (collectively,
the "Associated Companies"), all of which were combined in the GRT Predecessor
Entities 1995 financial statements. Effective January 1, 1996, the Company owns
100% of the preferred stock in each of the Associated Companies and accounts for
its interests under the equity method. Another factor in the comparability
difference is the change in the operational structure of the three hotel
properties owned at the time of the Consolidation.
The Hotels were wholly owned by the GRT Predecessor Entities and, thus, the
operations of the Hotels were included in the financial statements of the GRT
Predecessor Entities. In order for the Company to qualify as a REIT, neither the
Company nor the Operating Partnership can operate the Hotels. Under the current
structure, the Company owns the Hotels but leases them to GHG. The Company
includes only the related lease payments earned from GHG in its statement of
operations. When comparing historical year ended December 31, 1996 to historical
year ended December 31, 1995, the decreases in fees and reimbursements, property
operating expenses and general and administrative expenses are the primary
components affected by these changes in structure.
Results of Operations
Comparison of the historical year ended December 31, 1997 to the historical year
ended December 31, 1996.
Following is a table of net operating income by property type, for comparative
purposes, presenting the results for the years ended December 31, 1997 and 1996.
21
<PAGE>
<TABLE>
<CAPTION>
Results of Operations by Property Type
For the Years Ended December 31, 1997 and 1996
(in thousands)
Office/ Multi- Property Eliminating Total
Office Flex Industrial Retail Family Hotel Total Entry(1) Reported
1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $25,071 $10,354 $7,320 $7,224 $5,536 $5,980 $61,485 ($92) $61,393
Operating Expenses 9,986 3,062 1,459 2,183 2,309 1,894 20,893 ($1,935) 18,958
Net Operating Income 15,085 7,292 5,861 5,041 3,227 4,086 40,592 1,843 42,435
Percentage of
Total NOI 37% 18% 15% 12% 8% 10% 100%
1996
Revenue $3,905 $769 $3,491 $3,746 $1,519 $4,513 $17,943 $17,943
Operating Expenses 1,697 275 469 991 601 1,698 5,731 ($465) 5,266
Net Operating Income 2,208 494 3,022 2,755 918 2,815 12,212 465 12,677
Percentage of
Total NOI 18% 4% 25% 23% 7% 23% 100%
<FN>
(1) Eliminating entry represents internal market level property management fees included in operating expenses to
provide comparison to industry performance.
</FN>
</TABLE>
Rental Revenue. Rental revenue increased $43,450,000, or 242%, to $61,393,000
for the year ended December 31, 1997, from $17,943,000 for the year ended
December 31, 1996. The increase included growth in revenue from the office,
office/flex, industrial, retail, multi-family and hotel Properties of
$21,166,000, $9,585,000, $3,829,000, $3,478,000, $4,017,000 and $1,467,000,
respectively. Of the rental revenue for the year ended December 31, 1997,
$48,030,000 represents rental revenue generated from the acquisition of 20
properties (the "1996 Acquisitions") in the third and fourth quarters of 1996
and the acquisition of 89 properties during the year ended December 31, 1997
(the "1997 Acquisitions"). The increase in rental revenue for the year ended
December 31, 1997, was partially offset by a decrease in revenue due to the 1996
sale of two industrial properties and the 1997 sales of sixteen retail
properties.
Fees and Reimbursements. Fees and reimbursements revenue consists primarily of
property management fees, asset management fees and lease commissions paid to
the Company under property and asset management agreements. This revenue
increased $408,000, or 131%, to $719,000 for the year ended December 31, 1997,
from $311,000 for the year ended December 31, 1996. The increase primarily
consisted of increases in asset management fees of $131,000, property management
fees of $257,000 and lease commissions of $20,000. The Company's contract was
expanded to include asset management fees in 1997.
Interest and Other Income. Interest and other income, which consists primarily
of interest on cash investments and mortgage loans receivable, increased
$722,000, or 67%, to $1,802,000 for the year ended December 31, 1997, from
$1,080,000 for the year ended December 31, 1996. The increase was primarily due
to a $1,040,000 increase in interest income as a result of higher invested cash
balances and a $365,000 increase in interest income from the Grunow mortgage
loan receivable. This increase in interest income is partially offset by a
$649,000 reduction in interest and other income due to the payoff of the Hovpark
mortgage loan receivable in January 1997.
Equity in Earnings of Associated Companies. Equity in earnings of Associated
Companies increased $1,145,000, or 72%, to $2,743,000 for the year ended
December 31, 1997, from $1,598,000 for the year ended December 31, 1996. This
increase was primarily due to an increase in the net operating income of
Glenborough Hotel Group ("GHG") due to the lease of the Scottsdale Hotel and
from a $1,381,000 gain on the liquidation of Atlantic Pacific Assurance Company,
Limited ("APAC", a Bermuda corporation formed to underwrite certain insurable
risks of certain GLB predecessor partnerships and related entities) and an
increase in transaction fees earned by GC. The increase is offset by reduced
management fees in 1997 as a result of the sales of several properties under
management and partnership liquidations, as well as the write-off of GC's
unamortized balance of its investment in a management contract.
22
<PAGE>
Net Gain on Sales of Rental Properties. The net gain on sales of rental
properties of $839,000 during the year ended December 31, 1997, resulted from
the sales of sixteen retail properties. The net gain on sales of rental
properties of $321,000 during the year ended December 31, 1996, resulted from
the sale of two self-storage facilities from the Company's industrial portfolio.
Gain on Collection of Mortgage Loan Receivable. The gain on collection of
mortgage loan receivable of $652,000 during the year ended December 31, 1997
resulted from the collection of the Hovpark mortgage loan receivable which had a
net carrying value of $6,700,000. The payoff amount totaled $6,863,000 in cash,
plus a $500,000 note receivable, which, net of legal costs, resulted in a gain
of $652,000.
Property Operating Expenses. Property operating expenses increased $13,692,000,
or 260%, to $18,958,000 for the year ended December 31, 1997, from $5,266,000
for the year ended December 31, 1996. Of this increase, $14,687,000 represents
property operating expenses attributable to the 1996 Acquisitions and the 1997
Acquisitions, which was slightly offset by the reduction in expenses resulting
from the 1996 sale of two industrial properties and the 1997 sales of sixteen
retail properties.
General and Administrative Expenses. General and administrative expenses
increased $1,926,000, or 138%, to $3,319,000 for the year ended December 31,
1997, from $1,393,000 for the year ended December 31, 1996. The increase is
primarily due to increased salary and overhead costs resulting from the 1996
Acquisitions and the 1997 Acquisitions.
Depreciation and Amortization. Depreciation and amortization increased
$10,298,000, or 225%, to $14,873,000 for the year ended December 31, 1997, from
$4,575,000 for the year ended December 31, 1996. The increase is primarily due
to depreciation and amortization associated with the 1996 Acquisitions and the
1997 Acquisitions.
Interest Expense. Interest expense increased $5,755,000, or 147%, to $9,668,000
for the year ended December 31, 1997, from $3,913,000 for the year ended
December 31, 1996. Substantially all of the increase was the result of higher
average borrowings during the year ended December 31, 1997, as compared to the
year ended December 31, 1996, due to new debt and the assumption of debt related
to the 1996 Acquisitions and the 1997 Acquisitions.
Loss on early extinguishment of debt. Loss on early extinguishment of debt of
$843,000 during the year ended December 31, 1997, resulted from the write-off of
unamortized loan fees related to the $50 million secured line of credit from
Wells Fargo Bank which was replaced with a new $250 million unsecured line of
credit (the "Acquisition Credit Facility") from Wells Fargo Bank. Loss on early
extinguishment of debt of $186,000 during the year ended December 31, 1996,
resulted from the write-off of unamortized loan fees related to the $10,000,000
line of credit from Imperial Bank which was paid-off with proceeds from the $50
million secured line of credit from Wells Fargo Bank.
Comparison of the historical year ended December 31, 1996 to the as adjusted
year ended December 31, 1995.
Set forth below is a discussion comparing the historical results of operations
for the year ended December 31, 1996 to the results of operations for the year
ended December 31, 1995 adjusted to reflect the Consolidation as if the
Consolidation had occurred on January 1, 1994.
Following is a table of net operating income by property type, for comparative
purposes, presenting the results for the year ended December 31, 1996 and the as
adjusted year ended December 31, 1995.
23
<PAGE>
<TABLE>
<CAPTION>
Results of Operations by Property Type
Historical Year Ended December 31, 1996 and As Adjusted Year Ended December 31, 1995
Multi- Property Eliminating Total
Office Industrial Retail Family Hotel Total Entry(1) Reported
1996 Historical
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $3,905,000 $4,260,000 $3,746,000 $1,519,000 $4,513,000 $17,943,000 $17,943,000
Operating Expenses 1,697,000 744,000 991,000 601,000 1,698,000 5,731,000 ($465,000) 5,266,000
Net Operating Income 2,208,000 3,516,000 2,755,000 918,000 2,815,000 12,212,000 465,000 12,677,000
Percentage of
Total NOI 18% 29% 23% 7% 23% 100%
1995 As Adjusted
Revenue $1,280,000 $4,133,000 $3,366,000 $782,000 $3,934,000 $13,495,000 $13,495,000
Operating Expenses 599,000 775,000 814,000 448,000 1,718,000 4,354,000 ($270,000) 4,084,000
Net Operating Income 681,000 3,358,000 2,552,000 334,000 2,216,000 9,141,000 270,000 9,411,000
Percentage of
Total NOI 7% 37% 28% 4% 24% 100%
<FN>
(1) Eliminating entry represents internal market level property management fees included in operating expenses to
provide comparison to industry performance.
</FN>
</TABLE>
Rental Revenue. Rental Revenue increased by $4,448,000, or 33%, to $17,943,000
for the year ended December 31, 1996 from $13,495,000 for the as adjusted year
ended December 31, 1995. The increase consisted of increases in revenue from the
office, industrial, retail, multi-family and hotel properties of $2,625,000,
$127,000, $380,000, $737,000 and $579,000, respectively. Moreover, of this
increase, $4,442,000 represents rental revenue generated from the acquisition in
1996 of 20 properties (the "1996 Acquisitions"). The increase was offset by the
elimination of revenue from two industrial properties which were sold in June
1996. These properties represented annual revenue of approximately $600,000.
Fees and Reimbursements. Fees and reimbursements revenue consists primarily of
asset management fees paid to the Company by a controlled partnership and
increased slightly to $311,000 in 1996 from $260,000 in 1995.
Interest and Other Income. Interest and other income consists primarily of
interest on mortgage loans receivable and increased slightly to $1,080,000 in
1996 from $982,000 in 1995.
Equity in Earnings of Associated Companies. Equity in earnings of Associated
Companies decreased slightly from $1,691,000 in 1995 to $1,598,000 in 1996,
primarily resulting from the acquisition of the UCT and Bond Street Properties
by the Company from entities controlled by the Associated Companies. Prior to
the acquisition by the Company of these Properties, the partnerships owning
these Properties paid all their fees and reimbursed all their related salary
costs to GC.
Net Gain on Sale of Rental Properties. Gain on sale of rental properties of
$321,000 during 1996 resulted from the sale of two properties held in the
Company's industrial portfolio.
Property Operating Expenses. Property operating expenses increased by
$1,182,000, or 29%, to $5,266,000 in the year ended December 31, 1996 from
$4,084,000 for the as adjusted year ended December 31, 1995. Of this increase,
$1,722,000 represents expenses of the 1996 Acquisitions, offset in part by the
reduction in expenses resulting from the sale of two industrial properties.
General and Administrative Expenses. General and administrative expenses
increased $410,000, or 42%, from $983,000 in 1995 to $1,393,000 in 1996. The
increase is due in part to increased overhead costs resulting from the 1996
Acquisitions, including a portion of the transaction costs relating to the 1996
Acquisitions.
Depreciation and Amortization. Depreciation and amortization increased $921,000,
or 25%, to $4,575,000 in 1996 from $3,654,000 in 1995. The increase was
primarily due to depreciation and amortization associated with the 1996
Acquisitions.
24
<PAGE>
Interest Expense. Interest expense increased by $1,146,000, or 41%, to
$3,913,000 in the year ended December 31, 1996 from $2,767,000 in the as
adjusted year ended December 31, 1995. Substantially all of the increase was the
result of higher average borrowings during 1996 as compared to 1995. The
increased borrowings in 1996 were used to finance the cash portion of the 1996
Acquisitions.
Consolidation Costs. Consolidation costs in 1996 consist of the costs associated
with preparing, printing and mailing the Prospectus/Consent Solicitation
Statement and other documents related to the Consolidation, and all other costs
incurred in the forwarding of the Prospectus/Consent Solicitation Statement to
investors.
Litigation Costs. Litigation costs consist of the legal fees incurred in
connection with defending two class action complaints filed by investors in
certain of the GRT Predecessor Entities as well as an accrual for the proposed
settlement in one case.
Loss on early extinguishment of debt. Loss on early extinguishment of debt of
$186,000 during the year ended December 31, 1996 resulted from the write-off of
unamortized loan fees when the $10,000,000 Imperial Bank line of credit was paid
off with proceeds from the Wells Fargo Bank line of credit.
Comparison of the historical year ended December 31, 1996 to the historical year
ended December 31, 1995.
Rental Revenue. Rental Revenue increased by $2,489,000, or 16%, to $17,943,000
in 1996 from $15,454,000 in 1995. Of this increase, $4,442,000 represents rental
revenue generated from the 1996 Acquisitions. The increase in 1996 revenues was
offset by the elimination of revenue from two industrial properties which were
sold in June 1996. The increase in rental revenue was also offset by a decrease
in hotel revenue due to the change in the operational structure of the hotels.
As discussed above, three of the original hotels were owned and operated by the
GRT Predecessor entities prior to 1996 and accordingly, the revenue of the
hotels is included in the 1995 statement of operations. However, under the
current structure, the Company owns the hotels but leases them to GHG and
accordingly, the 1996 statement of operations reflects only the lease payments
due under the operating leases. For the year ended December 31, 1996, each of
the four originally owned hotels increased their ADR (Average Daily Rate) and
REVPAR (Revenue Per Available Room).
Fees and Reimbursements and Equity in Earnings of Associated Companies. Fees and
reimbursements revenue decreased to $311,000 for the year ended December 31,
1996 from $16,019,000 for the year ended December 31, 1995; equity in earnings
of the Associated Companies increased to $1,598,000 for the year ended December
31, 1996 from zero for the year ended December 31, 1995. As previously
discussed, the primary reason for the difference between 1996 and 1995 results
is the segregation in 1996 of the operations of the Associated Companies, and
the resulting recognition of earnings from them using the equity method by the
Company. In 1995, the earnings of the Associated Companies were consolidated
with the partnerships participating in the Consolidation.
Interest and Other Income. Interest and other income decreased $1,618,000, or
60%, in 1996 to $1,080,000 from $2,698,000 in 1995. This decrease resulted
primarily from the lower note receivable balance in 1996, primarily as a result
of the early prepayment of a note receivable in April 1995 and the early
repayment in January and June of 1995 of three of the four notes received from
the sale of the Laurel Cranford buildings. Also, in 1996, cash balances
decreased primarily as a result of the prepayment of the investor notes payable,
payment of declared dividends and the payment of costs associated with the
Consolidation.
Net Gain on Sale of Rental Properties. Gain on sale of rental properties of
$321,000 during 1996 resulted from the sale of two properties held in the
Company's industrial portfolio.
Property Operating Expenses. Property operating expenses decreased $3,310,000,
or 39%, to $5,266,000 in 1996 from $8,576,000 in 1995. Of the decrease,
$4,993,000 is primarily the result of the change in the operational structure of
the hotels, as previously discussed. The decrease was offset by an increase of
$1,722,000 associated with the operating expenses of the 1996 Acquisitions.
General and Administrative. General and administrative expenses decreased to
$1,393,000 in 1996 from $15,947,000 in 1995. The decrease is due primarily to
the segregation in 1996 of the operations of the Associated Companies, as
previously discussed.
Depreciation and Amortization. Depreciation and amortization remained relatively
constant, decreasing to $4,575,000 in 1996 from $4,762,000 in 1995. Depreciation
and amortization in 1995 includes the amortization of the management
25
<PAGE>
contracts, which are now reflected in the results of the Associated Companies in
1996. Depreciation and amortization in 1996 includes depreciation and
amortization related to the 1996 Acquisitions.
Interest Expense. Interest expense increased $1,784,000, or 84%, to $3,913,000
in 1996 from $2,129,000 in 1995. Substantially all of the increase was the
result of higher average borrowings during 1996 as compared to 1995. The
increased borrowings were used to finance the 1996 Acquisitions.
Liquidity and Capital Resources
For the year ended December 31, 1997, cash provided by operating activities
increased by $19,940,000 to $24,078,000 as compared to $4,138,000 for the same
period in 1996. The increase is primarily due to an increase in earnings before
depreciation and amortization of $31,303,000 due to the 1996 Acquisitions and
1997 Acquisitions and the one-time payment in 1996 of consolidation costs and
litigation costs in the aggregate amount of $7,237,000. Cash used for investing
activities increased by $507,409,000 to $569,242,000 for the year ended December
31, 1997, as compared to $61,833,000 for the same period in 1996. The increase
is primarily due to the 1997 Acquisitions. This increase was partially offset by
the collection of the Hovpark mortgage loan receivable and the proceeds from the
1997 sales of sixteen retail properties. Cash provided by financing activities
increased by $494,416,000 to $548,879,000 for the year ended December 31, 1997,
as compared to $54,463,000 for the same period in 1996. This increase was
primarily due to the net proceeds from the March 1997 Offering, the July 1997
Offering and the October 1997 Offering (as defined below) and the proceeds from
new debt reduced by the repayment of prior debt.
The Company expects to meets its short-term liquidity requirements generally
through its working capital, its Acquisition Credit Facility (as defined below)
and cash generated by operations. As of December 31, 1997, the Company had no
material commitments for capital improvements. Planned capital improvements
consist of tenant improvements, expenditures necessary to lease and maintain the
Properties and expenditures for furniture and fixtures and building improvements
at the hotel properties.
The Company believes that its cash generated by operations will be adequate to
meet operating requirements and to make distributions in accordance with REIT
requirements in both the short and the long-term. In addition to cash generated
by operations, the Acquisition Credit Facility provides for working capital
advances. However, there can be no assurance that the Company's results of
operations will not fluctuate in the future and at times affect (i) its ability
to meet its operating requirements and (ii) the amount of its distributions.
The Company's principal sources of funding for acquisitions, development,
expansion and renovation of properties include an unsecured Acquisition Credit
Facility, permanent secured debt financing, public unsecured debt financing,
public and private equity and debt issuances, the issuance of Operating
Partnership Units and cash flow provided by operations.
Mortgage loans receivable decreased from $9,905,000 at December 31, 1996, to
$3,692,000 at December 31, 1997. This decrease was primarily due to the payoff
of the Hovpark mortgage loan receivable which had a net carrying value of
$6,700,000, and scheduled principal payments on the Laurel Cranford mortgage
loan receivable. The reduction in mortgage loans receivable was partially offset
by $491,000 of draws made by the borrower on the leasing and interest reserves
related to the Grunow mortgage loan receivable.
Mortgage loans payable increased from $54,584,000 at December 31, 1996, to
$148,139,000 at December 31, 1997. This increase primarily resulted from the
assumption of mortgage loans totaling $60,628,000 in connection with the 1997
Acquisitions, the funding of $3,289,000 of secured loans from Wells Fargo Bank,
and the funding of a $60 million secured loan. These increases were partially
offset by the payoff of a $6,120,000 term loan which was secured by ten of the
retail properties that were sold and the payoff of $22,960,000 of mortgage loans
and scheduled principal payments on other mortgage debt.
In April 1997, the Operating Partnership entered into a $40 million unsecured
loan with Wells Fargo Bank to fund the acquisition of the CIGNA Properties (the
"CIGNA Acquisition Financing"). The CIGNA Acquisition Financing had a term of
three months (extendible to six months at the Company's option), interest at a
variable annual rate equal to 175 basis points above 30-day LIBOR, was unsecured
and was guaranteed by the Company. Required payments under the CIGNA Acquisition
Financing were monthly, interest only.
In June 1997, Wells Fargo had substantially completed underwriting and due
diligence for a $60 million mortgage loan to the Company (the "$60 Million
Mortgage") to be secured by the Lennar Properties, the Riverview Property, the
Centerstone Property and five of the CIGNA Properties. In the interim, Wells
Fargo funded a $60 million unsecured
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"bridge" loan (the "$60 Million Unsecured Bridge Loan"), which was used to (i)
repay all principal and accrued interest under the $40 million CIGNA Acquisition
Financing, and (ii) reduce the outstanding balance under the Line of Credit by
approximately $20 million.
The $60 Million Unsecured Bridge Loan was paid-off in July 1997 from the
proceeds of the July 1997 Offering and the $60 Million Mortgage was obtained in
September 1997. This loan has a 25-year term, bears interest at an annual rate
of 7.5% (which is fixed until 2007) and requires monthly principal and interest
payments. The proceeds from this loan were used to fund acquisitions.
In September 1997, the Company closed a $114 million unsecured loan (the "$114
Million Interim Unsecured Loan") with Wells Fargo Bank. This loan had a 90-day
term with two 90-day extension options, interest at a fixed annual rate of 7.5%
and required monthly interest-only payments. The proceeds of this loan were used
to fund a portion of the purchase price for the T. Rowe Price Properties. In
October 1997, the Company repaid the $114 Million Interim Unsecured Loan with
net proceeds from the October 1997 Offering (defined below).
The Company had a $50 million secured line of credit provided by Wells Fargo
Bank (the "Line of Credit"). Outstanding borrowings under the Line of Credit
were $21,307,000 at December 31, 1996. In December 1997, the Company repaid the
outstanding balance under the Line of Credit and replaced it with a new $250
million unsecured line of credit as discussed below.
In December 1997, the Company replaced its $50 million secured line of credit
with a new $250 million unsecured line of credit (the "Acquisition Credit
Facility") with Wells Fargo Bank. The Acquisition Credit Facility has a three
year term with an option to extend the term for an additional 10 years and bears
interest on a sliding scale ranging from LIBOR plus 1.1% to LIBOR plus 1.3%,
which represents a rate that is lower by at least 0.45% than the rate under the
Company's previous $50 million secured line of credit. The Acquisition Credit
Facility agreement provides that if the Company's debt securities receive
certain ratings from at least two rating agencies, as specified in the
Acquisition Credit Facility agreement, the interest rate will decrease to a
sliding scale ranging from LIBOR plus 0.80% to LIBOR plus 1.15%, depending on
the rating. Draws under the Acquisition Credit Facility have been used to fund
acquisitions.
In January 1998, the Company closed a $150 million loan agreement with Wells
Fargo Bank (the "Interim Loan"). The Interim Loan bears interest at LIBOR plus
1.75% and has a term of three months with an option to extend the term an
additional three months. The purpose of the Interim Loan is to fund
acquisitions.
At December 31, 1997, the Company's total indebtedness included fixed-rate debt
of $140,333,000 (including $85,672,000 subject to cross-collateralization) and
floating-rate indebtedness of $87,966,000. Approximately 32% of the Company's
total assets, comprising 45 properties, is encumbered by debt at December 31,
1997.
In January 1997 and May 1997, the Company filed shelf registration statements
with the Securities and Exchange Commission (the "SEC") to register $250 million
and $350 million, respectively, of equity securities of the Company. In November
1997, the Company filed a shelf registration statement with the SEC to register
an additional $1 billion of equity securities of the Company (the "November 1997
Shelf Registration Statement"). The November 1997 Shelf Registration Statement
was declared effective by the SEC on December 18, 1997. After the completion of
the March 1997, July 1997, October 1997 and January 1998 Offerings (as defined
below), the Company has the capacity pursuant to the November 1997 Shelf
Registration Statement to issue up to approximately $801.2 million in equity
securities.
In March 1997, the Company completed a public offering of 3,500,000 shares of
its Common Stock at a price of $20.25 per share (the "March 1997 Offering"). The
net proceeds from the offering of approximately $66.1 million were used to fund
acquisitions and to repay approximately $24.9 million of the then outstanding
balance under the Company's previous secured line of credit.
In July 1997, the Company completed a public offering of 6,980,000 shares of its
Common Stock at a price of $22.625 per share (the "July 1997 Offering"). The net
proceeds from the offering of approximately $149.2 million were used to fund
acquisitions and to repay debt.
In October 1997, the Company completed a public offering of 11,300,000 shares of
its Common Stock at a price of $25.00 per share (the "October 1997 Offering").
The net proceeds from the offering of approximately $267.3 million were used to
fund acquisitions, to repay approximately $142.8 million of indebtedness and for
general corporate purposes.
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In January 1998, the Company completed a public offering of 11,500,000 shares of
7 3/4% Series A Convertible Preferred Stock (the "January 1998 Convertible
Preferred Stock Offering"). The 11,500,000 shares were sold at a per share price
of $25.00 for net proceeds of approximately $276 million, which were used to
repay the outstanding balance under the Company's Acquisition Credit Facility,
to fund certain subsequent property acquisitions and for general corporate
purposes. The shares are convertible at any time at the option of the holder
thereof into shares of Common Stock at an initial conversion price of $32.83 per
share of Common Stock (equivalent to a conversion rate of 0.7615 shares of
Common Stock for each share of Series A Convertible Preferred Stock), subject to
adjustment in certain circumstances.
In March 1998, the Operating Partnership, as to which the Company is general
partner, issued $150 million of 7 5/8% Senior Notes (the "Notes") in an
unregistered 144A offering. The Notes mature on March 15, 2005, unless
previously redeemed. Interest on the Notes is payable semiannually on March 15
and September 15, commencing September 15, 1998. The Operating Partnership
intends to use the net proceeds of the offering to repay substantially all of
the outstanding balance under the Interim Loan.
Inflation
Substantially all of the leases at the retail Properties provide for
pass-through to tenants of certain operating costs, including real estate taxes,
common area maintenance expenses, and insurance. Leases at the multi-family
properties generally provide for an initial term of one month or one year and
allow for rent adjustments at the time of renewal. Leases at the office
Properties typically provide for rent adjustment and pass-through of certain
operating expenses during the term of the lease. All of these provisions may
permit the Company to increase rental rates or other charges to tenants in
response to rising prices and therefore, serve to reduce the Company's exposure
to the adverse effects of inflation.
Forward Looking Statements; Factors That May Affect Operating Results
This Report on Form 10-K contains forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934, including statements regarding the Company's
expectations, hopes, intentions, beliefs and strategies regarding the future.
Forward looking statements include statements regarding potential acquisitions,
the anticipated performance of future acquisitions, recently completed
acquisitions and existing properties, and statements regarding the Company's
financing activities. All forward looking statements included in this document
are based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking statements. It
is important to note that the Company's actual results could differ materially
from those stated or implied in such forward looking statements. Some of the
factors that could cause actual results to differ materially are set forth
below.
Risks Associated With Acquisitions
Risks Associated with the Addition of a Substantial Number of New Properties
The Company is currently experiencing a period of rapid growth. Since the
Consolidation on December 31, 1995, the Company has invested approximately $1.2
billion in properties, as of the date of this filing. The Company's ability to
manage its growth effectively will require it to apply successfully its
experience managing its existing portfolio to new markets and to an increased
number of properties. There can be no assurance that the Company will be able to
manage these operations effectively. The Company's inability to effectively
manage its expansion could have an adverse effect on the Company's results of
operations and financial condition.
Acquisitions Could Adversely Affect Operations or Stock Value
Consistent with its growth strategy, the Company is continually pursuing and
evaluating potential acquisition opportunities, and is from time to time
actively considering the possible acquisition of specific properties, which may
include properties managed or controlled by one of the Associated Companies or
owned by affiliated parties. It is possible that one or more of such possible
future acquisitions, if completed, could adversely affect the Company's funds
from operations or cash available for distribution, in the short term or the
long term or both, or increase the Company's debt, or be perceived negatively
among investors such that such an acquisition could be followed by a decline in
the market value of the Common Stock.
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Assumption of General Partner Liabilities
The Company and its predecessors have acquired a number of their properties by
acquiring partnerships that own the properties or by first acquiring general
partnership interests and at a later date acquiring the properties, and the
Company may pursue acquisitions in this manner in the future. When the Company
uses this acquisition technique, a subsidiary of the Company becomes a general
partner. As a general partner the Company's subsidiary becomes generally liable
for the debts and obligations of the partnership, including debts and
obligations that may be contingent or unknown at the time of the acquisition. In
addition, the Company's subsidiary assumes obligations under the partnership
agreements, which may include obligations to make future contributions for the
benefit of other partners. The Company undertakes detailed due diligence reviews
to ascertain the nature and extent of obligations that its subsidiary will
assume when it becomes a general partner, but there can be no assurance that the
obligations assumed will not exceed the Company's estimates or that the assumed
liabilities will not have an adverse effect on the Company's results of
operations or financial condition. In addition, an Associated Company may enter
into management agreements pursuant to which it assumes certain obligations as
manager of properties. There can be no assurance that these obligations will not
have an adverse effect on the Associated Companies' results of operations or
financial condition, which could adversely affect the value of the Company's
preferred stock interest in those companies.
Risks Relating to Tender Offers
The Company may, as part of its growth strategy, acquire properties and
portfolios of properties through tender offer acquisitions of interests in
public and private partnerships and other REITs. Tender offers often result in
competing tender offers, as well as litigation initiated by limited partners in
the subject partnerships or by competing bidders. Due to the inherent
uncertainty of litigation, the Company could be subject to adverse judgments in
substantial amounts. As the Company has not yet attempted an acquisition through
the tender offer process, and because of competing offers and possible
litigation, there can be no assurance that, if undertaken, the Company would be
successful in acquiring properties through a tender offer or that the tender
offer process would not result in litigation and a significant judgment adverse
to the Company.
Conflict of Interest
The Company has acquired, and from time to time may acquire, properties from
partnerships that Robert Batinovich, the Company's Chairman and Chief Executive
Officer, and Andrew Batinovich, the Company's President and Chief Operating
Officer, control, and in which they and members of their families have
substantial interests. These transactions involve or will involve conflicts of
interest. These transactions may provide substantial economic benefits such as
the payments or unit issuances, relief or deferral of tax liabilities, relief of
primary or secondary liability for debt, and reduction in exposure to other
property-related liabilities. Despite the presence of appraisals or fairness
opinions or review by parties who have no interest in the transactions, the
transactions will not be the product of arm's-length negotiation and there can
be no assurance that these transactions will be as favorable to the Company as
transactions that the Company negotiates with unrelated parties or will not
result in undue benefit to Robert and Andrew Batinovich and members of their
families. Neither Robert Batinovich nor Andrew Batinovich has guaranteed that
any properties acquired from entities they control or in which they or their
families have a significant interest will be as profitable as other investments
made by the Company or will not result in losses.
Dependence on Executive Officers
The Company is dependent on the efforts of Robert and Andrew Batinovich, its
Chief Executive Officer and its President and Chief Operating Officer,
respectively, and of its other executive officers. The loss of the services of
any of them could have an adverse effect on the results of operations and
financial condition of the Company. Both Robert and Andrew Batinovich have
entered into employment agreements with the Company.
Certain Tax Risks
General
The Company has elected to be treated as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), commencing with its taxable year ended
December 31, 1996. No assurance can be given, however, that the Company will be
able to operate in a manner which will permit it to maintain its status as a
REIT. Qualification as a REIT involves the satisfaction of numerous requirements
(some on an annual and quarterly basis) established under highly technical and
complex Code provisions for which only limited judicial or administrative
interpretation exists, and involves the
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determination of various factual matters and circumstances not entirely within
the Company's control. The Company receives nonqualifying management fee income
and owns nonqualifying preferred stock in the Associated Companies. As a result,
the Company may approach the income and asset test limits imposed by the Code
and could be at risk of not satisfying those tests. In order to avoid exceeding
the asset test limit, for example, the Company may have to reduce its interest
in the Associated Companies. The Company is relying on the opinion of its tax
counsel regarding its ability to qualify as a REIT. This legal opinion is not
binding on the Internal Revenue Service ("IRS").
Consequences of Failure to Qualify as a REIT
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 corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or distribution
to stockholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to stockholders would no longer be
required to be made.
Even if the Company continues to qualify as a REIT, it will be subject to
certain federal, state and local taxes on its income and property.
Possible Changes in Tax Laws
Income tax treatment of REITs may be modified, prospectively or retroactively,
by legislative, judicial or administrative action at any time. No assurance can
be given that legislation, regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to the
qualification as a REIT or the federal income tax consequences of this
qualification. In addition to any direct effects the changes might have, the
changes might also indirectly affect the market value of all real estate
investments, and consequently the ability of the Company to realize its
investment objectives.
Risks Relating To Real Estate
Environmental Matters
Under federal, state and local laws, ordinances and regulations relating to
protection of the environment ("Environmental Laws"), a current or previous
owner or operator of real estate may be liable for contamination resulting from
the presence or discharge of petroleum products or other hazardous or toxic
substances at such property, and may be required to investigate and clean-up
such contamination at such property or such contamination which has migrated
from such property. Such laws typically impose liability and clean-up
responsibility without regard to whether the owner or operator knew of, or was
responsible for, the presence of such contamination, and the liability under
such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of responsibility. In
addition, the owner or operator of a property may be subject to claims by third
parties based on personal injury, property damage and/or other costs, including
investigation and clean-up costs, resulting from environmental contamination
present at or emanating from such property. Environmental Laws may also impose
restrictions on the manner in which a property may be used or transferred or in
which businesses may be operated, and these restrictions may require
expenditures. Under the Environmental Laws, any person who arranges for the
transportation, disposal or treatment of hazardous or toxic substances may also
be liable for the costs of investigation or clean-up of such substances at the
disposal or treatment facility, whether or not such facility is or ever was
owned or operated by such person.
Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACM"). Such laws require that ACM be
properly managed and maintained, that those who may come into contact with ACM
be adequately apprised and trained, and that special precautions, including
removal or other abatement, be undertaken in the event ACM is disturbed during
renovation or demolition of a building. Such laws may impose fines and penalties
on building owners or operators for failure to comply with these requirements
and may allow third parties to seek recovery from owners or operators for
personal injury associated with exposure to asbestos fibers.
Some of the Properties, as well as properties previously owned by the Company,
are leased or have been leased, in part, to owners and operators of dry cleaners
that operate on-site dry cleaning plants, auto care centers, or to owners or
operators of other businesses that use, store or otherwise handle petroleum
products or other hazardous or toxic substances. Some of these Properties
contain, or may have contained, underground storage tanks for the storage of
petroleum products and other hazardous or toxic substances. These operations
create a potential for the release of
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petroleum products or other hazardous or toxic substances. Some of the
Properties are adjacent to or near other properties that have contained or
currently contain underground storage tanks used to store petroleum products or
other hazardous or toxic substances. Several of the Properties have been
contaminated with petroleum products or other hazardous or toxic substances from
on-site operations or operations on adjacent or nearby properties. In addition,
certain of the Properties are on, or are adjacent to or near other properties
upon which others, including former owners or tenants of the Properties, have
engaged or may in the future engage in activities that may release petroleum
products or other hazardous or toxic substances.
All of the Properties presently owned by the Company have been subject to Phase
I environmental assessments by independent environmental consultants. Some of
the Phase I environmental assessments recommended further investigations in the
form of Phase II environmental assessments, including soil and groundwater
sampling, and all of these investigations have been completed by the Company or
are in the process of being completed. Certain of the Properties owned by the
Company have been found to contain ACMs. The Company believes that these
materials have been adequately contained and that an ACM operations and
maintenance program has been implemented or is in the process of being
implemented for the Properties found to contain ACMs.
Some, but not all, of the properties owned by partnerships managed by the
Associated Companies have been subject to Phase I environmental assessments by
independent environmental consultants. The Associated Companies determine on a
case-by-case basis whether to obtain Phase I environmental assessments on these
properties and whether to undertake further investigation or remediation.
Certain of these properties contain ACMs. In each case the responsible
Associated Company believes that these materials have been adequately contained
and that an ACM operations and maintenance program has been implemented for the
properties found to contain ACMs.
Although tenants of the Properties owned by the Company generally are required
by their leases to operate in compliance with all applicable federal, state and
local environmental laws, ordinances and regulations and to indemnify the
Company against any environmental liability arising from the tenants' activities
on the Properties, the Company could nevertheless be subject to environmental
liability relating to its management of the Properties or strict liability by
virtue of its ownership interest in the Properties and there can be no assurance
that the tenants would satisfy their indemnification obligations under the
leases. There can be no assurance that any environmental assessments of the
Properties owned by the Company, properties being considered for acquisition by
the Company, or the properties owned by the partnerships managed by the
Associated Companies have revealed all potential environmental liabilities, that
any prior owner or prior or current operator of such properties did not create
an environmental condition not known to the Company or that an environmental
condition does not otherwise exist as to any one or more of such properties that
could have an adverse effect on the Company's results of operations and
financial condition, either directly (with respect to properties owned by the
Company), or indirectly (with respect to properties owned by partnerships
managed by an Associated Company) by adversely affecting the financial condition
of the Associated Company and thus the value of the Company's preferred stock
interest in the Associated Company. Moreover, there can be no assurance that (i)
future environmental laws, ordinances or regulations will not have an adverse
effect on the Company's results of operations and financial condition or (ii)
the current environmental condition of such properties will not be affected by
tenants and occupants of such properties, by the condition of land or operations
in the vicinity of the properties (such as the presence of underground storage
tanks), or by third parties unrelated to the Company.
The Company's operating costs may be affected by the obligation to pay for the
cost of complying with existing Environmental Laws as well as the cost of
complying with future legislation. In addition, the presence of petroleum
products or other hazardous or toxic substances at any of the Properties owned
by the Company, or the failure to remediate such property properly, may
adversely affect the Company's ability to borrow by using such real property as
collateral. The cost of defending against claims of liability and the cost of
complying with Environmental Laws, including investigation or clean-up of
contaminated property, could materially adversely affect the Company's results
of operations and financial condition.
Risks Related to Ownership and Financing of Real Estate
The Company is subject to risks generally incidental to the ownership of real
estate, including changes in general economic or local conditions, changes in
supply of or demand for similar or competing properties in an area, the impact
of environmental protection laws, changes in interest rates and availability of
financing which may render the sale or financing of a property difficult or
unattractive, changes in tax, real estate and zoning laws, and the creation of
mechanics' liens or similar encumbrances placed on the property by a lessee or
other parties without the Company's knowledge and consent. Should any of these
events occur, there could be an adverse effect on the Company's results of
operations and financial condition.
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Availability of and Competition for Real Estate for Acquisitions
The Company's growth is dependent upon acquisitions. There can be no assurance
that properties will be available for acquisition or, if available, that the
Company will be able to purchase such properties on favorable terms. If such
acquisitions are not available it could have a negative impact on the growth of
the Company, which could have an adverse effect on the performance of the
Company's Common Stock. Furthermore, the Company faces competition from other
businesses, individuals, fiduciary accounts and plans and other entities in the
acquisition, operation and sale of its properties. Some of the Company's
competitors are larger and have greater financial resources than the Company.
This competition may result in a higher cost for properties the Company wishes
to purchase.
Competition for Tenants
The Company is subject to the risk that when space becomes available at its
properties the leases may not be renewed, the space may not be let or relet, or
the terms of the renewal or reletting (including the cost of required
renovations or concessions to tenants) may be less favorable to the Company.
Although the Company has established annual property budgets that include
estimates of costs for renovation and reletting expenses that it believes are
reasonable in light of each property's situation, no assurance can be given that
these estimates will sufficiently cover these expenses. If the Company is unable
to promptly lease all or substantially all of the space at its properties, if
the rental rates are significantly lower than expected, or if the Company's
reserves for these purposes prove inadequate, then there could be an adverse
effect on the Company's results of operations and financial condition.
Tenants' Defaults
The ability of the Company to manage its assets is subject to federal bankruptcy
laws and state laws affecting creditors' rights and remedies available to real
property owners. In the event of the financial failure or bankruptcy of a
tenant, there can be no assurance that the Company could promptly recover the
tenant's premises from the tenant or from a trustee or debtor-in-possession in
any bankruptcy proceeding filed by or against that tenant, or that the Company
would receive rent in the proceeding sufficient to cover its expenses with
respect to the premises. In the event of the bankruptcy of a tenant, the Company
will be subject to the provisions of the federal bankruptcy code, which in some
instances may restrict the amount and recoverability of claims held by the
Company against the tenant. If any tenant defaults on its obligations to the
Company, there could be an adverse effect on the Company's results of operations
and financial condition.
Management, Leasing and Brokerage Risks; Lack of Control of Associated Companies
The Company is subject to the risks associated with the property management,
leasing and brokerage businesses. These risks include the risk that management
contracts or service agreements may be terminated, that contracts will not be
renewed upon expiration or will not be renewed on terms consistent with current
terms, and that leasing and brokerage activity generally may decline.
Acquisition of properties by the Company from the Associated Companies could
result in a decrease in revenues to the Associated Companies and a corresponding
decrease in dividends received by the Company from the Associated Companies.
Each of these developments could have an adverse effect on the Company's results
of operations and financial condition.
To maintain the Company's status as a REIT while realizing income from the
Company's third-party management business, the capital stock of Glenborough
Hotel Group, a Nevada corporation ("GHG") and Glenborough Corporation, a
California corporation ("GC," and together with GHG, the "Associated Companies")
(which conduct the Company's third-party management, leasing and brokerage
businesses) is divided into two classes. All of the voting common stock of the
Associated Companies, representing 5% of the total equity of GC, and 25% of the
total equity of GHG, is held by individual stockholders. Nonvoting preferred
stock representing the remaining equity of each Associated Company is held
entirely by the Company. Although the Company holds a majority of the equity
interest in each Associated Company, the Company is not able to elect directors
of any Associated Company and, consequently, the Company has no ability to
influence the day-to-day decisions of each entity.
Uninsured Loss
The Company or in certain instances tenants of the properties carry
comprehensive liability, fire and extended coverage with respect to the
Company's properties, with policy specification and insured limits customarily
carried for similar properties. There are, however, certain types of losses
(such as from earthquakes and floods) that may be either uninsurable or not
economically insurable. Further, certain of the properties are located in areas
that are subject to earthquake activity and floods. Should a property sustain
damage as a result of an earthquake or flood, the Company may
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incur losses due to insurance deductibles, co-payments on insured losses or
uninsured losses. Should an uninsured loss occur, the Company could lose some or
all of its capital investment, cash flow and anticipated profits related to one
or more properties, which could have an adverse effect on the Company's results
of operations and financial condition.
Illiquidity of Real Estate
Real estate investments are relatively illiquid and, therefore, will tend to
limit the ability of the Company to vary its portfolio promptly in response to
changes in economic or other conditions. In addition, the Code and individual
agreements with sellers of properties place limits on the Company's ability to
sell properties, which may adversely affect returns to holders of Common Stock.
Forty-two of the properties owned by the Company were acquired on terms and
conditions under which they can be disposed of only in a like-kind exchange or
other non-taxable transaction.
Potential Liability Under the Americans With Disabilities Act
As of January 26, 1992, all of the Company's properties were required to be in
compliance with the Americans With Disabilities Act (the "ADA"). The ADA
generally requires that places of public accommodation be made accessible to
people with disabilities to the extent readily achievable. Compliance with the
ADA requirements could require removal of access barriers and non-compliance
could result in imposition of fines by the federal government, an award of
damages to private litigants and/or a court order to remove access barriers.
Because of the limited history of the ADA, the impact of its application to the
Company's properties, including the extent and timing of required renovations,
is uncertain. Pursuant to certain lease agreements with tenants in certain of
the "single-tenant" Properties, the tenants are obligated to comply with the ADA
provisions. If the Company's costs are greater than anticipated or tenants are
unable to meet their obligations, there could be an adverse effect on the
Company's results of operations and financial condition.
Risk Related to Development Joint Ventures
The Company may from time to time enter into joint ventures with selected
developers ("JV Partners") for the purpose of developing new projects in which
such JV Partner has, in the opinion of management, significant expertise or
experience. Such projects generally require various governmental and other
approvals, the receipt of which cannot be assured. Such development activities
may entail certain risks, including the risk that: (i) the expenditure of funds
on and devotion of management's time to projects which may not come to fruition;
(ii) construction costs of a project may exceed original estimates, possibly
making the project uneconomical; (iii) occupancy rates and rents at a completed
project may be less than anticipated; and (iv) expenses at a completed
development may be higher than anticipated. In addition, JV Partners may have
significant control over the operation of the joint venture assets. Therefore,
such investments may, under certain circumstances, involve risks such as the
possibility that the JV Partner might become bankrupt, have economic or business
interests or goals that are inconsistent with the business interest or goals of
the Company, or be in a position to take action contrary to the instructions or
the requests of the Company or contrary to the Company's policies or objectives.
Consequently, actions by a JV Partner might result in subjecting property owned
by the joint venture to additional risk. Although the Company will seek to
maintain sufficient control of any joint venture to permit the Company's
objectives to be achieved, it may be unable to take action without the approval
of its JV Partners or its JV Partners could take actions binding on the joint
venture without the Company's consent. Additionally, should a JV Partner become
bankrupt the Company could become liable for such JV Partner's share of joint
venture liabilities. These risks may result in a development project having an
adverse effect on the Company's result of operations and financial condition.
Additional Capital Requirements
The Company's future growth depends in large part upon its ability to raise
additional capital on satisfactory terms or at all. There can be no assurance
that the Company will be able to raise sufficient capital to achieve its
objectives. If the Company were to raise additional capital through the issuance
of additional equity securities, or securities convertible into or exercisable
for equity securities, the interests of holders of the Common Stock or of other
equity securities of the Company could be diluted. Likewise, the Company's Board
of Directors is authorized to cause the Company to issue preferred stock in one
or more series and to determine the distributions and voting and other rights of
the preferred stock. Accordingly, the Board of Directors may authorize the
issuance of preferred stock with voting, distribution and other similar rights
which could be dilutive to or otherwise adversely affect the interests of
holders of Common Stock or of other equity securities of the Company. If the
Company were to raise additional capital through debt financing, the Company
will be subject to the risks described below, among others. See "Other Risks --
Debt Financing."
33
<PAGE>
Limitation On Ownership of Common Stock May Preclude Acquisition of Control
Provisions of the Company's Charter are designed to assist the Company in
maintaining its qualification as a REIT under the Code by preventing
concentrated ownership of the Company which might jeopardize REIT qualification.
Among other things, these provisions provide that (a) any transfer or
acquisition of Common Stock (or preferred stock, as the case may be) that would
result in the disqualification of the Company as a REIT under the Code will be
void, and (b) if any person attempts to acquire shares of Common Stock (or
shares of preferred stock, as the case may be) that after the acquisition would
cause the person to own or to be deemed to own, by operation of certain
attribution rules set out in the Code, an amount of Common Stock and preferred
stock in excess of a predetermined limit, which, pursuant to Board action,
currently is 9.9% of the value of the outstanding shares of Common Stock and
preferred stock (the "Ownership Limitation" and as to the Common Stock or
preferred stock, the transfer of which would cause any person to actually own
Common Stock and preferred stock in excess of the Ownership Limitation, the
"Excess Shares"), the transfer shall be void and the Common Stock (or preferred
stock, as the case may be) subject to the transfer shall automatically be
transferred to an unaffiliated trustee for the benefit of a charitable
organization designated by the Board of Directors of the Company until sold by
the trustee to a third party or purchased by the Company. Robert Batinovich, his
spouse and children (including Andrew Batinovich) and individuals or entities
whose ownership of Common Stock is attributed to Robert Batinovich in
determining the number of shares of Common Stock owned by him for purposes of
compliance with Section 856 of the Code (the "Attributed Owners"), are exempt
from these restrictions, but are prohibited from acquiring shares of Common
Stock or preferred stock if, after the acquisition, they would own in excess of
9.9% of the outstanding shares of Common Stock and preferred stock. This
limitation on the ownership of Common Stock and preferred stock may have the
effect of precluding the acquisition of control of the Company by a third party
without the consent of the Board of Directors. If the Board of Directors waives
the Ownership Limitation for any person, the Ownership Limitation shall be
proportionally and automatically reduced with regard to all other persons such
that no five persons may own more than 50% of the value of the Common Stock and
preferred stock (the aggregate Ownership Limitations as to all of these persons,
as adjusted, the "Adjusted Ownership Limitation").
Litigation Related to Consolidation
Recent business reorganizations sponsored by others involving the conversion of
partnerships into corporations have given rise to a number of investor lawsuits.
These lawsuits have included claims against the general partners of the
participating partnerships, the partnerships themselves and related persons
involved in the structuring of or benefiting from the conversion or
reorganization, as well as claims against the surviving entity and its directors
and officers. The lawsuits have included, among others, claims that the
structure of the reorganizations, as well as the manner in which they were
submitted for investor approval, involved violations of federal and state
securities laws, common law fraud and negligent misrepresentations, breaches of
fiduciary duty, unfair and deceptive trade practices, negligence and waste,
breaches of the partnership documents of the participating partnerships, failure
to comply with applicable reporting requirements, violations of the rules of the
NASD on suitability and fair practices, and violations of the Racketeer
Influenced and Corrupt Organizations Act. On February 17, 1998, the California
state court of appeals affirmed the Company's settlement of a class action filed
in California state court in February of 1995. A federal court action that made
similar allegations was voluntarily dismissed in 1997 pending resolution of the
state court action.
From time to time, the Company is involved in other litigation arising out of
its business activities. It is possible that this litigation and the other
litigation previously described could result in significant losses in excess of
amounts reserved, which could have an adverse effect on the Company's results of
operations and the financial condition of the Company.
Chapter 11 Reorganization of Partnership Consolidation by Senior Management
Robert and Andrew Batinovich, two of the senior officers of the Company, were
also senior members of a management team that formed a publicly registered
limited partnership in 1986 to consolidate a number of predecessor partnerships.
That public partnership was involved in litigation with its primary creditor
and, in order to prevent foreclosure, filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code in May of 1992. The public
partnership, which owns an approximate 1.7% limited partner interest in the
Operating Partnership along with other substantial real estate assets, and less
than 0.5% interest in the Company, settled the litigation and obtained
confirmation of a plan of reorganization in January 1994.
Other Risks
Debt Financing
34
<PAGE>
The Company intends to incur additional indebtedness in the future, including
through borrowings under a credit facility, to finance property acquisitions. As
a result, the Company expects to be subject to risks associated with debt
financing, including the risk that interest rates may increase, the risk that
the Company's cash flow will be insufficient to meet required payments on its
debt and the risk that the Company may be unable to refinance or repay the debt
as it comes due. The Company's current $250 million unsecured Acquisition Credit
Facility with Wells Fargo Bank, N.A. provides that distributions may not exceed
90% of funds from operations and that, in the event of a failure to pay
principal or interest on borrowings thereunder when due (subject to any
applicable grace period), the Company and its subsidiaries may not pay any
distributions on the Common Stock or the Preferred Stock. If the Company is
unable to obtain acceptable financing to repay indebtedness at maturity, the
Company may have to sell properties to repay indebtedness or properties may be
foreclosed upon, which could have an adverse effect on the Company's results of
operations and financial condition.
Board of Directors May Change Investment Policies
The Company's Board of Directors may change the investment policies of the
Company without a vote of the stockholders. If the Company changes its
investment policies, the risks and potential rewards of an investment in the
Company may also change. In addition, the methods of implementing the Company's
investment policies may vary as new investment techniques are developed.
Effect of Market Interest Rates on Price of Common Stock
One of the factors that may influence the market price of the shares of Common
Stock in public markets will be the annual yield on the price paid for shares of
Common Stock from distributions by the Company. An increase in market interest
rates may lead prospective purchasers of the Common Stock to seek a higher
annual yield from their investments. Such circumstances may adversely affect the
market price of the Common Stock.
Year 2000 Compliance
The Company utilizes a number of computer software programs and operating
systems across its entire organization, including applications used in financial
business systems and various administrative functions. To the extent that the
Company's software applications contain source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification, or replacement of such applications will be necessary. The
Company has completed its identification of applications that are not yet "Year
2000" compliant and has commenced modification or replacement of such
applications, as necessary. Given information known at this time about the
Company's systems that are non-compliant, coupled with the Company's ongoing,
normal course-of-business efforts to upgrade or replace critical systems, as
necessary, management does not expect Year 2000 compliance costs to have any
material adverse impact on the Company's liquidity or ongoing results of
operations. No assurance can be given, however, that all of the Company's
systems will be Year 2000 compliant or that compliance costs or the impact of
the Company's failure to achieve substantial Year 2000 compliance will not have
a material adverse effect on the Company's future liquidity or results of
operations.
Shares Available for Future Sale
No prediction can be made as to the effect, if any, that future sales of shares
of Common Stock or future conversions or exercises of securities for future
sales, including shares of Common Stock issuable upon exchange of Operating
Partnership units, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, may adversely affect the prevailing
market price for the Common Stock.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
35
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 14, 1998.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 14, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 14, 1998.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders meeting to be
held on May 14, 1998.
36
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K
Page No.
(a) (1) Financial Statements
Report of Independent Public Accountants 39
Glenborough Realty Trust Incorporated Consolidated Balance Sheets 40
Glenborough Realty Trust Incorporated and GRT Predecessor
Entities Consolidated and Combined Statements of Operations 41
Glenborough Realty Trust Incorporated and GRT Predecessor
Entities Statements of Equity 42
Glenborough Realty Trust Incorporated and GRT Predecessor
Entities Consolidated and Combined Statements of Cash Flows 43
Notes to Financial Statements 45
(2) Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation 63
Schedule IV - Mortgage Loans Receivable, Secured by Real Estate 70
(3) Exhibits to Financial Statements
Glenborough Hotel Group, Consolidated Financial Statements as
of December 31, 1997 and 1996 74
The Exhibit Index attached hereto is hereby incorporated by
reference to this Item. 83
(b) Reports on Form 8-K (incorporated herein by reference)
On October 17, 1997, the Company filed a report on Form 8-K/A
with respect to the acquisition of the T. Rowe Price Properties
and the Advance Properties.
On October 17, 1997, the Company filed a report on Form 8-K/A
with respect to the acquisition of the Citibank Park Property.
On October 17, 1997, the Company filed a report on Form 8-K with
respect to the Press Release for the quarter ended September 30,
1997 earnings.
On October 23, 1997, the Company filed a report on Form 8-K with
respect to the October 1997 Offering.
On November 7, 1997, the Company filed a report on Form 8-K to
provide certain additional ownership and operational information
concerning the Company and the properties owned or managed by it
as of September 30, 1997.
On November 10, 1997, the Company filed a report on Form 8-K with
respect to the acquisition of the Copley Properties.
On December 18, 1997, the Company filed a report on Form 8-K with
respect to the Press Release dated December 10, 1997.
On December 31, 1997, the Company filed a report on Form 8-K with
respect to the acquisition of the Thousand Oaks Property.
37
<PAGE>
On January 6, 1998, the Company filed a report on Form 8-K with
respect to the Acquisition Credit Facility and the acquisition of
the Opus Portfolio.
On January 9, 1998, the Company filed a report on Form 8-K/A with
respect to the acquisition of the Copley Properties.
On January 12, 1998, the Company filed a report on Form 8-K/A
with respect to the acquisition of the Thousand Oaks Property.
On January 12, 1998, the Company filed a report on Form 8-K/A
with respect to the Acquisition Credit Facility and the
acquisition of the Opus Portfolio.
On January 12, 1998, the Company filed a report on Form 8-K with
respect to the acquisitions of the Marion Bass Portfolio, the
Windsor Portfolio, Bryant Lake and the CRI Properties.
On January 12, 1998, the Company filed a report on Form 8-K with
respect to the January 1998 Offering.
On January 22, 1998, the Company filed a report on Form 8-K with
respect to the Press Release for the year ended December 31, 1997
earnings.
On January 27, 1998, the Company filed a report on Form 8-K with
respect to the January 1998 Offering.
On February 20, 1998, the Company filed a report on Form 8-K to
provide certain additional ownership and operational information
concerning the Company and the properties owned or managed by it
as of December 31, 1997.
On March 3, 1998, the Company filed a report on Form 8-K with
respect to the sale of GRC Airport Associates' sole property.
On March 12, 1998, the Company filed a report on Form 8-K with
respect to the acquisition of the San Mateo Headquarters.
On March 24, 1998, the Company filed a report on Form 8-K/A with
respect to the sale of GRC Airport Associates' sole property.
38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
GLENBOROUGH REALTY TRUST INCORPORATED:
We have audited the accompanying consolidated balance sheets of GLENBOROUGH
REALTY TRUST INCORPORATED, as of December 31, 1997 and 1996, the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1997 and 1996, and the combined statements of
operations, stockholders' equity and cash flows of the GRT Predecessor Entities
for the year ended December 31, 1995. These consolidated and combined financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated and combined financial statements and schedules 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 GLENBOROUGH REALTY
TRUST INCORPORATED, as of December 31, 1997 and 1996, the consolidated results
of its operations and its cash flows for the years ended December 31, 1997 and
1996, and the combined results of operations and cash flows of the GRT
Predecessor Entities for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated and combined financial statements taken as a whole. The
accompanying schedules listed in the index to financial statements and schedules
are presented for the purpose of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic consolidated and
combined financial statements. These schedules have been subjected to the
auditing procedures applied in our audits of the basic consolidated and combined
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic consolidated and combined financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
January 21, 1998 (except with respect to
matters discussed in Note 14, as to which
the date is March 20, 1998)
39
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(in thousands, except share amounts)
1997 1996
<S> <C> <C>
ASSETS
Investments in real estate, net of accumulated depreciation
of $41,213 and $28,784 in 1997 and 1996, respectively $ 825,218 $ 161,945
Investments in Associated Companies 10,948 6,765
Mortgage loans receivable, net of reserve for loss of
$863 in 1996 3,692 9,905
Cash and cash equivalents 5,070 1,355
Other assets 20,846 5,550
TOTAL ASSETS $ 865,774 $ 185,520
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loans $ 148,139 $ 54,584
Secured bank line -- 21,307
Unsecured bank line 80,160 --
Other liabilities 11,091 3,198
Total liabilities 239,390 79,089
Commitments and contingencies -- --
Minority interest 46,261 8,831
Stockholders' Equity:
Common Stock, 31,547,256 and 9,661,553 shares
issued and outstanding at December 31, 1997
and 1996, respectively 31 10
Additional paid-in capital 592,739 105,952
Deferred compensation (210) (399)
Retained earnings (deficit) (12,437) (7,963)
Total stockholders' equity 580,123 97,600
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 865,774 $ 185,520
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
(in thousands, except per share amounts)
Glenborough Glenborough GRT
Realty Trust Realty Trust Predecessor
Incorporated Incorporated Entities
Consolidated Consolidated Combined
1997 1996 1995
REVENUE
<S> <C> <C> <C>
Rental revenue $ 61,393 $ 17,943 $ 15,454
Fees and reimbursements, including $719,
$311 and $2,995 from affiliates in 1997,
1996 and 1995, respectively 719 311 16,019
Interest and other income 1,802 1,080 2,698
Equity in earnings of Associated Companies 2,743 1,598 --
Net gain on sales of rental properties 839 321 --
Gain on collection of mortgage loan receivable 652 -- --
Total revenue 68,148 21,253 34,171
EXPENSES
Property operating expenses 18,958 5,266 8,576
General and administrative 3,319 1,393 15,947
Depreciation and amortization 14,873 4,575 4,762
Interest expense 9,668 3,913 2,129
Provision for loss on investments in real estate,
real estate partnerships and mortgage loans receivable -- -- 1,876
Consolidation costs -- 6,082 --
Litigation costs -- 1,155 --
Total expenses 46,818 22,384 33,290
Income (loss) from operations before provision for
income taxes, minority interest and extraordinary item 21,330 (1,131) 881
Provision for income taxes -- -- (357)
Minority interest (1,119) (292) --
Net income (loss) before extraordinary item 20,211 (1,423) 524
Extraordinary item:
Loss on early extinguishment of debt (843) (186) --
Net income (loss) $ 19,368 $ (1,609) $ 524
Basic Per share Data:
Net income (loss) before extraordinary item $ 1.12 $ (0.21)
Extraordinary item (0.04) (0.03)
Net income (loss) $ 1.08 $ (0.24)
Basic weighted average shares outstanding 17,982,817 6,632,707
Diluted Per share Data:
Net income (loss) before extraordinary item $ 1.09 $ (0.21)
Extraordinary item (0.04) (0.03)
Net income (loss) $ 1.05 $ (0.24)
Diluted weighted average shares outstanding 19,517,543 6,751,259
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
STATEMENTS OF EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
(in thousands)
GRT Predecessor Entities Combined
Additional Receivable Retained
General Limited Common Paid-in from Earnings
Partner Partners Stock Capital Stockholder (Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 $ (1,730) $ 85,337 $ 5 $ 6,613 $ (8,763) $ (904) $ 80,558
Distributions (117) (10,507) -- -- -- -- (10,624)
Redemption of shares -- -- (2) (6,613) -- (6,533) (13,148)
Repayment of
Stockholder advances, net -- -- -- -- 8,763 -- 8,763
Net income (loss) 17 1,751 -- -- -- (1,244) 524
Issuance of investor
notes in exchange
for units of limited
partnership interest -- (2,483) -- -- -- -- (2,483)
Equity in consolidation
attributable to
minority interest -- (7,962) -- -- -- -- (7,962)
Consolidation and
issuance of shares 1,830 (66,136) (3) -- -- 8,681 (55,628)
BALANCE AT
DECEMBER 31, 1995 -- -- -- -- -- -- --
Issuance of common stock to
directors and officers -- -- -- -- -- -- --
Issuance of common stock ,
net of offering costs of $4,046 -- -- -- -- -- -- --
Distributions -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- --
BALANCE AT
DECEMBER 31, 1996 -- -- -- -- -- -- --
Amortization of deferred
compensation -- -- -- -- -- -- --
Issuance of common stock ,
net of offering costs of $28,785 -- -- -- -- -- -- --
Issuance of common stock
related to acquisitions -- -- -- -- -- -- --
Adjustment to fair value of
minority interest -- -- -- -- -- -- --
Distributions -- -- -- -- -- -- --
Net income -- -- -- -- -- -- --
BALANCE AT
DECEMBER 31, 1997 $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
Glenborough Realty Trust Incorporated
Additional Deferred Retained
Common Stock Paid-in Compen- Earnings
Shares Par Value Capital sation (Deficit) Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 -- $ -- $ -- $ -- $ -- $ --
Distributions -- -- -- -- -- --
Redemption of shares -- -- -- -- -- --
Repayment of
Stockholder advances, net -- -- -- -- -- --
Net income (loss) -- -- -- -- -- --
Issuance of investor
notes in exchange
for units of limited
partnership interest -- -- -- -- -- --
Equity in consolidation
attributable to
minority interest -- -- -- -- -- --
Consolidation and
issuance of shares 5,754 6 55,622 -- -- 55,628
BALANCE AT
DECEMBER 31, 1995 5,754 6 55,622 -- -- 55,628
Issuance of common stock to
directors and officers 35 -- 525 (399) -- 126
Issuance of common stock ,
net of offering costs
of $4,046 3,873 4 49,805 -- -- 49,809
Distributions -- -- -- -- (6,354) (6,354)
Net loss -- -- -- -- (1,609) (1,609)
BALANCE AT
DECEMBER 31, 1996 9,662 10 105,952 (399) (7,963) 97,600
Amortization of deferred
compensation -- -- -- 189 -- 189
Issuance of common stock ,
net of offering costs
of $28,785 21,780 21 482,491 -- -- 482,512
Issuance of common stock
related to acquisitions 105 -- 2,655 -- -- 2,655
Adjustment to fair value of
minority interest -- -- 1,641 -- -- 1,641
Distributions -- -- -- -- (23,842) (23,842)
Net income -- -- -- -- 19,368 19,368
BALANCE AT
DECEMBER 31, 1997 31,547 $ 31 $ 592,739 $ (210) $(12,437) $ 580,123
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
(in thousands)
Glenborough Glenborough GRT
Realty Trust Realty Trust Predecessor
Incorporated Incorporated Entities
Consolidated Consolidated Combined
1997 1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 19,368 $ (1,609) $ 524
Adjustments to reconcile net
income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 14,873 4,575 4,762
Amortization of loan fees, included
in interest expense 221 193 --
Provision for loss on investments
in real estate, real estate partnerships
and mortgage loans receivable -- -- 1,876
Minority interest in income from operations 1,119 292 --
Equity in earnings of Associated
Companies (2,743) (1,598) --
Net gain on sales of rental properties (839) (321) --
Gain on collection of mortgage loan receivable (652) -- --
Loss on early extinguishment of debt 843 186 --
Amortization of deferred compensation 189 -- --
Consolidation costs -- 6,082 --
Litigation costs -- 1,155 --
Changes in certain assets and liabilities, net (8,301) (4,817) (17,770)
Net cash provided by (used for)
operating activities 24,078 4,138 (10,608)
Cash flows from investing activities:
Net proceeds from sales of rental properties 12,950 2,882 --
Additions to rental property (586,965) (62,286) (3,925)
Additions to mortgage loans receivable (1,855) (2,694) --
Principal receipts on mortgage loans receivable 8,068 254 12,581
Investments in Associated Companies (3,700) (1,890) --
Distributions from Associated Companies 2,260 1,901 --
Net cash provided by (used for)
investing activities (569,242) (61,833) 8,656
<FN>
(continued)
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - continued
For the years ended December 31, 1997, 1996 and 1995
(in thousands)
Glenborough Glenborough GRT
Realty Trust Realty Trust Predecessor
Incorporated Incorporated Entities
Consolidated Consolidated Combined
1997 1996 1995
Cash flows from financing activities:
<S> <C> <C> <C>
Proceeds from borrowings $ 467,689 $ 52,599 $ 8,910
Repayment of borrowings (375,909) (35,593) (14,050)
Payment of investor notes -- (2,483) --
Distributions to minority interest holders (1,571) (526) --
Repayments from Stockholder, net -- -- 8,763
Distributions (23,842) (6,354) (10,624)
Redemption of shares -- -- (10,389)
Proceeds from issuance of stock, net of
offering costs 482,512 46,820 --
Net cash provided by (used for)
financing activities 548,879 54,463 (17,390)
Net increase (decrease) in cash and cash equivalents 3,715 (3,232) (19,342)
Cash and cash equivalents at beginning of year 1,355 4,587 23,929
Cash and cash equivalents at end of year $ 5,070 $ 1,355 $ 4,587
Supplemental disclosure of cash flow information:
Cash paid for interest $ 9,373 $ 3,270 $ 1,951
Supplemental Disclosure of Non-Cash
Investing and Financing activities:
Acquisition of real estate through assumption of
first trust deed notes payable. $ 60,628 $ 25,200 $ --
Acquisition of real estate through issuance of
shares of common stock and Operating
Partnership units $ 42,177 $ 3,749 $ --
Conversion of shares of common stock into
investor notes payable $ -- $ -- $ 2,483
Conversion of equity to minority interest $ -- $ -- $ 7,962
Consolidation and issuance of shares of common
stock in exchange for limited partnership units
and common stock in GRT Predecessor Entities $ -- $ -- $ 55,628
Refinancing of debt $ -- $ -- $ 28,200
Acquisition of real estate through foreclosure and
assumption of first trust deed note payable $ -- $ -- $ 3,908
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
44
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
AND GRT PREDECESSOR ENTITIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
Note 1. ORGANIZATION
Glenborough Realty Trust Incorporated (the "Company") was organized in the State
of Maryland on August 26, 1994. The Company has elected to qualify as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"). The Company completed a consolidation with certain public
California limited partnerships and other entities (the "Consolidation") engaged
in real estate activities (the "GRT Predecessor Entities") through an exchange
of assets of the GRT Predecessor Entities for 5,753,709 shares of Common Stock
of the Company. The Consolidation occurred on December 31, 1995, and the Company
commenced operations on January 1, 1996.
Subsequent to the Consolidation on December 31, 1995, and through December 31,
1997, the following Common Stock transactions occurred: (i) 35,000 shares of
Common Stock were issued to officers and directors as stock compensation; (ii)
25,446,000 shares were issued in four separate public equity offerings; (iii)
312,606 shares were issued in connection with various acquisitions; and (iv) 59
shares were retired, resulting in total shares of Common Stock issued and
outstanding at December 31, 1997, of 31,547,256. In addition, fully converted
shares issued and outstanding (including 2,365,409 partnership units in the
Operating Partnership) totaled 33,912,665 at December 31, 1997.
To maintain the Company's qualification as a REIT, no more than 50% in value of
the outstanding shares of the Company may be owned, directly or indirectly, by
five or fewer individuals (defined to include certain entities), applying
certain constructive ownership rules. To help ensure that the Company will not
fail this test, the Company's Articles of Incorporation provide for certain
restrictions on the transfer of the Common Stock to prevent further
concentration of stock ownership.
The Company, through several subsidiaries, is engaged primarily in the
ownership, operation, management, leasing, acquisition, expansion and
development of various income-producing properties. The Company's major
consolidated subsidiary, in which it holds a 1% general partner interest and a
91.48% limited partner interest at December 31, 1997, is Glenborough Properties,
L.P. (the "Operating Partnership"). As of December 31, 1997, the Operating
Partnership, directly and through various subsidiaries in which it and the
Company own 100% of the ownership interests, controls a total of 128 real estate
projects and 2 mortgage loans receivable.
As of December 31, 1997, the Company also holds 100% of the non-voting preferred
stock of the following two Associated Companies (the "Associated Companies"):
Glenborough Corporation ("GC") is the general partner of several real
estate limited partnerships and provides asset and property management
services for these partnerships (the "Controlled Partnerships"). It also
provides partnership administration, asset management, property management
and development services under a long term contract to a group of
unaffiliated partnerships which include five public partnerships sponsored
by Rancon Financial Corporation, an unaffiliated corporation which has
significant real estate assets in the Inland Empire region of Southern
California (the "Rancon Partnerships"). The services to the Rancon
Partnerships were previously provided by Glenborough Inland Realty
Corporation ("GIRC"), a California corporation, which merged with GC
effective June 30, 1997. GC also provides property management services for
a limited portfolio of property owned by other unaffiliated third parties.
In the merger between GC and GIRC, the Company received preferred stock of
GC in exchange for its preferred stock of GIRC, on a one-for-one basis.
Following the merger, the Company holds the same preferences with respect
to dividends and liquidation distributions paid by GC as it previously held
with respect to GC and GIRC combined.
Glenborough Hotel Group ("GHG") leases the five Country Suites by Carlson
hotels owned by the Company and operates them for its own account. It also
operates two Country Suites By Carlson hotels and two resort condominium
hotels under separate contracts.
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<PAGE>
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the consolidated financial
position of the Company as of December 31, 1997 and 1996, the consolidated
results of operations and cash flows of the Company for the years ended December
31, 1997 and 1996, and the combined results of operations and cash flows of the
GRT Predecessor Entities for the year ended December 31, 1995, as the
Consolidation transaction discussed in Note 1 above was not effective until
December 31, 1995. All intercompany transactions, receivables and payables have
been eliminated in consolidation and combination.
Reclassification
Certain 1996 balances have been reclassified to conform with the current year
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the results of operations during the reporting period. Actual results could
differ from those estimates.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information," which will be effective for financial
statements issued for fiscal years beginning after December 15, 1997. SFAS 131
will require the Company to report certain financial and descriptive information
about its reportable operating segments, segments for which separate financial
information is available that is evaluated regularly by management in deciding
how to allocate resources and in assessing performance. For these segments, SFAS
131 will require the Company to report profit and loss, certain specific revenue
and expense items and assets. It also requires disclosures about each segment's
products and services, geographic areas of operation and major customers. The
Company will adopt the disclosures required by SFAS 131 in the financial
statements for the year ended December 31, 1998.
Investments in Real Estate
Investments in real estate are stated at cost unless circumstances indicate that
cost cannot be recovered, in which case, the carrying value of the property is
reduced to estimated fair value. Estimated fair value: (i) is based upon the
Company's plans for the continued operation of each property; (ii) is computed
using estimated sales price, as determined by prevailing market values for
comparable properties and/or the use of capitalization rates multiplied by
annualized rental income based upon the age, construction and use of the
building, and (iii) does not purport, for a specific property, to represent the
current sales price that the Company could obtain from third parties for such
property. The fulfillment of the Company's plans related to each of its
properties is dependent upon, among other things, the presence of economic
conditions which will enable the Company to continue to hold and operate the
properties prior to their eventual sale. Due to uncertainties inherent in the
valuation process and in the economy, it is reasonably possible that the actual
results of operating and disposing of the Company's properties could be
materially different than current expectations.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
The useful lives are as follow:
Buildings and Improvements 10 to 40 years
Tenant Improvements Term of the related lease
Furniture and Equipment 5 to 7 years
46
<PAGE>
Investments in Associated Companies
The Company's investments in the Associated Companies are accounted for using
the equity method, as discussed further in Note 4.
Mortgage Loans Receivable
The Company monitors the recoverability of its loans and notes receivable
through ongoing contact with the borrowers to ensure timely receipt of interest
and principal payments, and where appropriate, obtains financial information
concerning the operation of the properties. Interest on mortgage loans is
recognized as revenue as it accrues during the period the loan is outstanding.
Mortgage loans receivable will be evaluated for impairment if it becomes evident
that the borrower is unable to meet its debt service obligations in a timely
manner and cannot satisfy its payments using sources other than the operations
of the property securing the loan. If it is concluded that such circumstances
exist, then the loan will be considered to be impaired and its recorded amount
will be reduced to the fair value of the collateral securing it. Interest income
will also cease to accrue under such circumstances. Due to uncertainties
inherent in the valuation process, it is reasonably possible that the amount
ultimately realized from the Company's collection on these receivables will be
different than the recorded amounts.
Cash Equivalents
The Company considers short-term investments (including certificates of deposit)
with a maturity of three months or less at the time of investment to be cash
equivalents.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments. Based on the borrowing rates currently
available to the Company, the carrying amount of debt approximates fair value.
Cash and cash equivalents consist of demand deposits and certificates of deposit
with financial institutions. The carrying amount of cash and cash equivalents as
well as the mortgage loans receivable described above, approximates fair value.
Deferred Financing and Other Fees
Fees paid in connection with the financing and leasing of the Company's
properties are amortized over the term of the related notes payable or leases
and are included in other assets.
Minority Interest
Minority interest represents the 7.52% limited partner interests in the
Operating Partnership not held by the Company.
Revenues
All leases are classified as operating leases. Rental revenue is recognized as
earned over the terms of the related leases.
For the years ended December 31, 1997 and 1996, no tenants represented 10% or
more of rental revenue of the Company. For the year ended December 31, 1995,
rental revenue from two properties leased to one tenant represented
approximately 10% of the Company's total rental revenue.
Fees and reimbursements revenue consists of property management fees, overhead
administration fees, and transaction fees from the acquisition, disposition,
refinance, leasing and construction supervision of real estate.
Revenues are recognized only after the Company is contractually entitled to
receive payment, after the services for which the fee is received have been
provided, and after the ability and timing of payments are reasonably assured
and predictable.
Income Taxes
The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code. As a REIT, the Company generally will not be subject to
Federal income tax to the extent that it distributes at least 95% of its REIT
taxable income to its shareholders. REITs are subject to a number of
organizational and operational
47
<PAGE>
requirements. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to Federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate tax 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 to Federal
income and excise taxes on its undistributed income.
Certain of the Company's predecessors were subject to income taxes, the
provisions for which have been included in the accompanying 1995 combined
results of operations of the GRT Predecessor Entities.
Earnings Per Share
In 1997, the Company adopted the disclosure requirements of SFAS No. 128,
"Earnings per Share." SFAS 128 requires the disclosure of basic earnings per
share and modified existing guidance for computing diluted earnings per share.
Earnings per share for all periods presented have been restated to conform to
the new standard. For additional required disclosures, see Note 9.
Note 3. INVESTMENTS IN REAL ESTATE
The cost and accumulated depreciation of real estate investments as of December
31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Buildings and Total Accumulated Net
1997: Land Improvements Cost Depreciation Recorded Value
<S> <C> <C> <C> <C> <C>
Office properties $ 62,442 $ 282,129 $ 344,571 $ (9,310) $ 335,261
Office/Flex properties 46,496 163,606 210,102 (3,274) 206,828
Industrial properties 20,903 88,802 109,705 (7,503) 102,202
Retail properties 16,687 50,447 67,134 (5,845) 61,289
Multi-family properties 19,512 71,288 90,800 (1,780) 89,020
Hotel properties 5,587 38,532 44,119 (13,501) 30,618
Total $ 171,627 $ 694,804 $ 866,431 $ (41,213) $ 825,218
1996:
Office properties $ 9,721 $ 39,582 $ 49,303 $ (4,224) $ 45,079
Office/Flex properties 2,326 9,163 11,489 (624) 10,865
Industrial properties 4,293 23,633 27,926 (5,533) 22,393
Retail properties 16,578 30,681 47,259 (6,164) 41,095
Multi-family properties 5,652 17,440 23,092 (510) 22,582
Hotel properties 5,586 26,074 31,660 (11,729) 19,931
Total $ 44,156 $ 146,573 $ 190,729 $ (28,784) $ 161,945
</TABLE>
In February 1997, the Company acquired a 163-suite hotel property (the
"Scottsdale Hotel"), which began operations in January 1996 and is located in
Scottsdale, Arizona. The total acquisition cost, including capitalized costs,
was approximately $12.1 million, which consisted of approximately $4.6 million
of mortgage debt assumed, and the balance in cash. The cash portion was financed
through advances under the Company's previous secured line of credit from Wells
Fargo Bank (the "Line of Credit") (see Note 6). The Scottsdale Hotel is marketed
as a Country Inn and Suites by Carlson.
In April 1997, the Company acquired from two limited partnerships and one
limited liability company managed by affiliates of Lennar Partners, a portfolio
of three properties, aggregating approximately 282,000 square feet (the "Lennar
Properties"). The total acquisition cost, including capitalized costs, was
approximately $23.2 million, which was paid in cash from the proceeds of the
March 1997 Offering (see Note 13). The Lennar Properties consist of one office
property located in Virginia and one office/flex property and one industrial
property, each located in Massachusetts.
In April 1997, the Company acquired from a private seller a 227,129 square foot,
15-story office building located in Bloomington, Minnesota (the "Riverview
Property"). The total acquisition cost, including capitalized costs, was
approximately $20.5 million, of which approximately $16.3 million was paid in
cash from the proceeds of the March 1997 Offering (see Note 13), and the balance
was paid in cash from borrowings under the Line of Credit.
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<PAGE>
In April 1997, the Company acquired from seven partnerships and their general
partner, a Southern California syndicator, a portfolio of eleven properties,
aggregating approximately 523,000 square feet, together with associated
management interests (the "E&L Properties"). The total acquisition cost,
including capitalized costs, was approximately $22.2 million, which consisted of
(i) approximately $12.8 million of mortgage debt assumed; (ii) approximately
$6.7 million in the form of 352,197 partnership units in the Operating
Partnership (based on an agreed per unit value of $19.075); (iii) approximately
$633,000 in the form of 33,198 shares of Common Stock of the Company (based on
an agreed per share value of $19.075); and (iv) the balance in cash. The cash
portion was paid from borrowings under the Line of Credit. Of the $12.8 million
of mortgage debt assumed in the acquisition, approximately $8.9 million was paid
off on May 1, 1997, through a draw on the Line of Credit. The E&L Properties
consist of one office property, nine office/flex properties and one industrial
property, all located in Southern California.
In April 1997, the Company acquired from two partnerships formed and managed by
affiliates of CIGNA, a portfolio of six properties, aggregating approximately
616,000 square feet and 224 multi-family units (the "CIGNA Properties"). The
total acquisition cost, including capitalized costs, was approximately $45.4
million, which was paid entirely in cash from the proceeds of a $40 million
unsecured loan from Wells Fargo Bank (see Note 6) and a draw under the Line of
Credit. The CIGNA Properties are located in four states and consist of two
office properties, two office/flex properties, a shopping center and a
multi-family property.
In June 1997, the Company acquired from Carlsberg Realty, Inc. a portfolio of
three properties, aggregating approximately 245,600 square feet (the "CRI
Properties"). The total acquisition cost, including capitalized costs, was
approximately $14.8 million, which was paid entirely in cash from borrowings
under the Line of Credit. The CRI Properties consist of one office property
located in California and one office/flex property and one industrial property,
each located in Arizona. The CRI Properties had been managed by GC since
December 1996.
In June 1997, the Company sold from its retail portfolio six Atlanta Auto Care
Center properties and nine of the ten QuikTrip properties for an aggregate sales
price of approximately $12 million. The proceeds from the sale of the QuikTrip
properties were used to fund the acquisition of the Centerstone Property (as
discussed below) and the proceeds from the sale of the Auto Care Center
properties were used to paydown the Line of Credit and to payoff a mortgage
loan. The remaining QuikTrip property was sold on October 1, 1997, for a sales
price of approximately $1.1 million. The sales generated a net gain of $839,000.
In July 1997, the Company acquired an office property containing 157,579 square
feet (the "Centerstone Property") located in Irvine, California. The total
acquisition cost, including capitalized costs, was approximately $30.4 million,
which consisted of (i) approximately $5.5 million in the form of 275,000
partnership units in the Operating Partnership (based on an agreed per unit
value of $20.00); and (ii) the balance in cash from a combination of borrowings
under the Line of Credit and the net proceeds from the sale of the QuikTrip
retail properties (as discussed above).
In September 1997, the Company acquired a portfolio of 27 properties,
aggregating approximately 2,888,000 square feet (the "T. Rowe Price Properties")
from five limited partnerships, two general partnerships and one private REIT,
each organized by affiliates of T. Rowe Price Associates, Inc. The total
acquisition cost, including capitalized costs, was approximately $146.8 million,
which was paid entirely in cash from the proceeds of a $114 million unsecured
loan from Wells Fargo Bank (see Note 6), approximately $23 million of the
proceeds from a $60 million secured loan from Wells Fargo Bank (see Note 6), a
$6.5 million draw on the Line of Credit and the balance from the proceeds from
the July 1997 Offering (see Note 13). The T. Rowe Price Properties consist of
four office properties, twelve office/flex properties, eight industrial
properties and three retail properties located in 12 states.
In September 1997, the Company acquired a portfolio of ten properties,
aggregating 755,006 square feet (the "Advance Properties") from a group of
partnerships affiliated with The Advance Group of Bedminster, New Jersey. The
total acquisition cost, including capitalized costs, was approximately $103.0
million, which consisted of (i) approximately $7.4 million of mortgage debt
assumed; (ii) approximately $13.6 million in the form of 599,508 partnership
units in the Operating Partnership (based on an agreed per unit value of
$22.625); (iii) approximately
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<PAGE>
$37 million of the proceeds from a $60 million secured loan from Wells Fargo
Bank (see Note 6); and (iv) the balance in cash. The cash portion of the
acquisition was paid with proceeds from the July 1997 Offering (see Note 13).
The Advance Properties consist of five office properties, three office/flex
properties and two industrial properties. Nine of the properties are located in
New Jersey and one is located in Maryland. Concurrent with this acquisition, the
Company invested $2,985,000 in exchange for a 50% ownership interest in
Advance/GLB Development Partners, LLC (the "Joint Venture"), a Delaware limited
liability company formed by the Company and The Advance Group for the
development of selected new projects. The Joint Venture owns 57 acres of land
suitable for office and office/flex development of up to 560,000 square feet.
The Company accounts for its investment in the Joint Venture using the equity
method as the Company has a significant ownership interest. At December 31,
1997, the Company's investment in the Joint Venture totaled $7,251,000 and is
included in other assets.
In September 1997, the Company acquired a 147,978 square-foot office building
("Citibank Park") located in Las Vegas, Nevada. The total acquisition cost,
including capitalized costs, was approximately $23.3 million, which consisted of
(i) approximately $1.66 million in the form of 61,222 partnership units in the
Operating Partnership (based on an agreed per unit value of $27.156); (ii) a
$19.4 million draw on the Line of Credit, and (iii) the balance in cash.
In October 1997, the Company acquired eight properties, aggregating 766,269
square feet, from six separate limited partnerships in which affiliates of AEW
Capital Management, L.P. (successors in interest to one or more affiliates of
Copley Advisors Inc.) serve as general partners (the "Copley Properties"). The
total acquisition cost, including capitalized costs, was approximately $63.7
million, which was paid entirely in cash. The Copley Properties are comprised of
two industrial properties located in Tempe, Arizona and Anaheim, California, and
six office/flex properties, one in Columbia, Maryland and five in Las Vegas,
Nevada.
In November 1997, the Company acquired a 171,789 square-foot office/flex
building in Eden Prairie, Minnesota ("Bryant Lake"), from Outlook Income Fund 9,
a limited partnership in which GC was the managing general partner. Robert
Batinovich was co-general partner of Outlook Income Fund 9 and held an economic
interest therein equal to an approximate 0.83% limited partnership interest.
Because of this affiliation, and consistent with the Company's Board of
Directors' policy, neither Robert Batinovich nor Andrew Batinovich voted when
the Board of Directors considered and acted to approve this acquisition. The
price paid for Bryant Lake equaled 100% of the appraised value as determined by
an independent appraiser. The total acquisition cost, including capitalized
costs, was approximately $9.4 million, comprising approximately $4.6 million in
the form of cash and the balance in the form of assumption of debt.
In December 1997, the Company acquired an office complex consisting of three
office buildings, aggregating 418,457 square feet ("Thousand Oaks"). The total
acquisition cost, including capitalized costs, was approximately $51.3 million,
which was paid entirely in cash, including cash from borrowings under the
Acquisition Credit Facility (see Note 6). The Thousand Oaks property includes 10
acres suitable for the development of 182,000 square feet of office space.
Thousand Oaks is located in Memphis, Tennessee.
In December 1997, the Company acquired four office/flex properties and one
office property (the "Opus Portfolio") aggregating 289,874 square feet from four
limited liability companies affiliated with Opus Properties, LLC. The total
acquisition cost, including capitalized costs, was approximately $27.9 million,
all of which was paid in cash, including cash from borrowings under the
Acquisition Credit Facility. Four of the Opus Portfolio properties are located
in or near Tampa, Florida, and one is located in Denver, Colorado.
In December 1997, the Company acquired 10 multi-family properties (the "Marion
Bass Portfolio") aggregating 1,385 units from various limited partnerships, each
of whose general partner is Marion Bass Real Estate Group. The total acquisition
cost, including capitalized costs, was approximately $58.3 million, comprising
$23.5 million of assumed debt and the balance in cash, including cash from
borrowings under the Acquisition Credit Facility. Of the 10 Marion Bass
Portfolio properties, six are located in Charlotte, North Carolina, two are in
Monroe, North Carolina, one is in Raleigh, North Carolina and one is in
Pineville, North Carolina.
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<PAGE>
In December 1997, the Company issued, subject to a rescission right,
approximately $14.1 million in the form of 433,362 partnership units in the
Operating Partnership and 72,564 shares of Common Stock (based on an agreed per
unit and per share value of $27.896, respectively, which was equal to the
average closing price of the Company's Common Stock for the ten business days
preceding the closing) and paid approximately $200,000 in cash to acquire all of
the limited partnership interests of GRC Airport Associates, a California
limited partnership ("GRCAA"). GRCAA's sole asset consisted of one industrial
property ("Skypark") that was subject to a binding sales agreement, which, upon
completion, was anticipated to generate net cash proceeds of $14.1 million. By
virtue of interests held directly or indirectly in GRCAA, Robert Batinovich
received consideration of approximately $2.2 million and GC received
consideration of approximately $1.7 million for the GRCAA limited partnership
interests in the form of partnership units in the Operating Partnership.
Consistent with the Company's Board of Directors' policy, neither Robert
Batinovich nor Andrew Batinovich voted when the Board of Directors considered
and acted to approve this transaction. The sale of GRCAA's property to a third
party was completed in February 1998. See Note 14 for further discussion.
The Company has entered into a definitive agreement to sell the Shannon Crossing
retail property for $3.1 million. In connection with this sale, the Company has
agreed to lend $6.2 million to the buyer under a construction loan with a fixed
interest rate of 8%, to be funded as needed. As of the date of this filing,
approximately $1.1 million has been funded under this construction loan. The
sale of Shannon Crossing will not be completed until the fourth quarter of 1998
as its sale is currently precluded by the terms of the mortgage loan secured by
the property.
As of December 31, 1997, approximately $13 million of escrow deposits for future
acquisitions of properties are included in rental property.
The Company leases its commercial and industrial property under non-cancelable
operating lease agreements. Future minimum rents to be received as of December
31, 1997 are as follows (in thousands):
Year Ending
December 31,
1998 $ 17,160
1999 13,131
2000 13,393
2001 12,109
2002 6,174
Thereafter 24,123
$ 86,090
Note 4. INVESTMENTS IN ASSOCIATED COMPANIES
The Company's investments in the Associated Companies are accounted for using
the equity method as the Company has significant ownership interests through its
100% preferred stock ownership but does not own any voting interests. The
Company records earnings on its investments in the Associated Companies equal to
its cash flow preference, to the extent of earnings, plus its pro rata share of
remaining earnings, based on cash flow allocation percentages. Distributions
received from the Associated Companies are recorded as a reduction of the
Company's investments.
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<PAGE>
As of December 31, 1997 and 1996, the Company had the following investments in
the Associated Companies (in thousands):
GC(1) GHG Total
--------- --------- ---------
Investment at December 31, 1995 $ 3,810 $ 1,368 $ 5,178
Contributions 1,690 200 1,890
Distributions (1,810) (91) (1,901)
Equity in earnings 1,571 27 1,598
--------- --------- ---------
Investment at December 31, 1996 5,261 1,504 6,765
Contribution 3,700 -- 3,700
Distributions (2,129) (131) (2,260)
Equity in earnings 1,687 1,056 2,743
--------- --------- ---------
Investment at December 31, 1997 $ 8,519 $ 2,429 $ 10,948
========= ========= =========
(1) All amounts presented for GC represent combined amounts for GC and GIRC due
to the June 30, 1997 merger, as previously discussed in Note 1.
Summary condensed balance sheet information as of December 31, 1997 and 1996,
and the condensed statements of operations for the years then ended are as
follows (in thousands):
<TABLE>
<CAPTION>
Balance Sheets
GC (1) GHG
As of December 31, As of December 31,
1997 1996 1997 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Investments in management contracts, net $ 8,108 $ 6,756 $ 354 $ 430
Other Assets 3,631 1,930 3,381 1,825
=========== =========== =========== ==========
Total assets $ 11,739 $ 8,686 $ 3,735 $ 2,255
=========== =========== =========== ==========
Notes payable $ 1,483 $ 2,383 $ 37 $ 61
Other liabilities 1,764 1,016 962 692
----------- ----------- ----------- ----------
Total liabilities 3,247 3,399 999 753
Stockholders' equity 8,492 5,287 2,736 1,502
=========== =========== =========== ==========
Total liabilities and stockholders' equity $ 11,739 $ 8,686 $ 3,735 $ 2,255
=========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations
GC (1) GHG
For the year ended For the year ended
December 31, December 31,
1997 1996 1997 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue $ 15,105 $ 11,375 $ 14,857 $ 9,952
Expenses 13,331 9,723 13,457 9,925
=========== =========== =========== ==========
Net income $ 1,774 $ 1,652 $ 1,400 $ 27
=========== =========== =========== ==========
</TABLE>
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<PAGE>
(1) All amounts presented for GC represent combined amounts for GC and GIRC due
to the June 30, 1997 merger, as previously discussed in Note 1. Included in the
revenues of GC for the year ended December 31, 1997 is a fee of approximately
$1.7 million earned in connection with the GRCAA transaction discussed in Note 3
above.
Note 5. MORTGAGE LOANS RECEIVABLE
The Company held a first mortgage loan with a principal balance of $7,563,000
and a carrying value of $6,700,000 at December 31, 1996, secured by an office
and research complex in Eatontown, New Jersey. The loan had an original maturity
date of November 1, 1996 with interest only payable monthly at the fixed rate of
eight percent (8%) per annum. In 1995, due to the uncertainty surrounding the
borrower's ability to payoff the note receivable upon its November 1996
maturity, the Company recorded a $863,000 loss provision on this mortgage loan
receivable to reduce its carrying value to the estimated fair value of the
underlying property. In December 1996, the maturity date was extended to
February 1, 1997. On January 28, 1997, the borrower paid off the note. Total
proceeds of the payoff were $7,352,000, net of collection costs, resulting in a
gain on collection of $652,000.
At December 31, 1997, the Company held a first mortgage loan in the amount of
$507,000 secured by an industrial property in Los Angeles, California. The terms
of the note include interest accruing at eight percent (8%) per annum for the
first twenty-four months (ended June 1996) and at nine percent (9%) per annum
for the next sixty months until the note matures in June 2001. Monthly payments
of principal and interest, computed based on a thirty year amortization
schedule, commenced January 1995 and continue until maturity.
In 1996, the Operating Partnership entered into a Loan Agreement and Option
Agreement (the "Option Agreement") with Carlsberg Properties, LTD. ("the
Borrower"). The loan amount was $3,600,000, of which $2,694,000 was initially
disbursed to the Borrower and $906,000 was held by the Operating Partnership as
leasing and interest reserves. On June 18, 1997, the Loan Agreement was amended
to include an additional advance to the borrower of $250,000 which was applied
in its entirety to the interest reserve, resulting in an amended loan amount of
$3,850,000 and an increase in the interest reserve of $250,000. During the year
ended December 31, 1997, $491,000 of reserves were disbursed to the borrower
which resulted in an outstanding balance at December 31, 1997, of $3,185,000.
The loan is secured by a 48,000 square foot medical building in Phoenix, Arizona
(the "Grunow Building"), and matures on November 19, 1999, with interest only
payable monthly at the fixed rate of eleven percent (11%) per annum calculated
on the full amount of the loan. The Option Agreement provides the Operating
Partnership the option to purchase the Grunow Building on either the second or
third anniversary of the closing date of November 19, 1996, for the greater of
i) the then outstanding loan balance plus $50,000 or ii) the value of the
Secured Property as defined in the Option Agreement.
Contractually due principal payments of the mortgage loans receivable are as
follows (in thousands):
Year Ending
December 31,
1998 $ 5
1999 3,190
2000 5
2001 492
2002 --
Thereafter --
----------
Total $ 3,692
==========
Note 6. SECURED AND UNSECURED LIABILITIES
The Company had the following mortgage loans, bank lines, and notes payable
outstanding as of December 31, 1997 and 1996 (in thousands):
53
<PAGE>
1997 1996
Secured $50 million line of credit with a bank with
variable interest rates of LIBOR plus 1.75% and
prime rate, monthly interest only payments and a
maturity date of July 14, 1998, with an option to
extend for 10 years. In December 1997, the line was
paid-off when the Company obtained a $250 million
unsecured line of credit (discussed below). $ -- $ 21,307
Unsecured $250 million line of credit with a bank
("Acquisition Credit Facility") with a variable
interest rate ranging between LIBOR plus 1.10% and
LIBOR plus 1.30% (7.07% at December 31, 1997),
monthly interest only payments and a maturity date
of December 22, 2000, with one option to extend for
10 years. 80,160 --
Secured loan with a bank with a fixed interest rate
of 7.50%, monthly principal and interest payments of
$443 and a maturity date of October 1, 2022. The
loan is secured by ten properties with an aggregate
net carrying value of $111,372 at December 31, 1997.
See below for further discussion. 59,724 --
Secured loan with a bank with variable interest
rates of LIBOR plus 2.375% and prime rate plus
0.50%, monthly interest only payments and a maturity
date of July 14, 1998. The loan was paid off in June
1997 upon the sale of the properties securing the
loan. -- 6,120
Secured loan with an investment bank with a fixed
interest rate of 7.57%, monthly principal (based
upon a 25-year amortization) and interest payments
of $149 and a maturity date of January 1, 2006. The
loan is secured by nine properties with an aggregate
net carrying value of $37,711 and $39,298 at
December 31, 1997 and 1996, respectively. 19,444 19,744
Secured loans with various lenders, bearing interest
at fixed rates between 7.63% and 9.25%, with monthly
principal and interest payments ranging between $9
and $62 and maturing at various dates through April
1, 2012. These loans are secured by properties with
an aggregate net carrying value of $66,353 and
$30,441 at December 31, 1997 and 1996, respectively. 30,519 17,581
Secured loans with various banks bearing interest at
variable rates (ranging between 7.46% and 8.18% at
December 31, 1997), monthly principal and interest
payments ranging between $4 and $46 and maturing at
various dates through May 1, 2017. These loans are
secured by properties with an aggregate net carrying
value of $17,246 and $6,975 at December 31, 1997 and
1996, respectively. 7,806 3,807
Secured loans with various lenders, bearing interest
at fixed rates between 7.25% and 7.85%, with monthly
principal and interest payments ranging between $5
and $55 and maturing at various dates through
December 1, 2030. These loans are secured by Housing
and Urban Development properties with an aggregate
net carrying value of $41,862 and $9,491 at December
31, 1997 and 1996, respectively. 30,646 7,332
Total $ 228,299 $ 75,891
54
<PAGE>
In April 1997, the Operating Partnership entered into a $40 million unsecured
loan with Wells Fargo Bank to fund the acquisition of the CIGNA Properties (the
"CIGNA Acquisition Financing"). The CIGNA Acquisition Financing had a term of
three months (extendible to six months at the Company's option), interest at a
variable annual rate equal to 175 basis points above 30-day LIBOR, was unsecured
and was guaranteed by the Company. Required payments under the CIGNA Acquisition
Financing were monthly, interest only.
In June 1997, Wells Fargo had substantially completed underwriting and due
diligence for a $60 million mortgage loan to the Company (the "$60 Million
Mortgage") to be secured by the Lennar Properties, the Riverview Property, the
Centerstone Property and five of the CIGNA Properties. In the interim, Wells
Fargo funded a $60 million unsecured "bridge" loan (the "$60 Million Unsecured
Bridge Loan"), which was used to (i) repay all principal and accrued interest
under the $40 million CIGNA Acquisition Financing, and (ii) reduce the
outstanding balance under the Line of Credit by approximately $20 million.
The $60 Million Unsecured Bridge Loan was paid-off in July 1997 from the
proceeds of the July 1997 Offering (see Note 13) and was replaced with the $60
Million Mortgage in September 1997. This loan has a 25-year term, bears interest
at a fixed annual rate of 7.5%, and requires monthly payments of principal and
interest. Proceeds from the $60 Million Mortgage were used to fund the
acquisitions of the T. Rowe Price Properties and the Advance Properties.
In September 1997, the Company closed a $114 million unsecured loan (the "$114
Million Interim Unsecured Loan") with Wells Fargo Bank. This loan had a 90-day
term with two 90-day extension options, interest at a fixed annual rate of 7.5%
and required monthly interest-only payments. The proceeds of this loan were used
to fund a portion of the purchase price for the T. Rowe Price Properties. In
October 1997, the Company repaid the $114 Million Interim Unsecured Loan with
net proceeds from the October 1997 Offering (see Note 13).
In December 1997, the Company replaced its $50 million secured line of credit
with a new $250 million unsecured line of credit (the "Acquisition Credit
Facility") with Wells Fargo Bank. The Acquisition Credit Facility has a three
year term with an option to extend the term for an additional 10 years and bears
interest on a sliding scale ranging from LIBOR plus 1.1% to LIBOR plus 1.3%,
which represents a rate that is lower by at least 0.45% than the rate under the
Company's previous $50 million secured line of credit. In connection with the
repayment of the $50 million secured line of credit, the Company expensed, as an
extraordinary item, the unamortized deferred costs incurred to obtain the
secured line of credit of $843,000. Draws under the Acquisition Credit Facility
were used to fund acquisitions as discussed in Note 3.
The required principal payments on the Company's debt for the next five years
and thereafter are as follows (in thousands):
Year Ending
December 31,
1998 $ 5,562
1999 3,893
2000 84,900
2001 2,914
2002 3,148
Thereafter 127,882
---------
Total $ 228,299
=========
Note 7. RELATED PARTY TRANSACTIONS
Fee and reimbursement income earned by the Company and the GRT Predecessor
Entities from related partnerships totaled $719,000, $311,000 and $2,995,000 for
the years ended December 31, 1997, 1996 and 1995, respectively, and consisted of
property management fees and/or asset management fees for the years ended
December 31, 1997 and 1996, and property management fees, asset management fees,
reimbursements and related expenses for the year ended December 31, 1995.
55
<PAGE>
Note 8. PROVISION FOR LOSS ON INVESTMENTS IN REAL ESTATE, REAL ESTATE
PARTNERSHIPS AND MORTGAGE LOANS RECEIVABLE
The loss provisions recorded during the year ended December 31, 1995 were as
follows:
Reduction in the carrying value of the New
Jersey note receivable to the value of collateral $ 863
Reduction in value of the GC investments in real
estate partnerships to estimated net realizable value 955
Other 58
-------
Total $ 1,876
=======
Note 9. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS
No. 128 requires the disclosure of basic earnings per share and modifies
existing guidance for computing diluted earnings per share. Under the new
standard, basic earnings per share is computed as earnings divided by weighted
average shares, excluding the dilutive effects of stock options and other
potentially dilutive securities. The effective date of SFAS No. 128 is December
15, 1997. Earnings per share for all periods presented have been restated to
conform to the new standard as follows (in thousands, except for weighted
average shares and per share amounts):
Years ending December 31,
1997 1996
Net income - Basic 19,368 (1,609)
Minority interest 1,119 -- (1)
Net income - Diluted 20,487 (1,609)
Weighted average shares:
Basic 17,982,817 6,632,707
Stock options 281,365 118,552
Convertible Operating Partnership Units 1,253,361 -- (1)
Diluted 19,517,543 6,751,259
Basic earnings per share 1.08 (0.24)
Diluted earnings per share 1.05 (0.24)(1)
(1) Diluted earnings per share for the year ended December 31, 1996, does not
include the conversion of units of the Operating Partnership into common stock
(570,364 weighted average units outstanding) as the effect is anti-dilutive.
Note 10. CONSOLIDATION AND LITIGATION COSTS
The consolidation costs included in the Company's December 31, 1996 consolidated
statement of operations included accounting fees as well as the costs of mailing
and printing the Prospectus/Consent Solicitation Statement, any supplements
thereto or other documents related to the Consolidation, the costs of the
Information Agent, Investor brochure, telephone calls, broker-dealer fact
sheets, printing, postage, travel, meetings, legal and other fees related to the
solicitation of consents, as well as reimbursement of costs incurred by brokers
and banks in forwarding the Prospectus/Consent Solicitation Statement to
Investors.
The litigation costs included in the Company's December 31, 1996 consolidated
statement of operations included the legal fees incurred in connection with
defending two class action complaints filed by investors in certain of the
56
<PAGE>
GRT Predecessor Entities as well as an accrual for the amount of the settlement
that the plaintiff's counsel in one case was requesting be awarded by the court
(see Note 12).
Note 11. STOCK COMPENSATION PLAN
In May 1996, the Company adopted an employee stock incentive plan (the "Plan")
to provide incentives to attract and retain high quality executive officers and
key employees. Certain amendments to the Plan were ratified and approved by the
stockholders of the Company at the Company's 1997 Annual Meeting of
Stockholders. The Plan, as amended, provides for the grant of (i) shares of
Common Stock of the Company, (ii) options, stock appreciation rights ("SARs") or
similar rights with an exercise or conversion privilege at a fixed or variable
price related to the Common Stock and/or the passage of time, the occurrence of
one or more events, or the satisfaction of performance criteria or other
conditions, or (iii) any other security with the value derived from the value of
the Common Stock of the Company or other securities issued by a related entity.
Such awards include, without limitation, options, SARs, sales or bonuses of
restricted stock, dividend equivalent rights ("DERs"), Performance Units or
Preference Shares. The total number of shares of Common Stock available under
the Plan is equal to the greater of 1,140,000 shares or 8% of the number of
shares outstanding determined as of the day immediately following the most
recent issuance of shares of Common Stock or securities convertible into shares
of Common Stock; provided that the maximum aggregate number of shares of Common
Stock available for issuance under the Plan may not be reduced. For purposes of
calculating the number of shares of Common Stock available under the Plan, all
classes of securities of the Company and its related entities that are
convertible presently or in the future by the security holder into shares of
Common Stock or which may presently or in the future be exchanged for shares of
Common Stock pursuant to redemption rights or otherwise, shall be deemed to be
outstanding shares of Common Stock. Notwithstanding the foregoing, the aggregate
number of shares as to which incentive stock options, one type of security
available under the Plan, may be granted under the Plan may not exceed 1,140,000
shares. The Company accounts for the fair value of the options and bonus grants
in accordance with APB Opinion No. 25. As of December 31, 1997, 35,000 shares of
bonus grants have been issued under the Plan. The fair value of the shares
granted have been recorded as deferred compensation in the accompanying
financial statements and will be charged to earnings ratably over the respective
vesting periods that range from 2 to 5 years. As of December 31, 1997, 1,708,200
options to purchase shares of Common Stock have been granted. The exercise price
of each option granted is greater than or equal to the per-share fair market
value of the Common Stock on the date the option is granted. To date, all
options granted have been at exercise prices equal to or higher than the fair
market value of the shares on the grant date, and as such, no compensation
expense has been recognized as accounted for under APB Opinion No. 25. The
options vest over periods between 1 and 6 years, and have a maximum term of 10
years.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation"
(SFAS 123). As permitted by SFAS 123, the Company has not changed its method of
accounting for stock options but has provided the additional required
disclosures. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands except for per share amounts).
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Net income (loss) As reported 19,368 (1,609)
SFAS No. 123 Adjustment (1,947) (3)
Pro forma 17,421 (1,612)
Basic earnings per share As reported 1.08 (0.24)
SFAS No. 123 Adjustment (0.11) --
Pro forma 0.97 (0.24)
Diluted earnings per share As reported 1.05 (0.24)
SFAS No. 123 Adjustment (0.10) --
Pro forma 0.95 (0.24)
</TABLE>
57
<PAGE>
A summary of the status of the Company's stock option plan as of December 31,
1997 and 1996, and changes during the years then ended is presented in the table
below:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- ----------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
-------------- ---------------------- ------------- ----------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 796,000 $ 15.00 --
Granted 912,200 $ 26.29 796,000 $ 15.00
Exercised -- -- -- --
Purchased -- -- -- --
-------------- ---------------------- ------------- ----------------------
Outstanding at end of year 1,708,200 $ 21.03 796,000 $ 15.00
Exercisable at end of year 356,000 $ 27.29 -- --
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------- -------------------------------------
Number Weighted-average Weighted- Number Weighted-
Outstanding at remaining average Exercisable at average
12/31/97 contractual life exercise price 12/31/97 exercise price
----------------- --------------------- ----------------- ----------------- -----------------
Range of Exercise Prices
<C> <C> <C> <C> <C> <C>
$15.00 to $20.25 884,000 8.63 years $ 15.45 6,000 $ 15.00
$20.38 to $24.56 62,000 8.27 years $ 22.76 - -
$25.00 to $30.00 762,200 9.76 years $ 27.36 350,000 $ 27.50
----------------- --------------------- ----------------- ----------------- -----------------
1,708,200 $ 21.03 356,000 $ 27.29
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during 1997 and 1996, respectively: expected
dividend yield of 5.28% and 8.5%, expected volatility of 27.90% and 5.0%,
weighted average risk-free interest rate of 5.74% and 6.3%, and expected lives
of 10, 7, 5 and 2 years. Based on these assumptions, the weighted average fair
value of options granted would be calculated as $4.52 in 1997 and $0.02 in 1996.
Note 12. COMMITMENTS AND CONTINGENCIES
Environmental Matters. The Company follows a policy of monitoring its properties
for the presence of hazardous or toxic substances. The Company is not aware of
any environmental liability with respect to the properties that would have a
material adverse effect on the Company's business, assets or results of
operations. There can be no assurance that such a material environmental
liability does not exist. The existence of any such material environmental
liability could have an adverse effect on the Company's results of operations
and cash flow.
General Uninsured Losses. The Company carries comprehensive liability, fire,
flood, extended coverage and rental loss insurance with policy specifications,
limits and deductibles customarily carried for similar properties. There are,
however, certain types of extraordinary losses which may be either uninsurable,
or not economically insurable. Further, certain of the properties are located in
areas that are subject to earthquake activity. Should a property sustain damage
as a result of an earthquake, the Company may incur losses due to insurance
deductibles, co-payments on insured losses or uninsured losses. Should an
uninsured loss occur, the Company could lose its investment in, and anticipated
profits and cash flows from, a property.
Litigation. Prior to the completion of the Consolidation, two lawsuits were
filed in 1995 contesting the fairness of the Consolidation, one in California
State court and one in federal court. The complaints in both actions alleged,
among other things, breaches by the defendants of fiduciary duties and
inadequate disclosures. The State court action was settled and, upon appeal, the
settlement was affirmed by the State court on February 17, 1998. Pursuant to the
terms of the settlement in the State court action, pending appeal, the Company
has paid one-third of the
58
<PAGE>
$855,000 settlement amount and the remaining two-thirds is being held in escrow.
In the federal action, the court in December of 1995 deferred all further
proceedings pending a ruling in the State court action. Following the State
court decision approving the settlement, the defendants filed a motion to
dismiss the federal court action. Given the inherent uncertainties of
litigation, there can be no assurance that the ultimate outcomes of these
actions will be favorable to the Company.
Note 13. PUBLIC STOCK OFFERINGS
In October 1996, the Company completed the "October 1996 Offering" of 3,666,000
shares of Common Stock. The 3,666,000 shares were sold at a per share price of
$13.875 for total proceeds of $47,814,000 (net of 6% underwriting fee of
$3,052,000. Approximately $1,100,000 in other costs were incurred in connection
with the October 1996 Offering.
In March 1997, the Company completed the "March 1997 Offering" of 3,500,000
shares of Common Stock. The 3,500,000 shares were sold at a per share price of
$20.25 for total proceeds of $66,955,000 (net of 6% underwriting fee of
$3,920,000). Approximately $916,000 in other costs were incurred in connection
with the March 1997 Offering.
In July 1997, the Company completed the "July 1997 Offering" of 6,980,000 shares
of Common Stock. The 6,980,000 shares were sold at a per share price of $22.625
for total proceeds of $149,965,300 (net of underwriting fees of $7,957,200).
Approximately $810,000 in other costs were incurred in connection with the July
1997 Offering.
In October 1997, the Company completed the "October 1997 Offering" of 11,300,000
shares of Common Stock. The 11,300,000 shares were sold at a per share price of
$25.00 for total proceeds of $268,092,500 (net of underwriting fees of
$14,407,500). Approximately $772,000 in other costs were incurred in connection
with the October 1997 Offering.
Following are unaudited proforma statements of operations of the Company for
each of the years ended December 31, 1997 and 1996 giving effect to the 1997 and
1996 offerings and related acquisitions (including those discussed in Note 3) as
if they had been completed on January 1, 1996 (in thousands except for weighted
average shares and per share amounts):
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Unaudited)
---------------- ----------------
REVENUE
<S> <C> <C>
Rental revenue $ 118,286 $ 111,862
Equity in earnings of Associated Companies 2,861 1,627
Fees, interest and other income 2,471 1,133
---------------- ----------------
Total Revenue 123,618 114,622
---------------- ----------------
OPERATING EXPENSES
Property operating expenses 37,366 35,611
General and administrative 4,558 3,134
Depreciation and amortization 23,607 21,950
Interest expense 16,700 15,363
---------------- ----------------
Total Operating Expenses 82,231 76,058
---------------- ----------------
Income from operations before minority interest 41,387 38,564
Minority interest (2,646) (2,720)
================ ================
Net income $ 38,741 $ 35,844
================ ================
Basic net income per share $ 1.23 $ 1.14
================ ================
Diluted net income per share $ 1.21 $ 1.12
================ ================
Basic weighted average shares outstanding 31,547,256 31,547,256
================ ================
Diluted weighted average shares outstanding 34,338,513 34,338,513
================ ================
</TABLE>
59
<PAGE>
Note 14. SUBSEQUENT EVENTS
In January 1998, the Company acquired a portfolio of 13 suburban office
properties and one office/flex property (the "Windsor Portfolio") located in
eight states. The Company acquired the Windsor Portfolio from Windsor Realty
Fund II, L.P., of which Windsor Advisor, LLC is the general partner and DuPont
Pension Fund Investments and Gid/S&S Limited Partnership are limited partners,
and other entities affiliated with Windsor Realty Fund II, L.P. The Windsor
Portfolio properties aggregate 3,383,240 net rentable square feet, located in
the eastern and mid-western United States and are concentrated in suburban
Washington, D.C., Chicago, Atlanta, Boston, Philadelphia, Tampa, Florida and
Cary, North Carolina. The total acquisition cost, including capitalized costs,
was approximately $423.2 million, comprised of (i) approximately $160.5 million
in assumption of debt; (ii) approximately $150.0 million in borrowings under a
$150 million loan agreement with Wells Fargo Bank (the "Interim Loan" as
discussed below); and (iii) the balance in cash, including cash from borrowings
under the Acquisition Credit Facility (see Note 6). Subsequent to the
acquisition, approximately $68 million of the assumed debt was paid off with
proceeds from the January 1998 Convertible Preferred Stock Offering (defined
below).
In January 1998, the Company sold a multi-family property for a sales price of
$4.95 million. This sale generated a net gain of approximately $947,000 and net
proceeds of approximately $2.1 million. The proceeds from the sale will be used
to fund future acquisitions. The sale was an all-cash sale and the Company has
no continuing obligations or involvement with this property. Accordingly, the
Company recognized the sale under the full accrual method of accounting.
In January 1998, the Company closed a $150 million loan agreement with Wells
Fargo Bank (the "Interim Loan"). The Interim Loan bears interest at LIBOR plus
1.75% and has a term of three months with an option to extend the term an
additional three months. The purpose of the Interim Loan was to fund the
acquisition of the Windsor Portfolio as discussed above.
In January 1998, the Company completed a public offering of 11,500,000 shares of
7 3/4% Series A Convertible Preferred Stock (the "January 1998 Convertible
Preferred Stock Offering"). The 11,500,000 shares were sold at a per share price
of $25.00 for net proceeds of approximately $276 million. The shares are
convertible at any time at the option of the holders thereof into shares of
Common Stock at an initial conversion price of $32.83 per share of Common Stock
(equivalent to a conversion rate of 0.7615 shares of Common Stock for each share
of Series A Convertible Preferred Stock), subject to adjustment in certain
circumstances. Except in certain instances relating to the preservation of the
Company's status as a REIT, the 7 3/4% Series A Convertible Preferred Stock is
not redeemable prior to January 16, 2003. On and after January 16, 2003, the
Series A Preferred Stock may be redeemed at the option of the Company, in whole
or in part, initially at 103.88% of the liquidation preference per share, and
thereafter at prices declining to 100% of the liquidation preference on and
after January 16, 2008, plus in each case accumulated, accrued and unpaid
dividends, if any, to the redemption date. A portion of this additional capital
was used to repay the outstanding balance under the Company's Acquisition Credit
Facility. The remaining proceeds will be used to fund the pending acquisitions
discussed in Note 15 and for general corporate purposes. Approximately $211,000
in other costs have been incurred in connection with the January 1998
Convertible Preferred Stock Offering.
In February 1998, GRCAA sold its sole property to an unaffiliated third party
for a price of $24 million, $2 million of which is conditioned on the
purchaser's success in its efforts to purchase the Operator's leasehold
interest. If the purchaser's efforts are successful and the Operating
Partnership collects the additional $2 million, then the Company will pay $2
million of additional consideration to the former partners of GRCAA in the form
of either (at the option of such former partners) cash, Operating Partnership
Units or stock. The proceeds from the sale of the Property were deposited into a
deferred exchange account and will be applied to the acquisition of other
properties on a tax-deferred basis pursuant to Section 1031 of the Internal
Revenue Code. No gain or loss on the sale of the property will be realized by
the Company.
In February 1998, the Company acquired a 161,468 square foot office complex
("Capitol Center") located in Des Moines, Iowa. The total acquisition cost,
including capitalized costs, was approximately $12.3 million, comprising: (i)
$116,000 in the form of 3,874 partnership units in the Operating Partnership
(based on an agreed per unit value of $30.00 and (ii) the balance in cash.
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<PAGE>
In February 1998, the Company sold an industrial property to an unaffiliated
third party for $930,000. The sale generated a net gain of approximately
$247,000 and net proceeds of approximately $359,000. The proceeds from the sale
will be used to fund future acquisitions. The sale was an all-cash sale and the
Company has no continuing obligations or involvement with this property.
Accordingly, the Company will recognize the sale under the full accrual method
of accounting.
In March 1998, the Company acquired a 15-story office property located in San
Mateo, California (the "San Mateo Headquarters"), which contains 139,109 square
feet and currently houses the Company's corporate headquarters, from Prudential
Insurance Company of America. The San Mateo Headquarters property includes a
contiguous parking garage. The total acquisition cost, including capitalized
costs, was approximately $34.7 million and was paid in cash, including cash from
borrowings under the Acquisition Credit Facility.
In March 1998, the Operating Partnership issued $150 million of 7 5/8% Senior
Notes (the "Notes") in an unregistered 144A offering. The Notes mature on March
15, 2005, unless previously redeemed. Interest on the Notes will be payable
semiannually on March 15 and September 15, commencing September 15, 1998. The
Notes may be redeemed at any time at the option of the Operating Partnership, in
whole or in part, at a redemption price equal to the sum of (i) the principal
amount of the Notes being redeemed plus accrued interest to the redemption date
and (ii) the Make-Whole Amount, as defined, if any. The Notes will be general
unsecured and unsubordinated obligations of the Operating Partnership, and will
rank pari passu with all other unsecured and unsubordinated indebtedness of the
Operating Partnership. The Notes will be subordinated to secured borrowing
arrangements that the Operating Partnership has and from time to time may enter
into with various banks and other lenders, and to the prior claims of each
secured mortgage lender to any specific property which secures any lender's
mortgage. As of December 31, 1997, such secured arrangements and mortgages
aggregated approximately $148.1 million. The Operating Partnership intends to
use the net proceeds from the issuance of the Notes to repay substantially all
of the outstanding balance under the Interim Loan.
Note 15. PENDING ACQUISITIONS
The Company has entered into a definitive agreement to acquire all of the real
estate assets of Prudential-Bache/ Equitec Real Estate Partnership, a California
limited partnership (the "Pru-Bache Portfolio") in which the managing general
partner is Prudential-Bache Properties, Inc., and in which GC and Robert
Batinovich have served as co-general partners since March 1994, but do not hold
a material equity or economic interest. Because of this affiliation, and
consistent with the Company's Board of Directors' policy, neither Robert
Batinovich nor Andrew Batinovich voted when the Board of Directors considered
and acted to approve this acquisition. The total acquisition cost, including
capitalized costs, is expected to be approximately $43.6 million, which is to be
paid entirely in cash. The Pru-Bache Portfolio is comprised of four office
buildings aggregating 405,825 square feet and one office/flex property
containing 121,645 square feet. The largest of these properties are in
Rockville, Maryland (186,680 square feet) and Memphis, Tennessee (100,901 square
feet), with the remaining properties located in Sacramento, California and
Kirkland, Washington. This acquisition is subject to a number of contingencies
including approval of the acquisition by a majority vote of the limited partners
of Prudential-Bache/Equitec Real Estate Partnership, satisfactory completion of
due diligence and customary closing conditions. As a result, there can be no
assurance that this acquisition will be completed.
The Company is negotiating the terms of an agreement to acquire a portfolio of
eight office properties and four retail properties aggregating 741,913 square
feet and three multi-family properties containing 670 units (the "Eaton & Lauth
Portfolio") from a number of partnerships in which affiliates of Eaton & Lauth
serve as general partners. The total acquisition cost, including capitalized
costs, is expected to be approximately $90.0 million, comprising: (i)
approximately $32.0 million of net assumed debt; (ii) approximately $21.1
million of equity which will consist of: (a) approximately $4.3 million in the
form of shares of Common Stock of the Company (based on a negotiated per share
value of $25.00); and (b) approximately $16.8 million in the form of partnership
units in the Operating Partnership (based on a negotiated per unit value of
$25.00); and (iii) the balance in cash. The Eaton & Lauth Portfolio properties
are located in the Indianapolis, Indiana area. This acquisition is subject to a
number of contingencies including the negotiation of terms of a definitive
agreement, approval of the assumption of loans,
61
<PAGE>
satisfactory completion of due diligence and customary closing conditions. As a
result, there can be no assurance that this acquisition will be completed.
Note 16. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following represents an unaudited summary of quarterly results of operations
for the year ended December 31, 1997 (in thousands, except for weighted average
shares and per share amounts):
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
REVENUE
<S> <C> <C> <C> <C>
Rental revenue $ 7,907 $ 11,784 $ 16,209 $ 25,493
Fees and reimbursements 187 180 204 148
Interest and other income 344 269 554 635
Equity in earnings of
Associated Companies 145 458 1,339 801
Net gain on sales of rental properties -- 570 (15) 284
Gain on collection of mortgage loan
receivable 154 498 -- --
Total revenue 8,737 13,759 18,291 27,361
EXPENSES
Property operating expenses 2,382 3,663 5,237 7,676
General and administrative 651 723 657 1,288
Depreciation and amortization 1,537 2,507 4,823 6,006
Interest expense 1,573 2,227 2,616 3,252
Total expenses 6,143 9,120 13,333 18,222
Income from operations before minority
interest and extraordinary item 2,594 4,639 4,958 9,139
Minority interest (231) (398) (60) (430)
Net income before extraordinary item 2,363 4,241 4,898 8,709
Extraordinary item:
Loss on early extinguishment of debt -- -- -- (843)
Net income $ 2,363 $ 4,241 $ 4,898 $ 7,866
Basic Per Share Data:
Net income before extraordinary item $ 0.23 $ 0.32 $ 0.25 $ 0.30
Extraordinary item -- -- -- (0.03)
Net income $ 0.23 $ 0.32 $ 0.25 $ 0.27
Basic weighted average shares outstanding 10,089,331 13,188,504 19,395,779 29,033,945
Diluted Per Share Data:
Net income before extraordinary item $ 0.23 $ 0.32 $ 0.24 $ 0.29
Extraordinary item -- -- -- (0.03)
Net income $ 0.23 $ 0.32 $ 0.24 $ 0.26
Diluted weighted average shares outstanding 10,256,129 13,432,442 21,132,947 31,450,823
<FN>
Per share amounts do not necessarily sum to per share amounts for the year as weighted average shares outstanding are
measured for each period presented, rather than solely for the entire year.
</FN>
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (6)
Buildings
and
Description Encumbrances Land Improvements Improvements
- --------------------------------------------------------------------------------------------------
Office Properties:
<S> <C> <C> <C> <C>
4500 Plaza, UT (8) $ 875 $ 1,192 $ 4,606 $ 667
Warner Village, CA -- 558 2,232 24
Globe Building, WA -- 375 1,501 165
One Professional Square, NE -- 285 1,142 112
Vintage Pointe, AZ 2,087 738 2,950 130
Tradewinds Financial, AZ -- 303 1,214 22
Dallidet Center, CA -- 676 2,703 11
Hillcrest Office Plaza, CA -- 330 1,319 146
Academy Prof. Center, CA -- 467 1,866 107
University Tech Center, CA -- 2,011 8,046 450
Montgomery Exec. Center, MD -- 1,919 7,676 288
Post Oak Place, TX -- 395 1,579 26
Gatehall, NJ -- 1,857 7,427 46
Buschwood III, FL -- 1,472 5,890 42
25 Independence Blvd., NJ -- 4,535 18,141 60
Morristown Medical Offices, NJ -- 517 1,832 6
Frontier Executive Quarters I, NJ -- 4,189 33,892 99
Frontier Executive Quarters II, NJ -- 629 5,091 15
Bridgewater Exec. Quarters, NJ 4,487 2,069 7,337 25
Citibank Park, NV -- 4,611 18,442 107
Temple Terrace, FL -- 1,782 6,949 18
Thousand Oaks, TN -- 10,741 40,355 190
Regency Westpointe, NE (8) (5) 530 3,147 834
Centerstone Plaza, CA (4) 6,066 24,265 88
Woodlands Plaza, MO (4) 1,107 4,426 143
700 South Washington, VA (4) 1,974 7,894 53
Riverview Office Tower, MN (4) 4,083 16,333 409
Westford Corporate Center, MA (4) 2,078 8,310 68
Bond Street, MI -- 716 2,147 189
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1997
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- -----------------------------------------------------------------------------------------------------------------------
Office Properties:
<S> <C> <C> <C> <C> <C> <C>
4500 Plaza, UT (8) $ 1,123 $ 5,342 $ 6,465 $ 2,629 3/86 1-30 yrs.
Warner Village, CA 558 2,256 2,814 114 10/96 1-30 yrs.
Globe Building, WA 375 1,666 2,041 86 10/96 1-30 yrs.
One Professional Square, NE 285 1,254 1,539 67 10/96 1-30 yrs.
Vintage Pointe, AZ 738 3,080 3,818 159 11/96 1-30 yrs.
Tradewinds Financial, AZ 304 1,235 1,539 62 11/96 1-30 yrs.
Dallidet Center, CA 677 2,713 3,390 136 11/96 1-30 yrs.
Hillcrest Office Plaza, CA 330 1,465 1,795 74 11/96 1-30 yrs.
Academy Prof. Center, CA 481 1,959 2,440 49 4/97 1-30 yrs.
University Tech Center, CA 2,086 8,421 10,507 142 6/97 1-30 yrs.
Montgomery Exec. Center, MD 1,928 7,955 9,883 135 9/97 1-30 yrs.
Post Oak Place, TX 396 1,604 2,000 27 9/97 1-30 yrs.
Gatehall, NJ 1,865 7,465 9,330 124 9/97 1-30 yrs.
Buschwood III, FL 1,479 5,925 7,404 99 9/97 1-30 yrs.
25 Independence Blvd., NJ 4,547 18,189 22,736 304 9/97 1-30 yrs.
Morristown Medical Offices, NJ 518 1,837 2,355 31 9/97 1-30 yrs.
Frontier Executive Quarters I, NJ 4,200 33,980 38,180 566 9/97 1-30 yrs.
Frontier Executive Quarters II, NJ 631 5,104 5,735 85 9/97 1-30 yrs.
Bridgewater Exec. Quarters, NJ 2,075 7,356 9,431 122 9/97 1-30 yrs.
Citibank Park, NV 4,628 18,532 23,160 155 9/97 1-30 yrs.
Temple Terrace, FL 1,786 6,963 8,749 58 12/97 1-30 yrs.
Thousand Oaks, TN 10,741 40,545 51,286 336 12/97 1-30 yrs.
Regency Westpointe, NE (8) 530 3,981 4,511 1,491 6/87 5-30 yrs.
Centerstone Plaza, CA 6,077 24,342 30,419 407 7/97 1-30 yrs.
Woodlands Plaza, MO 1,114 4,562 5,676 183 4/97 1-30 yrs.
700 South Washington, VA 1,981 7,940 9,921 199 4/97 1-30 yrs.
Riverview Office Tower, MN 4,095 16,730 20,825 424 4/97 1-30 yrs.
Westford Corporate Center, MA 2,091 8,365 10,456 209 4/97 1-30 yrs.
Bond Street, MI 716 2,336 3,052 106 9/96 1-40 yrs.
</TABLE>
(continued)
63
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (6)
Buildings
and
Description Encumbrances Land Improvements Improvements
- ----------------------------------------------------------------------------------------------------
Office Properties continued:
<S> <C> <C> <C> <C>
University Club Tower, MO -- $ 4,087 $ 14,519 $ 1,472
Windsor Portfolio (7) -- -- 13,036 --
- ----------------------------------------------------------------------------------------------------
Office Total 62,292 276,267 6,012
- ----------------------------------------------------------------------------------------------------
Office/Flex Properties:
Park 100 - Building 42, IN (8) -- 712 3,286 (560)
Rancho Bernardo, CA -- 518 2,072 55
Hoover Industrial, AZ -- 322 1,290 14
Walnut Creek Industrial. TX $ 1,407 773 3,093 3
Chatsworth Ind. Park, CA 833 253 1,014 74
Sandhill Industrial Park, CA 1,753 563 2,254 104
San Dimas Industrial Ctr., CA 591 237 947 49
Glassell Industrial Center, CA 1,273 658 2,630 264
Kraemer Industrial Park, CA 1,425 384 1,537 90
Magnolia Industrial, AZ -- 310 1,241 58
The Business Park, GA -- 1,478 5,912 52
Newport Business Center, FL -- 651 2,604 31
Oakbrook Corners, GA -- 1,052 4,209 36
Baseline Business Park, AZ -- 882 3,527 27
Cypress Creek Business Ctr., FL -- 872 3,490 76
Scripps Terrace, CA -- 676 2,685 15
Riverview Industrial Park, MN -- 837 3,348 19
Winnetka Industrial Center, MN -- 1,184 4,737 27
Kent Business Park, WA -- 1,206 4,822 46
Valley Business Park, CO -- 1,757 7,027 39
Tierrasanta Research Park, CA -- 1,297 5,189 249
Germantown Business Center, MD -- 1,438 5,753 19
Fox Hollow Business Quarters, NJ -- 1,572 2,358 10
Fairfield Business Quarters, NJ 2,903 816 3,479 3
Columbia Warehouse, MD -- 391 1,565 7
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1997
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- -----------------------------------------------------------------------------------------------------------------------
Office Properties continued:
<S> <C> <C> <C> <C> <C> <C>
University Club Tower, MO $ 4,087 $ 15,991 $ 20,078 $ 731 7/96 1-40 yrs.
Windsor Portfolio (7) -- 13,036 13,036 -- (7) (7)
- -----------------------------------------------------------------------------------------------------------------------
Office Total 62,442 282,129 344,571 9,310
- -----------------------------------------------------------------------------------------------------------------------
Office/Flex Properties:
Park 100 - Building 42, IN (8) 712 2,726 3,438 643 10/86 5-25 yrs.
Rancho Bernardo, CA 518 2,127 2,645 109 10/96 1-30 yrs.
Hoover Industrial, AZ 322 1,304 1,626 66 10/96 1-30 yrs.
Walnut Creek Industrial. TX 774 3,095 3,869 155 10/96 1-30 yrs.
Chatsworth Ind. Park, CA 264 1,077 1,341 27 4/97 1-30 yrs.
Sandhill Industrial Park, CA 584 2,337 2,921 58 4/97 1-30 yrs.
San Dimas Industrial Ctr., CA 246 987 1,233 25 4/97 1-30 yrs.
Glassell Industrial Center, CA 704 2,848 3,552 71 4/97 1-30 yrs.
Kraemer Industrial Park, CA 401 1,610 2,011 40 4/97 1-30 yrs.
Magnolia Industrial, AZ 322 1,287 1,609 32 6/97 1-30 yrs.
The Business Park, GA 1,485 5,957 7,442 100 9/97 1-30 yrs.
Newport Business Center, FL 654 2,632 3,286 44 9/97 1-30 yrs.
Oakbrook Corners, GA 1,057 4,240 5,297 71 9/97 1-30 yrs.
Baseline Business Park, AZ 886 3,550 4,436 60 9/97 1-30 yrs.
Cypress Creek Business Ctr., FL 876 3,562 4,438 64 9/97 1-30 yrs.
Scripps Terrace, CA 678 2,698 3,376 43 9/97 1-30 yrs.
Riverview Industrial Park, MN 841 3,363 4,204 56 9/97 1-30 yrs.
Winnetka Industrial Center, MN 1,190 4,758 5,948 79 9/97 1-30 yrs.
Kent Business Park, WA 1,211 4,863 6,074 82 9/97 1-30 yrs.
Valley Business Park, CO 1,765 7,058 8,823 117 9/97 1-30 yrs.
Tierrasanta Research Park, CA 1,303 5,432 6,735 98 9/97 1-30 yrs.
Germantown Business Center, MD 1,442 5,768 7,210 96 9/97 1-30 yrs.
Fox Hollow Business Quarters, NJ 1,576 2,364 3,940 39 9/97 1-30 yrs.
Fairfield Business Quarters, NJ 817 3,481 4,298 58 9/97 1-30 yrs.
Columbia Warehouse, MD 393 1,570 1,963 13 10/97 1-30 yrs.
(continued)
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (6)
Buildings
and
Description Encumbrances Land Improvements Improvements
- --------------------------------------------------------------------------------------------------
Office/Flex Properties continued:
<S> <C> <C> <C> <C>
Palms Business Centre North, NV -- $ 2,483 $ 7,067 $ 35
Palms Business Centre South, NV -- 4,119 9,610 51
Palms Business Centre III, NV -- 3,970 10,207 53
Palms Business Centre IV, NV -- 623 3,272 16
Post Palms, NV -- 2,513 9,453 44
Bryant Lake Business Center, MN -- 1,883 7,531 135
ADS Alliance Data Systems, CO -- 1,331 3,354 10
Fingerhut Call Center Facility, FL -- 1,184 3,282 9
PrimeCo Call Center Facility, FL -- 947 3,418 10
Atlantic Tech @ Regency, FL -- 1,117 4,302 11
Clark Avenue, PA -- 646 2,584 14
Dominguez Industrial, CA -- 665 2,662 168
Dunn Way Industrial, CA -- 400 1,601 166
Monroe Industrial, CA $ 733 275 1,101 58
Upland Industrial, CA -- 144 576 64
Fisher-Pierce, MA (4) 715 2,860 16
Woodlands Tech Center, MO (4) 943 3,773 138
Lake Point Business Park, FL (4) 1,336 5,343 99
- --------------------------------------------------------------------------------------------------
Office/Flex Total 46,133 162,065 1,904
- --------------------------------------------------------------------------------------------------
Industrial Properties:
Case Equipment Corp.:
Kansas City, KS (8) -- 383 3,264 (1,397)
Memphis, TN (8) -- 305 2,583 (1,106)
Park 100 - Building 46, IN (8) -- -- -- 211
Mercantile I, TX -- 783 3,133 118
Quaker Industrial, TX -- 103 412 40
Pinewood Industrial, TX -- 144 577 6
Fifth Street, AZ -- 630 2,522 135
Airport Perimeter Bus. Park, GA -- 482 1,928 17
Springdale Commerce Ctr., CA -- 1,025 4,101 23
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1997
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- -----------------------------------------------------------------------------------------------------------------------
Office/Flex Properties continued:
<S> <C> <C> <C> <C> <C> <C>
Palms Business Centre North, NV $ 2,492 $ 7,093 $ 9,585 $ 59 10/97 1-30 yrs.
Palms Business Centre South, NV 4,134 9,646 13,780 80 10/97 1-30 yrs.
Palms Business Centre III, NV 3,984 10,246 14,230 85 10/97 1-30 yrs.
Palms Business Centre IV, NV 626 3,285 3,911 27 10/97 1-30 yrs.
Post Palms, NV 2,522 9,488 12,010 79 10/97 1-30 yrs.
Bryant Lake Business Center, MN 1,907 7,642 9,549 63 11/97 1-30 yrs.
ADS Alliance Data Systems, CO 1,334 3,361 4,695 28 12/97 1-30 yrs.
Fingerhut Call Center Facility, FL 1,187 3,288 4,475 27 12/97 1-30 yrs.
PrimeCo Call Center Facility, FL 949 3,426 4,375 29 12/97 1-30 yrs.
Atlantic Tech @ Regency, FL 1,119 4,311 5,430 36 12/97 1-30 yrs.
Clark Avenue, PA 649 2,595 3,244 43 9/97 1-30 yrs.
Dominguez Industrial, CA 697 2,798 3,495 71 4/97 1-30 yrs.
Dunn Way Industrial, CA 427 1,740 2,167 43 4/97 1-30 yrs.
Monroe Industrial, CA 282 1,152 1,434 28 4/97 1-30 yrs.
Upland Industrial, CA 155 629 784 16 4/97 1-30 yrs.
Fisher-Pierce, MA 718 2,873 3,591 72 4/97 1-30 yrs.
Woodlands Tech Center, MO 949 3,905 4,854 105 4/97 1-30 yrs.
Lake Point Business Park, FL 1,344 5,434 6,778 137 4/97 1-30 yrs.
- -----------------------------------------------------------------------------------------------------------------------
Office/Flex Total 46,496 163,606 210,102 3,274
- -----------------------------------------------------------------------------------------------------------------------
Industrial Properties:
Case Equipment Corp.:
Kansas City, KS (8) 236 2,014 2,250 558 3/84 50 yrs.
Memphis, TN (8) 187 1,595 1,782 442 3/84 50 yrs.
Park 100 - Building 46, IN (8) -- 211 211 94 10/86 5-25 yrs.
Mercantile I, TX 783 3,251 4,034 179 10/96 1-30 yrs.
Quaker Industrial, TX 103 452 555 23 10/96 1-30 yrs.
Pinewood Industrial, TX 144 583 727 30 10/96 1-30 yrs.
Fifth Street, AZ 654 2,633 3,287 65 6/97 1-30 yrs.
Airport Perimeter Bus. Park, GA 484 1,943 2,427 33 9/97 1-30 yrs.
Springdale Commerce Ctr., CA 1,030 4,119 5,149 69 9/97 1-30 yrs.
(continued)
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (6)
Buildings
and
Description Encumbrances Land Improvements Improvements
- --------------------------------------------------------------------------------------------------
Industrial Properties continued:
<S> <C> <C> <C> <C>
Atlantic Industrial, GA -- $ 967 $ 3,866 $ 22
Coronado Industrial, CA -- 708 2,831 16
Glenn Avenue Business Ctr., IL -- 563 2,250 12
Wood Dale Business Center, IL -- 601 2,403 13
Burnham Industrial Warehouse, FL -- 591 2,366 14
Bonnie Lane Business Center, IL -- 735 2,938 16
Jencraft Industrial, NJ -- 1,323 4,975 16
Eatontown Industrial, NJ -- 763 1,963 7
E. Anaheim, CA -- 1,474 3,282 18
Fairmont Commerce Center, AZ -- 732 2,928 14
Benicia Industrial Park, CA (8) (5) 1,037 4,787 66
Navistar International:
W. Chicago, IL (8) (5) 1,289 10,941 (4,618)
Baltimore, MD (8) (5) 577 4,911 (2,100)
Belshaw Industrial, CA 530 103 520 46
Southworth-Milton, MA (4) 1,913 7,652 43
Skypark, CA 7,428 3,899 17,802 --
Sea Tac II, WA (2) (8) -- 712 1,474 (178)
- --------------------------------------------------------------------------------------------------
Industrial Total 21,842 96,409 (8,546)
- --------------------------------------------------------------------------------------------------
Retail Properties:
Auburn North, WA -- 1,099 4,397 162
Piedmont Plaza, FL -- 1,308 5,233 43
River Run Shopping Ctr., FL -- 1,422 5,687 41
Goshen Plaza, MD -- 989 3,958 22
Westbrook Commons, IL -- 3,053 12,213 68
Sonora Plaza, CA 4,965 1,945 7,781 18
Shannon Crossing, GA (8) (5) 2,488 2,075 360
Westwood Plaza, FL (8) (5) 2,599 5,110 563
Park Center, CA (2) (8) -- 1,748 3,296 (544)
- --------------------------------------------------------------------------------------------------
Retail Total 16,651 49,750 733
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1997
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- -----------------------------------------------------------------------------------------------------------------------
Industrial Properties continued:
<S> <C> <C> <C> <C> <C> <C>
Atlantic Industrial, GA $ 971 $ 3,884 $ 4,855 $ 65 9/97 1-30 yrs.
Coronado Industrial, CA 711 2,844 3,555 47 9/97 1-30 yrs.
Glenn Avenue Business Ctr., IL 565 2,260 2,825 38 9/97 1-30 yrs.
Wood Dale Business Center, IL 603 2,414 3,017 40 9/97 1-30 yrs.
Burnham Industrial Warehouse, FL 594 2,377 2,971 40 9/97 1-30 yrs.
Bonnie Lane Business Center, IL 738 2,951 3,689 49 9/97 1-30 yrs.
Jencraft Industrial, NJ 1,326 4,988 6,314 83 9/97 1-30 yrs.
Eatontown Industrial, NJ 765 1,968 2,733 33 9/97 1-30 yrs.
E. Anaheim, CA 1,480 3,294 4,774 27 10/97 1-30 yrs.
Fairmont Commerce Center, AZ 735 2,939 3,674 24 10/97 1-30 yrs.
Benicia Industrial Park, CA (8) 978 4,912 5,890 1,866 7/86 5-30 yrs.
Navistar International:
W. Chicago, IL (8) 793 6,819 7,612 1,892 3/84 50 yrs.
Baltimore, MD (8) 356 3,032 3,388 839 3/84 50 yrs.
Belshaw Industrial, CA 134 535 669 13 4/97 1-30 yrs.
Southworth-Milton, MA 1,922 7,686 9,608 192 4/97 1-30 yrs.
Skypark, CA 3,899 17,802 21,701 443 12/97 30 yrs.
Sea Tac II, WA (2) (8) 712 1,296 2,008 319 2/86 5-25 yrs.
- -----------------------------------------------------------------------------------------------------------------------
Industrial Total 20,903 88,802 109,705 7,503
- -----------------------------------------------------------------------------------------------------------------------
Retail Properties:
Auburn North, WA 1,099 4,559 5,658 229 10/96 1-30 yrs.
Piedmont Plaza, FL 1,317 5,267 6,584 132 4/97 1-30 yrs.
River Run Shopping Ctr., FL 1,428 5,722 7,150 95 9/97 1-30 yrs.
Goshen Plaza, MD 994 3,975 4,969 66 9/97 1-30 yrs.
Westbrook Commons, IL 3,067 12,267 15,334 204 9/97 1-30 yrs.
Sonora Plaza, CA 1,947 7,797 9,744 390 11/96 1-30 yrs.
Shannon Crossing, GA (8) 2,488 2,435 4,923 1,581 10/88 3-14 yrs.
Westwood Plaza, FL (8) 2,599 5,673 8,272 2,523 1/88 3-23 yrs.
Park Center, CA (2) (8) 1,748 2,752 4,500 625 9/86 5-25 yrs.
- -----------------------------------------------------------------------------------------------------------------------
Retail Total 16,687 50,447 67,134 5,845
- -----------------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (6)
Buildings
and
Description Encumbrances Land Improvements Improvements
- --------------------------------------------------------------------------------------------------
Multi-family Properties:
<S> <C> <C> <C> <C>
Summer Breeze, CA (8) $ 2,578 $ 1,857 $ 2,138 $ 217
Sahara Gardens, NV -- 1,871 7,500 215
Sharonridge I & II, NC 1,756 518 2,071 24
Wendover Glen, NC 2,497 586 2,346 27
The Oaks, NC 2,341 662 2,649 31
The Landing on Farmhurst, NC 3,131 826 3,306 39
The Courtyard, NC 1,595 431 1,723 20
Sabal Point I, II & III, NC -- 3,650 14,602 169
Willow Glen, NC 2,412 809 3,236 37
Arrowood Crossing I & II, NC 6,504 1,805 7,222 83
The Chase (Commonwealth), NC 3,190 771 3,083 35
The Chase (Monroe), NC -- 1,015 4,062 47
Villas de Mission, NV 7,220 1,924 7,695 99
Overlook, AZ (4) 2,259 9,036 104
- --------------------------------------------------------------------------------------------------
Multi-family Total 18,984 70,669 1,147
- --------------------------------------------------------------------------------------------------
Hotel Properties:
Country Inn by Carlson:
San Antonio, TX -- 784 2,032 99
Country Inn & Suites by Carlson:
Scottsdale, AZ 4,457 -- 12,059 61
Country Suites by Carlson:
Arlington, TX (8) (5) 1,527 5,346 1,336
Irving, TX (2) (8) -- 972 3,850 (1,027)
Ontario, CA (8) (5) 1,224 5,576 367
Tucson, AZ (8) (5) 1,048 7,600 1,265
- --------------------------------------------------------------------------------------------------
Hotel Total 5,555 36,463 2,101
- --------------------------------------------------------------------------------------------------
Combined Total $ 228,299 $ 171,457 $ 691,623 $ 3,351
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1997
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- -----------------------------------------------------------------------------------------------------------------------
Multi-family Properties:
<S> <C> <C> <C> <C> <C> <C>
Summer Breeze, CA (8) $ 1,857 $ 2,355 $ 4,212 $ 407 1/95 3-18 yrs.
Sahara Gardens, NV 1,872 7,714 9,586 385 10/96 1-30 yrs.
Sharonridge I & II, NC 542 2,071 2,613 17 12/97 1-30 yrs.
Wendover Glen, NC 613 2,346 2,959 20 12/97 1-30 yrs.
The Oaks, NC 693 2,649 3,342 22 12/97 1-30 yrs.
The Landing on Farmhurst, NC 865 3,306 4,171 28 12/97 1-30 yrs.
The Courtyard, NC 451 1,723 2,174 14 12/97 1-30 yrs.
Sabal Point I, II & III, NC 3,819 14,602 18,421 122 12/97 1-30 yrs.
Willow Glen, NC 846 3,236 4,082 27 12/97 1-30 yrs.
Arrowood Crossing I & II, NC 1,888 7,222 9,110 60 12/97 1-30 yrs.
The Chase (Commonwealth), NC 806 3,083 3,889 26 12/97 1-30 yrs.
The Chase (Monroe), NC 1,062 4,062 5,124 34 12/97 1-30 yrs.
Villas de Mission, NV 1,924 7,794 9,718 390 10/96 1-30 yrs.
Overlook, AZ 2,274 9,125 11,399 228 4/97 1-30 yrs.
- ------------------------------------------------------------------------------------------------------------------------
Multi-family Total 19,512 71,288 90,800 1,780
- ------------------------------------------------------------------------------------------------------------------------
Hotel Properties:
Country Inn by Carlson:
San Antonio, TX 785 2,130 2,915 126 8/96 3-30 yrs.
Country Inn & Suites by Carlson:
Scottsdale, AZ -- 12,120 12,120 594 2/97 3-30 yrs.
Country Suites by Carlson:
Arlington, TX (8) 1,610 6,599 8,209 3,751 12/86 7-25 yrs.
Irving, TX (2) (8) 954 2,841 3,795 798 10/86 5-25 yrs.
Ontario, CA (8) 1,145 6,022 7,167 3,260 11/86 5-30 yrs.
Tucson, AZ (8) 1,093 8,820 9,913 4,972 12/86 7-25 yrs.
- ------------------------------------------------------------------------------------------------------------------------
Hotel Total 5,587 38,532 44,119 13,501
- ------------------------------------------------------------------------------------------------------------------------
Combined Total $ $ 171,627 $ 694,804 $ 866,431 $ 41,213
========================================================================================================================
(continued)
</TABLE>
67
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
(1) Initial cost and date acquired by GRT Predecessor Entities, where
applicable.
(2) The Company holds a participating first mortgage interest in the property.
In accordance with GAAP, the Company is accounting for the property as
though it holds fee title.
(3) The aggregate cost for Federal income tax purposes is $711,995.
(4) Pledged as security for Wells Fargo Bank Secured Loan - $59,724.
(5) Pledged as security for loan with an investment bank -- $19,444.
(6) Bracketed amounts represent reductions to carrying value in prior years.
(7) Initial Cost represents escrow deposit related to the acquisition of the
Windsor Portfolio which occurred in January 1998 (see Note 14).
(8) Initial Cost represents original book value carried forward from the
financial statements of the GRT Predecessor Entities.
68
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
December 31, 1997
(in thousands)
Reconciliation of gross amount at which real estate was carried for the years ended December 31:
1997 1996 1995
---------- ---------- ----------
Investments in real estate:
<S> <C> <C> <C>
Balance at beginning of year $ 190,729 $ 102,451 $ 83,449
Additions during year:
Property acquisitions 687,523 89,653 17,151
Improvements 2,691 1,572 1,851
Retirements/sales (14,512) (2,947) --
---------- ---------- ----------
Balance at end of year $ 866,431 $ 190,729 $ 102,451
========== ========== ==========
Accumulated Depreciation:
Balance at beginning of year $ 28,784 $ 24,877 $ 19,455
Additions during year:
Depreciation 14,496 4,305 2,254
Acquisitions 443 -- 3,168
Retirements/sales (2,510) (398) --
---------- ---------- ----------
Balance at end of year $ 41,213 $ 28,784 $ 24,877
========== ========== ==========
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE IV - MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE
December 31, 1997
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Description of Loan Current Maturity Periodic
and Securing Property Interest Rate Date Payment Terms Prior Liens
<S> <C> <C> <C> <C>
First Mortgage Loan 9% 6/1/01 Monthly interest and principal None
Industrial property, payments, based on a thirty
Los Angeles, CA year amortization
First Mortgage Loan 11% 11/19/99 Monthly interest only payments None
Medical building commencing January 1, 1997
Phoenix, AZ Principal due upon maturity
</TABLE>
<TABLE>
<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H
Principal Amount
of Loans Subject
Description of Loan Face Carrying to Delinquent
and Securing Property Amount Amount Principal or Interest
<S> <C> <C> <C>
First Mortgage Loan $ 553 $ 507 None
Industrial property,
Los Angeles, CA
First Mortgage Loan 3,850 3,185 (1) None
Medical building
Phoenix, AZ
Total $ 4,403 $ 3,692
<FN>
(1) The loan amount is $3,850,000, of which $2,694,000 was initially disbursed to the borrower and
$906,000 was held by the Company as leasing and interest reserves. In 1997, $491,000 of the
leasing and interest reserves were drawn by the borrower.
</FN>
</TABLE>
70
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE IV - MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE
December 31, 1997
(in thousands)
The following is a summary of changes in the carrying amount of mortgage loans
for the years ended December 31, 1997, 1996 and 1995 (in thousands):
1997 1996 1995
--------- --------- ---------
Balance at beginning of year $ 9,905 $ 7,465 $ 19,953
Additions during year:
New mortgage loans 491 2,694 7
Deductions during year:
Loss provision -- -- (863)
Collections of principal (6,704) (254) (11,632)
--------- --------- ---------
Balance at end of year $ 3,692 $ 9,905 $ 7,465
========= ========= =========
71
<PAGE>
UNCONSOLIDATED SUBSIDIARY
Due to the lessee-lessor relationship between GHG and the Company, the
Securities and Exchange Commission requires disclosures concerning GHG as if it
were a registrant. Accordingly, the financial statements of GHG have been
included in the Annual Report on Form 10-K of the Company for the year ended
December 31, 1997, and such financial statements follow the Company's
Consolidated Financial Statements in Item 14.
GLENBOROUGH HOTEL GROUP
Background
Glenborough Hotel Group ("GHG") was organized in the state of Nevada on
September 23, 1991. As of December 31, 1997, GHG operates hotel properties owned
by the Company under five separate percentage leases and manages two hotel
properties owned by affiliates. The Company owns 100% of the 50 shares of
non-voting preferred stock of GHG and three individuals, including Terri
Garnick, an executive officer of the Company, each own 33 1/3% of the 1,000
shares of voting common stock of GHG.
In April 1997, the management contract of one of the previously managed hotel
properties was terminated due to the sale of the property.
GHG also owns approximately 80% of the common stock of Resort Group, Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort condominium hotel properties and owns six rental units at one of the
properties. GHG receives 100% of the earnings of RGI and consolidates their
operations with its own.
Through July 1997, GHG also owned 94% of the outstanding common stock of
Atlantic Pacific Holdings, Ltd., the sole owner of 100% of the common stock of
Atlantic Pacific Assurance Company, Limited ("APAC"), a Bermuda corporation
formed to underwrite certain insurable risks of certain of the Company's
predecessor partnerships and related entities. As anticipated, in July 1997,
APAC was liquidated and GHG received a liquidating distribution of approximately
$2,136,000. GHG has recognized a gain of approximately $1,381,000 over its
investment basis and costs of liquidation. GHG had accounted for its investment
in APAC using the cost method due to its anticipated liquidation.
Liquidity and Capital Resources
GHG's primary source of funding is the cash generated by the operations of the
five hotels leased from the Company and fees received for (i) managing two
hotels owned by two partnerships and (ii) managing the homeowners associations
and rental pools for the resort condominium hotel properties as discussed above.
The boards of directors of GHG declared and paid the following quarterly
dividends for the year ending December 31, 1997:
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
<S> <C> <C> <C> <C> <C>
Preferred dividends to the Company $ 7,500 $ 7,500 $ 7,500 $ 7,500 $ 30,000
Additional dividends to the Company 30,938 30,938 30,938 30,938 123,752
Total dividends to the Company 38,438 38,438 38,438 38,438 153,752
Dividends to others 10,312 10,312 10,312 10,312 41,248
Total dividends $ 48,750 $ 48,750 $ 48,750 $ 48,750 $ 195,000
<FN>
(1) Dividends for the fourth quarter of 1997 were declared and paid in January 1998.
</FN>
</TABLE>
Results of Operations
Hotel revenue, which represents the revenue earned on the five hotels leased
from the Company, increased $3,917,000, or 52%, to $11,380,000 for the year
ended December 31, 1997, from $7,463,000 for the year ended December 31, 1996.
This increase is primarily due to the acquisition of the San Antonio Hotel lease
in August 1996 and the acquisition of the Scottsdale Hotel lease in February
1997.
Fee revenue and salary reimbursements of $2,060,000 represents the fees earned
for managing two hotels and two resort condominium hotels. The decrease from the
year ended December 31, 1996, to the year ended December 31,
72
<PAGE>
1997, is primarily due to the change in ownership of one of the managed hotel
properties (see discussion above) which resulted in GHG no longer managing this
hotel as of April 1997.
The gain on the liquidation of APAC resulted from the July 1997 receipt by GHG
of a liquidating distribution of approximately $2,136,000 which, net of
liquidation costs, resulted in a gain of $1,381,000 over its investment basis of
$755,000. GHG had accounted for its investment in APAC using the cost method due
to its anticipated liquidation. The gain on liquidation was not subject to
income taxes.
The primary expenses associated with the leased hotels are room expenses, lease
payments, sales and marketing, property general and administrative, and other
operating expenses, including utilities, maintenance and insurance. All leased
hotel expenses increased from the year ended December 31, 1996, to the year
ended December 31, 1997, due to the acquisition of two hotels as discussed
above.
The only direct expenses incurred in connection with the management of the two
hotels and two resort condominium hotel properties are salaries and benefits
which decreased $340,000 from the year ended December 31, 1996, to the year
ended December 31, 1997. This decrease is primarily due to the sale of one of
the managed hotel properties which resulted in GHG no longer managing this hotel
as of April 1997.
General and administrative costs represent the overhead costs associated with
administering the business of GHG. Such costs primarily consist of
administrative salaries and benefits, rent, legal fees and accounting fees.
These costs increased $109,000, or 11%, to $1,104,000 for the year ended
December 31, 1997, from $995,000 for the year ended December 31, 1996. The
increase is primarily due to higher salaries and benefits related to the growth
of GHG.
73
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
GLENBOROUGH HOTEL GROUP:
We have audited the accompanying consolidated balance sheets of GLENBOROUGH
HOTEL GROUP as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GLENBOROUGH HOTEL
GROUP as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
January 21, 1998
74
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1996
(in thousands, except share amounts)
1997 1996
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,632 $ 461
Accounts receivable 472 247
Investments in management contracts, net 354 430
Rental property and equipment, net of
accumulated depreciation of $129 and $111
in 1997 and 1996, respectively 154 170
Investment in Atlantic Pacific Assurance Company, Limited (APAC) -- 755
Prepaid expenses 119 156
Other assets 4 36
TOTAL ASSETS $ 3,735 $ 2,255
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued lease expense $ 557 $ 285
Mortgage loan 37 61
Other liabilities 405 407
Total liabilities 999 753
Stockholders' Equity:
Common stock (1,000 shares authorized,
issued and outstanding) 20 20
Non-voting preferred stock (50 shares
authorized, issued and outstanding) -- --
Additional paid-in capital 1,568 1,568
Retained earnings 1,148 (86)
Total stockholders' equity 2,736 1,502
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,735 $ 2,255
See accompanying notes to consolidated financial statements
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1997 and 1996
(in thousands)
1997 1996
REVENUE
<S> <C> <C>
Hotel revenue $ 11,380 $ 7,463
Fees and reimbursements 2,060 2,417
Gain on liquidation of APAC, net 1,381 --
Other revenue 36 72
Total revenue 14,857 9,952
EXPENSES
Leased Hotel Properties:
Room expenses 2,841 2,000
Lease payments to affiliates 4,002 2,507
Sales and marketing 1,213 770
Property general and administrative 991 855
Other operating expenses 1,870 1,036
Managed Hotel Properties:
Salaries and benefits 1,300 1,640
Other Expenses:
General and administrative 1,104 995
Depreciation and amortization 98 99
Interest expense 4 6
Total expenses 13,423 9,908
Income from operations before provision
for income taxes 1,434 44
Provision for income taxes (34) (17)
Net income $ 1,400 $ 27
See accompanying notes to consolidated financial statements
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997 and 1996
(in thousands, except shares)
Addi-
Preferred Stock Common Stock tional Retained
Par Par Paid-in Earnings
Shares Value Shares Value Capital (Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE at
December 31, 1995 50 $ -- 1,000 $ 20 $ 1,368 $ -- $ 1,388
Additional paid-in capital -- -- -- -- 200 -- 200
Dividends -- -- -- -- -- (113) (113)
Net income -- -- -- -- -- 27 27
BALANCE at
December 31, 1996 50 -- 1,000 20 1,568 (86) 1,502
Dividends -- -- -- -- -- (166) (166)
Net income -- -- -- -- -- 1,400 1,400
BALANCE at
December 31, 1997 50 $ -- 1,000 $ 20 $ 1,568 $ 1,148 $ 2,736
See accompanying notes to consolidated financial statements
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996
(in thousands)
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,400 $ 27
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 98 99
Gain on liquidation of APAC, net (1,381) --
Changes in certain assets and liabilities 110 246
Net cash provided by operating activities 227 372
Cash flows from investing activities:
Additions to equipment (2) (7)
Proceeds from liquidation of investment in APAC 2,136 --
Net cash provided by (used for) investing activities 2,134 (7)
Cash flows from financing activities:
Dividends (166) (113)
Capital contributions -- 200
Repayment of borrowings (24) (24)
Net cash provided by (used for) financing activities (190) 63
Net increase in cash and cash equivalents 2,171 428
Cash and cash equivalents at beginning of period 461 33
Cash and cash equivalents at end of period $ 2,632 $ 461
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4 $ 6
See accompanying notes to consolidated financial statements
</TABLE>
78
<PAGE>
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
Note 1. ORGANIZATION
Glenborough Hotel Group ("GHG") was organized in the State of Nevada on
September 23, 1991. As of December 31, 1997, GHG operates hotel properties owned
by Glenborough Realty Trust Incorporated ("GLB") under five separate percentage
leases and manages two hotel properties owned by affiliates. GLB owns 100% of
the 50 shares of non-voting preferred stock of GHG and three individuals,
including Terri Garnick, an executive officer of GLB, each own 33 1/3% of the
1,000 shares of voting common stock of GHG.
GHG also owns approximately 80% of the common stock of Resort Group, Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort condominium hotel properties and owns six units at one of the properties.
GHG receives 100% of the earnings of RGI and consolidates RGI's operations with
its own.
Through July 1997, GHG also owned 94% of the outstanding common stock of
Atlantic Pacific Holdings, Ltd., the sole owner of 100% of the common stock of
Atlantic Pacific Assurance Company, Limited ("APAC"), a Bermuda corporation
formed to underwrite certain insurable risks of certain of GLB's predecessor
partnerships and related entities. As anticipated, in July 1997, APAC was
liquidated and GHG received a liquidating distribution of approximately
$2,136,000. GHG has recognized a gain of $1,381,000 over its investment basis
and costs of liquidation. GHG had accounted for its investment in APAC using the
cost method due to its anticipated liquidation.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying financial statements present the
consolidated financial position of GHG and RGI as of December 31, 1997 and 1996,
and the consolidated results of operations and cash flows of GHG and RGI for the
years ended December 31, 1997 and 1996. All intercompany transactions,
receivables and payables have been eliminated in the consolidation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the results of operations during the reporting period. Actual
results could differ from those estimates.
Rental Property - Rental properties are stated at cost unless circumstances
indicate that cost cannot be recovered, in which case, the carrying value of the
property is reduced to estimated fair value.
Depreciation is provided using the straight-line method over the useful lives of
the respective assets.
Investments in Management Contracts - Investments in management contracts are
recorded at cost and are amortized on a straight-line basis over the term of the
contracts.
Cash Equivalents - GHG considers short-term investments (including certificates
of deposit) with a maturity of three months or less at the time of investment to
be cash equivalents.
Income Taxes - Provision for income taxes is based on financial accounting
income. Certain items are reported in different periods for tax and financial
reporting purposes. Timing differences arising from such items are recorded as
deferred tax assets, net of related valuation reserves, or liabilities, as
appropriate.
Note 3. INVESTMENTS IN MANAGEMENT CONTRACTS, NET
Investments in management contracts reflects the unamortized portion of the
management contracts RGI holds with the two beachfront resort condominium hotel
properties for both management of the homeowners associations and the rental
pool programs.
79
<PAGE>
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
Note 4. RENTAL PROPERTY
Rental property and equipment represents the six condominium hotel units owned
by RGI as well as furniture and fixtures in GHG's corporate offices. The six
units owned by RGI participate in a resort rental program on an "at will" basis,
whereby there is no fixed term of participation. Such participation generated
approximately $23,000 and $19,000 of cash flow after deductions for capital
reserves for the years ended December 31, 1997 and 1996, respectively.
Note 5. MORTGAGE LOAN
Mortgage loan of $37,000 at December 31, 1997, represents the debt secured by
the six condominium hotel units owned by RGI. Such debt bears interest at 7%,
payable in monthly installments of principal and interest totaling $2,304, and
matures June 30, 1999.
Note 6. THE PERCENTAGE LEASES
GHG is leasing the five hotels owned by GLB for a term of five years pursuant to
individual percentage leases ("Percentage Leases") which provide for rent equal
to the greater of the Base Rent (as defined in the lease) or a specified
percentage of room revenues (the "Percentage Rent"). Each hotel is separately
leased to GHG (the "lessee"). The lessee's ability to make rent payments will,
to a large degree, depend on its ability to generate cash flow from the
operations of the hotels. Each Percentage Lease contains the provisions
described below.
Each Percentage Lease has a non-cancelable term of five years, subject to
earlier termination upon the occurrence of certain contingencies described in
the Percentage Lease. The lessee under the Percentage Lease has one five-year
renewal option at the then current fair market rent.
During the term of each Percentage Lease, the lessee is obligated to pay Base
Rent plus Percentage Rent if defined levels of revenue are earned. Base Rent is
required to be paid monthly in advance. Percentage Rent is calculated by
multiplying fixed percentages by room revenues for each of the five hotels; the
applicable percentage changes when revenue exceeds a specified threshold, and
the threshold may be adjusted annually in accordance with changes in the
applicable Consumer Price Index. Percentage Rent is due quarterly.
The table below sets forth the annual Base Rent and the Percentage Rent formulas
for each of the five hotels.
<TABLE>
<CAPTION>
Hotel Lease Rent Provisions
Percentage Rent
incurred for the
Initial Annual year ended Annual Percentage
Hotel Base Rent December 31, 1997 Rent Formulas
<S> <C> <C> <C>
Ontario, CA $ 240,000 $ 324,000 24% of the first $1,668,000 of room revenue plus
40% of room revenue above $1,668,000 and 5% of
other revenue
continued
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH HOTEL GROUP
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
Hotel Lease Rent Provisions - continued
Percentage Rent
incurred for the
Annual year ended Annual Percentage
Hotel Base Rent December 31, 1997 Rent Formulas
<S> <C> <C> <C>
Arlington, TX $ 360,000 $ 333,000 27% of the first $1,694,000 of room revenue plus
42% of room revenue above $1,694,000 and 5%
of other revenue
Tucson, AZ $ 600,000 $ 682,000 40% of the first $1,429,000 of room revenue plus
46% of room revenue above $1,429,000 and 5%
of other revenue
San Antonio, TX $ 312,000 $ 3,000 33% of the first $1,240,000 of room revenue plus
40% of room revenue above $1,240,000 and 5%
of other revenue
Scottsdale, AZ $ 720,000(1) $ 548,000 41% of the first $2,600,000 of room revenue plus
60% of room revenue above $2,600,000 and 5%
of other revenue
<FN>
(1) Hotel was acquired in February 1997, therefore, rent incurred for the year ended December 31, 1997 was less
than a full year's rent.
</FN>
</TABLE>
Other than real estate and personal property taxes, casualty insurance, a fixed
capital improvement allowance and maintenance of underground utilities and
structural elements, which are the responsibility of GLB, the Percentage Leases
require the lessees to pay rent, insurance, salaries, utilities and all other
operating costs incurred in the operation of the Hotels.
Note 7. DECLARATION OF DIVIDENDS
The board of directors of GHG declared and paid the following dividends for
1997:
<TABLE>
<CAPTION>
Preferred Stock Common Stock Total
<S> <C> <C> <C> <C>
April, 1997 $ 38,438 $ 10,312 $ 48,750
July, 1997 38,438 10,312 48,750
October, 1997 38,438 10,312 48,750
January, 1998 38,438 10,312 48,750
Total paid from 1997 earnings $ 153,752 $ 41,248 $ 195,000
</TABLE>
81
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLENBOROUGH REALTY TRUST INCORPORATED
By: Glenborough Realty Trust Incorporated,
Date: March 24, 1998 /s/ Robert Batinovich
Robert Batinovich
Chairman of the Board
and Chief Executive Officer
Date: March 24, 1998 /s/ Andrew Batinovich
Andrew Batinovich
Director, President and
Chief Operating Officer
Date: March 24, 1998 /s/ Stephen Saul
Stephen Saul
Chief Financial Officer
(Principal Financial Officer)
Date: March 24, 1998 /s/ Terri Garnick
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)
Date: March 24, 1998 /s/ Laura Wallace
Laura Wallace
Director
82
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
3.01 Articles of Amendment and Restatement of Articles of Incorporation of
the Company are incorporated herein by reference to the identically
numbered exhibit to the Company's Registration Statement on Form S-4
(Registration No. 33-83506), which became effective October 26, 1995.
3.02 Bylaws of the Company.
3.03 The Company's Form of Articles Supplementary relating to the 7 3/4%
Series A Convertible Preferred Stock.
3.04 Second Amended and Restated Agreement of Limited Partnership of
Glenborough Properties, L.P. is incorporated herein by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K which was
filed on November 1, 1996.
4.02 Form of Common Stock Certificate of the Company is incorporated herein
by reference to the identically numbered exhibit to the Company's
Registration Statement on Form S-4 (Registration No. 33-83506), which
became effective October 26, 1995.
4.03 Form of 7 3/4% Series A Convertible Preferred Stock Certificate of the
Company is incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form 8-A which was filed on
January 22, 1998.
10.02 Form of Indemnification Agreement for existing Officers and Directors
of the Company is incorporated herein by reference to the identically
numbered exhibit to the Company's Registration Statement on Form S-4
(Registration No. 33-83506), which became effective October 26, 1995.
10.03* Stock Incentive Plan of the Company (amended and restated as of March
20, 1997) is incorporated herein by reference to Exhibit 4.0 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.
10.06 Lease Agreements between Glenborough Properties, L.P. and Glenborough
Hotel Group for Country Suites-Tucson, Country Suites-Ontario and
Country Suites-Arlington are incorporated herein by reference to the
identically numbered exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
10.24 Form of Indemnification Agreement for Existing Officers and Directors
of Glenborough Hotel Group is incorporated herein by reference to the
identically numbered exhibit to the Company's Registration Statement
on Form S-4 (Registration No. 33-83506), which became effective
October 26, 1995.
10.25 Form of Indemnification Agreement for Existing Officers and Directors
of Glenborough Realty Corporation is incorporated herein by reference
to the identically numbered exhibit to the Company's Registration
Statement on Form S-4 (Registration No. 33-83506), which became
effective October 26, 1995.
10.27 Registration Agreement between the Company and GPA, Ltd. is
incorporated herein by reference to the identically numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.29 Subscription Agreement between Glenborough Properties, L.P. and GPA,
Ltd. is incorporated herein by reference to the identically numbered
exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.31 Indemnification Agreement for Glenborough Realty Corporation and the
Company, with Robert Batinovich as indemnitor is incorporated herein
by reference to the identically numbered exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
10.33 Agreement for contribution of Partnership Interests for the University
Club Tower Property is incorporated herein by reference to Exhibit
10.39 to the Company's Registration Statement on Form S-11
(Registration No. 333-09411), which was filed on August 1, 1996.
83
<PAGE>
EXHIBIT INDEX - continued
Exhibit
Number Exhibit Title
10.34 Credit agreement with Wells Fargo Bank N.A. related to $50,000,000
secured revolving line of credit is incorporated herein by reference
to Exhibit 10.31 to the Company's Registration Statement on Form S-11
(Registration No. 333-09411), which was filed on August 1, 1996.
10.35 Credit agreement with Wells Fargo Bank N.A. related to the $6,120,000
2-year secured term loan is incorporated herein by reference to
Exhibit 10.30 to the Company's Registration Statement on Form S-11
(Registration No. 333-09411), which was filed on August 1, 1996.
10.36 Purchase Agreement related to the acquisition of Carlsberg Plaza, one
of the Carlsberg Properties is incorporated herein by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K which was
filed on November 1, 1996.
10.37 Purchase Agreement related to the acquisition of Dallidet Professional
Center, one of the Carlsberg Properties is incorporated herein by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
which was filed on November 1, 1996.
10.38 Purchase Agreement related to the acquisition of Hillcrest Office
Building, one of the Carlsberg Properties, is incorporated herein by
reference to Exhibit 10.3 to the Company's Current Report on Form 8-K
which was filed on November 1, 1996.
10.39 Purchase Agreement related to the acquisition of Tradewinds Office
Building, one of the Carlsberg Properties is incorporated herein by
reference to Exhibit 10.4 to the Company's Current Report on Form 8-K
which was filed on November 1, 1996.
10.40 Purchase Agreement related to the acquisition of Sonora Plaza, one of
the Carlsberg Properties is incorporated herein by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K which was
filed on November 1, 1996.
10.41 Loan Agreement between Glenborough Properties, L.P. and Carlsberg
Properties, Ltd. for the $3,600,000 Grunow mortgage loan receivable is
incorporated herein by reference to Exhibit 10.6 to the Company's
Current Report on Form 8-K which was filed on November 1, 1996.
10.42 Option Agreement between Glenborough Properties, L.P. and Carlsberg
Properties, Ltd. for the Grunow Medical Building is incorporated
herein by reference to Exhibit 10.7 to the Company's Current Report on
Form 8-K which was filed on November 1, 1996.
10.43 Contribution agreement related to the acquisition of the TRP
Properties is incorporated herein by reference to Exhibit 99 to the
Company's Current Report on Form 8-K filed on December 30, 1996.
10.44 Agreement for Contribution of Partnership Interests related to
acquisition of the Bond Street Property is incorporated herein by
reference to Exhibit 10.01 to the Company's Quarterly Report on Form
10Q/A for the quarter ended September 30, 1996.
10.45 Second Amendment to First Amended and Restated Agreement of Limited
Partnership of Glenborough Properties, L.P. is incorporated herein by
reference to Exhibit 10.02 to the Company's Quarterly Report on Form
10Q/A for the quarter ended September 30, 1996.
10.46 Second Amendment to Agreement of Limited Partnership of GPA Bond, a
Calif. Limited Partnership is incorporated herein by reference to
Exhibit 10.03 to the Company's Quarterly Report on Form 10Q/A for the
quarter ended September 30, 1996.
10.47 Lease Agreement between Glenborough Properties, L.P. and Glenborough
Hotel Group for Country Suites - San Antonio is incorporated herein by
reference to Exhibit 10.04 to the Company's Quarterly Report on Form
10Q/A for the quarter ended September 30, 1996.
10.48 Purchase agreement related to the acquisition of the Scottsdale Hotel
is incorporated herein by reference to the identically numbered
exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
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EXHIBIT INDEX - continued
Exhibit
Number Exhibit Title
10.49 First Amendment to the Agreement of Purchase of Sale related to the
purchase of the Scottsdale Hotel is incorporated herein by reference
to the identically numbered exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
10.50 Lease Agreement related to the Scottsdale Hotel is incorporated herein
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.
10.51 Purchase and Sale Agreement related to the T. Rowe Price Realty Income
Fund II acquisition is incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997.
10.52 Purchase Agreement related to the Centerstone Property acquisition is
incorporated herein by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.53 Contribution Agreement related to the Centerstone Property acquisition
is incorporated herein by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.54 Purchase Agreement related to the CIGNA acquisition is incorporated
herein by reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997.
10.55 Unsecured Loan Agreement with Wells Fargo Bank, N.A. is incorporated
herein by reference to Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997.
10.56 Credit Agreement with Wells Fargo Bank, N.A. related to $250,000,000
unsecured revolving line of credit.
11.1 Statement re: Computation of Per Share Earnings is shown in Note 9 of
the Consolidated Financial Statements of the Company in Item 14.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Significant Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP, independent public accountants.
27.1 Financial Data Schedule
* Indicates management contract or compensatory plan or arrangement.
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Exhibit 3.02
GLENBOROUGH REALTY TRUST INCORPORATED
BYLAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.1 Annual Meetings. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its power either at 10:00 a.m. on the last Thursday of May in each year
if not a legal holiday, or at such other time on such other day falling on or
before the 30th day thereafter as shall be set by the Board of Directors. Except
as otherwise permitted by applicable law, any business may be considered at an
annual meeting without the purpose of the meeting having been specified in the
notice. Failure to hold an annual meeting does not invalidate the Corporation's
existence or affect any otherwise valid corporate acts.
SECTION 1.2 Special Meetings. The Chairman of the Board, the President
or a majority of the Board of Directors may call special meetings of the
stockholders. Special meetings of stockholders shall also be called by the
Secretary of the Corporation upon the written request of the holders of shares
entitled to cast not less than 10% of all the votes entitled to be cast at such
meeting. Such request shall state the purpose of such meeting and the matters
proposed to be acted on at such meeting. The Secretary shall inform such
requesting stockholders of the reasonably estimated cost of preparing and
mailing notice of the meeting and, upon payment to the Corporation of such
costs, the Secretary shall give notice to each stockholder entitled to notice of
the meeting. Unless requested by stockholders entitled to cast a majority of all
the votes entitled to be cast at such meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the stockholders held during the preceding twelve
months.
SECTION 1.3 Place of Meetings. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors.
SECTION 1.4 Notice of Meetings: Waiver of Notice . Not less than 10
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him at his
address as it appears on the records of the Corporation. Notwithstanding the
foregoing provisions, each person who is entitled to
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notice waives notice if he before or after the meeting signs a waiver of the
notice which is filed with the records of stockholders' meetings, or is present
at the meeting in person or by proxy.
SECTION 1.5 Quorum: Voting. Unless statute or the charter of the
Corporation (the "Charter") provides otherwise, at a meeting of stockholders the
presence in person or by proxy of stockholders entitled to cast a majority of
all the votes entitled to be cast at the meeting constitutes a quorum, and a
majority of all the votes cast at a meeting at which a quorum is present is
sufficient to approve any matter which properly comes before the meeting, except
that a plurality of all the votes cast at a meeting at which a quorum is present
is sufficient to elect a director.
SECTION 1.6 Adjournments. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice to a date not more than 120
days after the original record date. Any business which might have been
transacted at the meeting as originally notified may be deferred and transacted
at any such adjourned meeting at which a quorum shall be present.
SECTION 1.7 General Right to Vote: Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders. A
stockholder may vote the stock he owns of record either in person or by written
proxy signed by the stockholder or by his duly authorized attorney in fact.
Unless a proxy provides otherwise, it is not valid more than 11 months after its
date. Shares of Common Stock shall not have cumulative voting rights.
SECTION 1.8 List of Stockholders. At each meeting of stockholders, a
true and complete list of all stockholders entitled to vote at such meeting,
showing the number and class of shares held by each and certified by the
transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
SECTION 1.9 Conduct of Business and Voting. At all meetings of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of votes
and the validity of proxies, the acceptance or rejection of votes and procedures
for the conduct of business not otherwise specified by these Bylaws, the Charter
or law, shall be decided or determined by the chairman of the meeting. If
demanded by stockholders, present in person or by proxy, entitled to cast at
least 10% of all the votes entitled to be cast at the meeting, or if ordered by
the chairman, the vote upon any election or question shall be taken by ballot
and, upon like demand or order, the voting shall be conducted by two inspectors,
in which event the proxies and ballots shall be received, and all questions
touching the qualification of voters and the validity of proxies, the acceptance
or rejection of votes and procedures for the conduct of business not otherwise
specified by these Bylaws, the Charter or law shall be decided, by such
inspectors. Unless so demanded or
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ordered, no vote need be by ballot and voting need not be conducted by
inspectors. The stockholders at any meeting may choose an inspector or
inspectors to act at such meeting, and in default of such election the chairman
of the meeting may appoint an inspector or inspectors. No candidate for election
as a director at a meeting shall serve as an inspector thereat.
SECTION 1.10 Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders' meetings a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
SECTION 1.11 Annual Meetings and Stockholder Proposals. Nominations of
individuals for election to the Board of Directors and the proposal of business
to be considered by the stockholders may be made at an annual meeting of
stockholders (i) pursuant to the Corporation's notice of meeting, (ii) by or at
the direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for this in this Section 1.11, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in this Section 1.11.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of the preceding
paragraph of this Section 1.11, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting. For
purposes of applying this minimum to the 1995 annual meeting, the previous
year's annual meeting shall be deemed to have taken place on May 20, 1994;
provided that this sentence shall cease to be a part of the Bylaws after the
holding of the 1995 annual meeting and any adjournment thereof. In the event
that the date of the annual meeting is advanced by more than 30 days or delayed
by more than 60 days from such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (i) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (ii) as
to any other business that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meting and any material interest
in such
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business of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (x) the name and address of such stockholder, as they appear on the
Corporation's books and of such beneficial owner and (y) the number of shares of
each class of stock of the Corporation which are owned beneficially and of
record by such stockholder and such beneficial owner.
Notwithstanding anything in the second sentence of the preceding
paragraph of this Section 1.11 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 1.1 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
offices of the Corporation not later than the close of business on the tenth day
following on which such public announcement is first made by the Corporation.
Notwithstanding the foregoing, to the extent any of the provisions of
this Section 1.11 are inconsistent with the provisions of Rule 14a-8 of the
Exchange Act, the provisions of Rule 14a-8 shall govern.
SECTION 1.12 Business at Special Meetings of Stockholders. Only such
business shall be conducted at a special meeting of stockholders as shall have
been brought before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) provided that the Board of Directors had
determined that directors shall be elected at such special meeting, by any
stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in this Section 1.12, who is entitled to vote at
the meeting and who has complied with the notice procedures set forth in this
Section 1.12. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be) for election to such position as specified in the Corporation's notice
of meeting, if the stockholder's notice required by the second paragraph of
Section 1.11 shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the directors to be elected at such meeting.
ARTICLE II.
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BOARD OF DIRECTORS
SECTION 2.1 Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or Bylaws.
SECTION 2.2 Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number of
directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are less than three stockholders, the number of
directors may be less than three but not less than the number of stockholders,
provided that the number thereof shall never be less than the minimum number
required by statute. The Corporation shall have the number of directors provided
in the Charter until changed as herein provided. A majority of the entire Board
of Directors may alter the number of directors set by the Charter or these
Bylaws to not more than seven nor less than the minimum number then permitted
herein, but the action may not affect the tenure of office of any director.
SECTION 2.3 Election and Tenure of Directors. Directors named in the
Charter shall serve until the first annual meeting of stockholders and until
successors are elected and qualify. All Directors, regardless of how elected,
shall hold office until the next annual meeting of stockholders and until their
successors are duly elected and qualify.
SECTION 2.4 Removal of Director. Any director may be removed with or
without cause and only by the affirmative vote of stockholders holding 66 2/3%
of all the votes entitled to be cast for the election of directors.
SECTION 2.5 Vacancy on Board. Except in the case of a vacancy on the
Board of Directors among the directors elected by a class or series of capital
stock other than Common Stock, newly created directorships resulting from any
increase in the authorized number of directors shall be filled by a majority of
the entire Board of Directors; any vacancies on the Board of Directors resulting
from death, resignation, retirement, disqualification or other causes, except
removal from office, shall be filled by a majority of the directors then in
office, whether or not sufficient to constitute a quorum; and any vacancies on
the Board of Directors resulting from removal from office shall be filled by a
vote of the stockholders. A director so elected by the stockholders or by the
remaining directors shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualified.
SECTION 2.6 Regular Meetings. After each meeting of stockholders at
which directors shall have been elected, the Board of Directors shall meet as
soon as practicable for the purpose of organization and the transaction of other
business. In the event that no other time and place are specified by resolution
of the Board or by the President or the Chairman, with notice in
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accordance with Section 2.8, the Board of Directors shall meet immediately
following the close of, and at the place of, such stockholders' meeting. Any
other regular meeting of the Board or Directors shall be held on such date and
at any place as may be designated from time to time by the Board of Directors.
SECTION 2.7 Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or in
writing with or without a meeting. A special meeting of the Board of Directors
shall be held at such time and place as may be designated from time to time by
the Board of Directors. In the absence of designation such meeting shall be held
at such time and place as may be designated in the call.
SECTION 2.8 Notice of Meeting.Except as provided in Section 2.6, the
Secretary shall give written notice to each director of each regular and special
meting of the Board of Directors. The notice shall state the time and place of
the meeting. Notice is given to a director when it is delivered personally to
him, left at his residence or usual place of business, or sent by telegraph,
facsimile transmission or telephone, at least 24 hours before the time of the
meeting or, in the alternative, by mail to his address as it shall appear on the
records of the Corporation, at least 72 hours before the time of the meeting.
Unless the Bylaws or a resolution of the Board of Directors provides otherwise,
the notice need not state the business to be transacted at or the purposes of
any regular or special meeting of the Board of Directors. No notice of any
meeting of the Board of Directors need be given to any director who is present
at the meeting except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened, or to any director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Any meeting of the Board of Directors, regular or
special, may adjourn from time to time to reconvene at the same or some other
place, and no notice need be given of any such adjourned meeting other than by
announcement.
SECTION 2.9 Action by Directors. Unless statute or the Charter or By
laws require a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is the action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a quorum
for the transaction of business. In the absence of a quorum, the directors
present by majority vote and without notice other than by announcement may
adjourn the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, if a unanimous written consent
which sets forth the action is signed by each member of the Board and filed with
the minutes of proceedings of the Board.
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SECTION 2.10 Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.11 Compensation. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors other than directors who are full-time
employees of the Corporation. A director who serves the Corporation in any other
capacity also may receive compensation for such other services pursuant to a
resolution of the Board of Directors.
SECTION 2.12 Restrictions on Investments. For so long a period of time
as the Corporation shall be qualified as real estate investment trust under the
Internal Revenue Code, the Board of Directors shall not authorize the
Corporation to engage in any of the following investment practices or
activities: (a) invest in commodities or commodity future contracts; (b) invest
more than 10% of its total assets in unimproved real property or indebtedness
secured by a deed of trust or mortgage loans on unimproved real property; (c)
invest in indebtedness (herein called "junior debt") secured by a mortgage on
real property which is subordinate to the lean of the other indebtedness (herein
called "senior debt"), except where the amount of such junior debt, plus the
outstanding amount of the senior debt, does not exceed 90% of the appraised
value of such property, if after giving effect thereto, the value of all such
investments by the Corporation (as shown on the books of the Corporation in
accordance with generally accepted accounting principals after all reasonable
reserves but before provision for depreciation) would not then exceed 25% of the
tangible assets of the Corporation; provided, however, the restrictions in this
subparagraph (c) shall not apply to investments in junior debt which do not in
the aggregate exceed 10% of the Corporation's tangible assets provided such
excluded investments are included within the 25% limitation; (d) invest in
contracts for the sale of real estate but nothing herein shall prevent the
Corporation from entering into contracts for the sale of real estate which it
may own; (e) engage in trading, as compared with investment activities; (f)
acquire securities in any company holding investments or engaging in activities
prohibited by this section; or (g) engage in underwriting or the agency
distribution of securities issued by others. The foregoing restrictions shall
not apply to any assets that are acquired by the Corporation prior to or
concurrently with its qualification as a real estate investment trust.
SECTION 2.13 Transactions with Interested Directors and Officers. No
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other corporation, partnership,
association or other entity in which one or more of its directors or officers
are directors or officers of this Corporation or in which one or more of the
directors or officers of this Corporation are financially interested, shall
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be either void or voidable for this reason alone, or solely because the
interested director or directors of this Corporation is present at or
participates in the meeting of the Board of Directors or of the committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if the material facts as to the
relationship or interest of such interested director or officer and as to the
contract or transaction are disclosed or are known to the Board of Directors or
committee, and the Board of Directors or committee in good faith authorizes,
approves or ratifies the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum, and such majority of disinterested directors determines
in good faith that (a) the contract or transaction is fair and reasonable to the
Corporation and its shareholders; (b) the terms of the contract or transaction
are at least as favorable as the terms of any comparable contract or transaction
made on an arms length basis and known to such disinterested directors; (c) the
total consideration, if applicable, is not in excess of the appraised value of
any property being acquired; (d) and, if the contract or transaction involves
the rendering of services to the Corporation or any of its affiliates, that the
compensation is not in excess of the compensation then being paid by the
Corporation for any comparable services and the compensation is not greater than
the charges for comparable services then known to such disinterested directors
for comparable services available from others who are competent and not
affiliated with any of the parties.
ARTICLE III.
COMMITTEES
SECTION 3.1 Committees. The Board of Directors may appoint from among
its members an Executive Committee and other committees composed of one or more
directors and delegate to these committees any of the powers of the Board of
Directors, except as prohibited by law. If the Board of Directors has given
authorization for the issuance of stock, a committee of the Board, in accordance
with a general formula or method specified by the Board by resolution or by
adoption of a stock option or other plan, may fix the terms of stock subject to
classification and reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors under Sections 2-203 and
2-208 of the Corporations and Associations Article of the Annotated Code of
Maryland.
SECTION 3.2 Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business, and the action of a
majority of those present at a meeting at which a quorum is present shall be the
action of the committee. The members of a committee present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of an absent member. Any action required or permitted to be taken at a
meeting of a
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committee may be taken without a meeting, if a unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of proceedings of the committee. The members of a committee may
conduct any meeting thereof by conference telephone in accordance with the
provisions of Section 2.10.
SECTION 3.3 Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and the By-Laws, any two or more available members of the then incumbent
Executive Committee shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the provisions of Section 3.1. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed from
time to time for that purpose, and any provisions of the By-Laws (other than
this Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementary resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section that it shall be to the advantage of the Corporation to
resume the conduct and management of its affairs and business under all the
other provisions of the By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.1 Executive and Other Officers. The Corporation shall have a
President, a Secretary, and a Treasurer. It may also have a Chairman of the
Board. The Corporation may also have one or more Vice-Presidents, including
Executive Vice Presidents, as well as one or more assistant officers, and
subordinate officers as may be established by the Board of Directors. A person
may hold more than one office in the Corporation except that no person may serve
concurrently as both President and Vice-President of the Corporation. The
Chairman of the Board shall be a director; the other officers may be directors.
The Board of Directors shall designate who shall serve as chief executive
officer and who shall have general supervision of the business and affairs of
the Corporation, and may designate a chief operating officer, who shall have
supervision of the operations of the Corporation, and a chief financial officer,
who, among other functions, shall have supervision of the finance, treasury and
accounting functions of the Corporation. In the absence of any designation, the
Chairman of the Board, if there be one, shall serve as chief executive officer
and the President, if not the same person, shall serve as chief operating
officer. If the Chairman of the Board and the President are
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the same person, any Executive Vice President or Vice President may serve as
chief operating officer. In the absence of the Chairman of the Board, or if
there be none, the President shall be the chief executive officer and any
Executive Vice President or Vice President may serve as chief operating officer.
SECTION 4.2 Chairman of the Board. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. Unless otherwise provided by
resolution of the Board of Directors, he shall be the chief executive officer of
the Corporation and shall perform the duties customarily performed by chief
executive officers, and may perform any duties of the President. In general, he
shall perform all such duties as are from time to time assigned to him by the
Board of Directors.
SECTION 4.3 President. Unless otherwise provided by resolution of the
Board of Directors, the President, in the absence of the Chairman of the Board,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. Unless otherwise provided by resolution of the
Board of Directors, the President shall be the chief operating officer of the
Corporation and shall perform the duties customarily performed by chief
operating officers. He may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation. In general, he
shall perform such other duties usually performed by a president of a
corporation and such other duties as are from time to time assigned to him by
the Board of Directors or the chief executive officer of the Corporation.
SECTION 4.4 Vice-Presidents. The Vice-President or Vice-Presidents
designated by the Board of Directors of the Corporation as Executive
Vice-Presidents, at the request of the chief executive officer or the President,
or in the President's absence or during his inability to act, shall perform the
duties and exercise the functions of the President, and when so acting shall
have the powers of the President. If there be more than one Executive
Vice-President, the Board of Directors may determine which one or more of the
Executive Vice-Presidents shall perform any of such duties or exercise any of
such functions, of if such determination is not made by the Board of Directors,
the chief executive officer or the President may make such determination;
otherwise any of the Executive Vice-Presidents may perform any of such duties or
exercise any of such functions. If there be no Vice-President or Vice-Presidents
designated as Executive Vice-President, the Vice-President or Vice-Presidents,
at the request of the chief executive officer or the President, or in the
President's absence or during his inability to act, shall perform the duties and
exercise the functions of the President, and when so acting shall have the
powers of the President. If there be more than one Vice-President, the Board of
Directors may determine which one or more of the Vice-Presidents shall perform
any of such duties or exercise any of such functions, or if such determination
is not made by the Board of Directors, the chief executive officer or the
President may make such determination;
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otherwise, any of the Vice-Presidents may perform any of such duties or exercise
any of such functions. The Vice-President or Vice-Presidents, including the
Executive Vice-Presidents, shall have such other powers and perform such other
duties, and have such additional descriptive designations in their titles (if
any), as are from time to time assigned to them by the Board of Directors, the
chief executive officer, or the President.
SECTION 4.5 Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees;
he shall see that all notices are duly given in accordance with the provisions
of the Bylaws or as required by law; he shall be custodian of the records of the
Corporation; he may witness any document on behalf of the Corporation, the
execution of which is duly authorized, see that the corporate seal is affixed
where such document is required or desired to be under the Corporation's seal,
and, when so affixed, may attest the same; and, in general, he shall perform all
duties incident to the office of a secretary of a corporation, and such other
duties as are from time to time assigned to him by the Board of Directors, the
chief executive officer, or the President.
SECTION 4.6 Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation;
and, in general, he shall perform all duties incident to the office of a
treasurer of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors, the chief executive officer, or the
President.
SECTION 4.7 Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, the President or any person designated
as their superior officer by the committee or person electing them.
SECTION 4.8 Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers. The Board of Directors may from time to time
authorize any committee or officer to appoint assistant and subordinate
officers. Unless otherwise provided herein, an officer serves for one year and
until his successor is elected and qualified. Notwithstanding the foregoing,
officers shall serve at the will of the Board of Directors. Election or
appointment of an officer, employee or agent shall not of itself create contract
rights. All officers shall be elected or appointed to hold their offices,
respectively, at the pleasure of the Board. The Board of Directors (or, as to
any assistant or subordinate officer, any committee or officer authorized by the
Board) may remove an officer at any time, if the Board (or any committee or
officer authorized by the Board, as the case may be) in its judgment
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finds that the best interests of the Corporation will be served thereby. The
removal of an officer does not prejudice any of his contract rights. The Board
of Directors (or, as to any assistant or subordinate officer, any committee or
officer authorized by the Board) may fill a vacancy which occurs in any office
for the unexpired portion of the term.
SECTION 4.9 Compensation. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. No officer shall be prevented from receiving
such salary by reason of the fact that he is also a director of the Corporation.
The Board of Directors may authorize any committee or officer, upon whom the
power of appointing assistant and subordinate officers may have been conferred,
to fix the salaries, compensation and remuneration of such assistant and
subordinate officers.
ARTICLE V.
DIVISIONAL TITLES
SECTION 5.1 Conferring Divisional Titles. The Board of Directors may
from time to time confer upon any employee of a division of the Corporation the
title of President, Vice-President, Treasurer or Controller of such division or
any other title or titles deemed appropriate or may authorize the Chairman of
the Board or the President to do so. Any such titles so conferred may be
discontinued and withdrawn at any time by the Board of Directors, or by the
Chairman of the Board or the President if so authorized by the Board of
Directors. Any employee of a division designated by such a divisional title
shall have the powers and duties with respect to such division as shall be
prescribed by the Board of Directors, the Chairman of the Board or the
President.
SECTION 5.2 Effect of Divisional Titles. The conferring of divisional
titles shall not create an office of the Corporation under Article IV unless
specifically designated as such by the Board of Directors; but any person who is
an officer of the Corporation may also have a divisional title.
ARTICLE VI.
STOCK
SECTION 6.1 Certificates for Stock. Except as otherwise proved by
statute, each stockholder is entitled to certificates which represent and
certify the shares of stock he holds in the Corporation. Each stock certificate
shall include on its face the name of the Corporation, the name of the
stockholder or other person to whom it is issued, and the class of stock and
number
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of shares it represents. Each stock certificate shall be signed by the Chairman
of the Board, the President, or a Vice-President, and countersigned by the
Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate may be sealed with the actual corporate seal or a facsimile of
it or in any other form, and the signatures may be either manual or facsimile
signatures. A certificate is valid and may be issued whether or not an officer
who signed it is still an officer when it is issued.
SECTION 6.2 Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
SECTION 6.3 Record Dates and Closing of Transfer Books. Except as
otherwise provided in Section 1.6, the Board of Directors may set a record date
or direct that the stock transfer books be closed for a stated period for the
purpose of making any proper determination with respect to stockholders,
including which stockholders are entitled to notice of a meeting, vote at a
meeting, receive a dividend or other distribution, or be allowed other rights.
Except as otherwise provided in Section 1.6, the record date may not be prior to
the close of business on the day the record date is fixed; the record date may
not be more than 90 days before the date on which the action requiring the
determination will be taken; the transfer books may not be closed for a period
longer than 20 days; and, in the case of a meeting of stockholders, the record
date or the closing of the transfer books shall be at least ten days before the
date of the meeting.
SECTION 6.4 Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
SECTION 6.5 Certification of Beneficial Owners. The Board of Directors
may adopt by resolution a procedure by which a stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered in
the name of the stockholder are held for the account of a specified person other
than the stockholder. The resolution shall set forth the class of stockholders
who may certify; the purpose for which the certification may be made; the form
of certification and the information to be contained in it; if the certification
is with respect to a record date or closing of the stock transfer books, the
time after the record date or closing of the stock transfer books within which
the certification must be received by the Corporation; and any other provisions
with respect to the procedure which the Board considers necessary or desirable.
On receipt of a certification which complies with the procedure adopted by the
Board
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in accordance with this Section, the person specified in the certification is,
for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.
SECTION 6.6 Replacement Stock Certificates.The Board of Directors of
the Corporation may determine the conditions for issuing a new stock certificate
in place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue a new certificate (a) unless the owner of the lost,
stolen or destroyed certificate gives a bond, with sufficient surety, to
indemnify the Corporation against any loss or claim arising as the result of the
issuance of the new certificate or (b) unless a court having jurisdiction in the
premises orders the Corporation to issue a new certificate.
ARTICLE VII.
FINANCE
SECTION 7.1 Checks, Drafts, Etc. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall, unless otherwise provided by resolution of the Board
of Directors, be signed by the President, a Vice-President or an Assistant
Vice-President and countersigned by the Treasurer, and Assistant Treasurer, the
Secretary or an Assistant Secretary.
SECTION 7.2 Annual Statement of Affairs. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
submitted at the annual meeting of the stockholders and, within 20 days after
the meeting, placed on file at the Corporation's principal office.
SECTION 7.3 Fiscal Year. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 7.4 Dividends and Other Distributions. If authorized and
declared by the Board of Directors at any meeting thereof, the Corporation may
pay dividends and other distributions on its shares in cash, property, or in
shares of the stock of the Corporation, unless such dividend or other
distribution is contrary to law or to a restriction contained in the Charter.
SECTION 7.5 Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Charter or these Bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Corporation
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to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation. Such authority may be general or confined to
specific instances.
ARTICLE VIII.
SUNDRY PROVISIONS
SECTION 8.1 Books and Records.The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of the Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of the Bylaws,
including any amendments to them, shall be kept at the principal office of the
Corporation.
SECTION 8.2 Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule or regulation relating to a corporate seal to place the word
"(Seal)" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
SECTION 8.3 Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 8.4 Voting upon Shares in Other Corporations. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 8.5 Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
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SECTION 8.6 Amendments. Subject to the special provisions of Section
2.2, these By-Laws may be altered, amended, repealed or added to by a majority
vote of a quorum present at any regular or special meeting of the stockholders
or of the Board of Directors.
SECTION 8.7 Designated Attendees. The Board of Directors may by
resolution appoint individuals as designated advisors ("Designated Advisors") to
the Board of Directors, who shall have the right to notice of and attend as set
forth in Article II all meetings of the Board of Directors and shall receive
such compensation and reimbursement as the Board of Directors shall provide.
Designated Advisors shall not have any right to vote as directors.
ARTICLE IX.
INDEMNIFICATION AND
ADVANCE FOR EXPENSES
SECTION 9.1 To the maximum extent permitted by Maryland law in effect
from time to time, the Corporation shall indemnify, and shall pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to, (1) any
individual who is a present, former or proposed director or officer of the
Corporation and who is made a party to the proceeding by reason of his service
in that capacity or (2) any individual who, while a director of the Corporation
and at the request of the Corporation, 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 reasons of his service in that capacity. The
Corporation may, with the approval of its Board of Directors, provide such
indemnification and advancement of expenses to a person who served as a
predecessor of the Corporation in any of the capacities described in (1) or (2)
above and to any employee or agent of the Corporation or a predecessor of the
Corporation. This Article shall not apply to any proceeding brought by a present
or former director or officer.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of these Bylaws or Charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
I, Frank E. Austin, do hereby certify that I am the duly elected and
acting Secretary of Glenborough Realty Trust Incorporated, and that the
foregoing By-Laws were originally adopted by the Board of Directors of the
corporation at a meeting held on August 31, 1994 and the foregoing provisions
reflect all amendments through December 28, 1995.
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____________________________
Frank E. Austin, Secretary
Attest:
___________________________
Robert Batinovich, Chairman
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Exhibit 3.03
GLENBOROUGH REALTY TRUST INCORPORATED
FORM OF ARTICLES SUPPLEMENTARY
7 3/4% SERIES A CONVERTIBLE PREFERRED STOCK
(liquidation preference $25.00 per share)
Glenborough Realty Trust Incorporated, a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Under a power contained in Article SIXTH of the Articles of
Incorporation, as amended (the "Charter"), the Board of Directors of the
Corporation (the "Board of Directors"), has duly reclassified and designated
shares (the "Shares") of the Common Stock, par value $.001 per share (as defined
in the Charter), as shares of 7 3/4% Series A Convertible Preferred Stock
(liquidation preference $25.00 per share), par value $.001 per share, with the
following preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption, which upon any restatement of the Charter, shall
be deemed to be part of Article SIXTH of the Charter:
Section 1. Number of Shares and Designation. This series of preferred
stock shall be designated as 7 3/4% Series A Convertible Preferred Stock
(liquidation preference $25.00 per share), par value $.001 per share (the
"Series A Preferred Shares"). The number Series A Preferred Shares to be
authorized shall be 12,000,000.
Section 2. Definitions. For purposes of the Series A Preferred Shares,
the following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by such Board of Directors to perform
any of its responsibilities with respect to the Series A Preferred Shares.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York, New
York are not required to be open.
"Common Shares" shall mean the shares of Common Stock of the
Corporation, par value $.001 per share.
"Constituent Person" shall have the meaning set forth in paragraph (e)
of Section 7 hereof.
"Conversion Price" shall mean the conversion price per Common Share
for which the Series A Preferred Shares are convertible, as such Conversion
Price may be adjusted pursuant to Section 7 hereof. The initial conversion price
shall be $32.83 per Common Share (equivalent to a conversion rate of 0.7615 of a
Common Share for each Series A Preferred Share).
"Current Market Price" of publicly traded Common Shares or any other
class of shares of beneficial interest or other security of the Corporation or
any other issuer for any day shall mean the last reported sales price, regular
way, on such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either case
as reported on the New York Stock Exchange ("NYSE") or, if such security is not
listed or admitted for trading on the NYSE, on the principal national securities
exchange on which such security is listed or admitted for trading or, if not
listed or admitted for trading on any national securities exchange, on the
NASDAQ National Market or, if such security is not quoted on such NASDAQ
National Market, the average of the closing bid and asked prices on such day in
the over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by any NYSE member
firm regularly making a market in such security selected for such purpose by the
Chief Executive Officer of the Corporation or the Board of Directors.
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"Dividend Payment Date" shall mean the 15th calendar day of January,
April, July and October, in each year, commencing on April 15, 1998; provided,
however, that if any Dividend Payment Date falls on any day other than a
Business Day, the dividend payment due on such Dividend Payment Date shall be
paid on the first Business Day immediately following such Dividend Payment Date.
"Dividend Payment Record Date" shall have the meaning set forth in
paragraph (a) of Section 3 hereof.
"Dividend Periods" shall mean quarterly dividend periods commencing on
January 15, April 15, July 15 and October 15 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend Period
(other than the initial Dividend Period, which shall commence on the Issue Date
and end on and include April 15, 1998).
"Fair Market Value" shall mean the average of the daily Current Market
Prices per Common Share during the five (5) consecutive Trading Days selected by
the Corporation commencing not more than 20 Trading Days before, and ending not
later than, the earlier of the day in question and the day before the "ex" date
with respect to the issuance or distribution requiring such computation. The
term "ex date," when used with respect to any issuance or distribution, means
the first day on which the Common Shares trade regular way, without the right to
receive such issuance or distribution, on the exchange or in the market, as the
case may be, used to determine that day's Current Market Price.
"Issue Date" with respect to the Series A Preferred Shares shall mean
the first date on which any of the Series A Preferred Shares are issued and
sold.
"Junior Shares" shall mean the Common Shares and any other class or
series of shares of capital stock of the Corporation constituting junior stock
within the meaning set forth in paragraph (c) of Section 9 hereof.
"Liquidation Preference" shall have the meaning set forth in paragraph
(a) of Section 4 hereof.
"Non-Electing Share" shall have the meaning set forth in paragraph (e)
of Section 7 hereof.
"Parity Shares" shall have the meaning set forth in paragraph (b) of
Section 9 hereof.
"Person" shall mean any individual, firm, partnership, corporation,
limited liability company or other entity, and shall include any successor (by
merger or otherwise) of such entity.
"Redemption Date" shall have the meaning set forth in paragraph (b) of
Section 5 hereof.
"Securities" shall have the meaning set forth in paragraph (d)(iii) of
Section 7 hereof.
"Series A Preferred Shares" shall have the meaning set forth in
Section 1 hereof.
"Set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of a dividend or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of shares of capital
stock of the Corporation; provided, however, that if any funds for any class or
series of Junior Shares or any class or series of shares of capital stock
ranking on a parity with the Series A Preferred Shares as to the payment of
dividends are placed in a separate account of the Corporation or delivered to a
disbursing, paying or other similar agent, then "set apart for payment" with
respect to the Series A Preferred Shares shall mean placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
"Trading Day" shall mean any day on which the securities in question
are traded on the NYSE, or if such securities are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which such
securities are listed or admitted, or if not listed or admitted for trading on
any national securities exchange, on
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the NASDAQ National Market, or if such securities are not quoted on such NASDAQ
National Market, in the applicable securities market in which the securities are
traded.
"Transaction" shall have the meaning set forth in paragraph (e) of
section 7 hereof.
"Transfer Agent" means Registrar and Transfer Company, 10 Commerce
Drive, Cranford, New Jersey 07016, or such other agent or agents of the
Corporation as may be designated by the Board of Directors or its designee as
the transfer agent for the Series A Preferred Shares.
"Voting Preferred Shares" shall have the meaning set forth in Section
10 hereof.
Section 3 Dividends.
(a) The holders of Series A Preferred Shares shall be entitled to
receive, when, as and if authorized and declared by the Board of Directors out
of assets legally available for that purpose, dividends payable in cash in an
amount per share equal to the greater of: (i) $1.9375 per annum; or (ii) the
cash distributions (determined on each of the quarterly Dividend Payment Dates)
on the Common Shares (or portion thereof) into which a Series A Preferred Share
is convertible (equal to the number of Common Shares, or portion thereof, into
which a Series A Preferred Share is convertible, multiplied by the most current
quarterly distribution on or before the applicable Dividend Payment Date). Such
dividends shall be cumulative from the Issue Date, whether or not in any
Dividend Period or Periods such dividends shall be declared or there shall be
funds of the Corporation legally available for the payment of such dividends,
and shall be payable quarterly, when, as and if authorized and declared by the
Board of Directors, in arrears on Dividend Payment Dates, commencing on the
first Dividend Payment Date after the Issue Date. Dividends are cumulative from
the most recent Dividend Payment Date to which dividends have been paid, whether
or not in any Dividend Period or Periods such dividends shall be declared or
there shall be funds legally available therefor. Each such dividend shall be
payable in arrears to the holders of record of the Series A Preferred Shares, as
they appear on the stock records of the Corporation at the close of business on
such record dates, not more than 60 nor less than 20 days preceding the
applicable Dividend Payment Date (the "Dividend Payment Record Date"), as shall
be fixed by the Board of Directors. Accrued and unpaid dividends for any past
Dividend Periods may be authorized and declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of record on such
date, not exceeding 45 days preceding the payment date thereof, as may be fixed
by the Board of Directors.
(b) The amount of dividends payable for the initial Dividend
Period, or any other period shorter or longer than a full Dividend Period, on
the Series A Preferred Shares shall be computed on the basis of twelve 30-day
months and a 360-day year. Holders of Series A Preferred Shares shall not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of cumulative dividends, as herein provided, on the Series A Preferred Shares.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the Series A Preferred Shares that may be in
arrears.
(c) So long as any Series A Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall be
authorized and declared or paid or set apart for payment, or other distribution
of cash or other property declared or made directly by the Corporation or any
person acting on behalf of the Corporation, on any series or class or classes of
Parity Shares for any period unless full cumulative dividends have been or
contemporaneously are authorized and declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for such payment
on the Series A Preferred Shares for all Dividend Periods terminating on or
prior to the Dividend Payment Date on such class or series of Parity Shares.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends authorized and declared upon Series A
Preferred Shares and all dividends authorized and declared upon any other series
or class or classes of Parity Shares shall be authorized and declared ratably in
proportion to the respective amounts of dividends accumulated, accrued and
unpaid on the Series A Preferred Shares and such Parity Shares.
(d) So long as any Series A Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of, or
options, warrants or rights to subscribe for or purchase shares
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of, Junior Shares) shall be authorized and declared or paid or set apart for
payment by the Corporation or any person acting on behalf of the Corporation or
other distribution of cash or other property authorized and declared or made
directly or indirectly by the Corporation or any such affiliate or person, with
respect to any Junior Shares, nor shall any Junior Shares be redeemed, purchased
or otherwise acquired through a sinking fund or otherwise (other than a
redemption, purchase or other acquisition of Common Shares made for purposes of
and in compliance with requirements of an employee incentive or benefit plan of
the Corporation or any subsidiary) or as permitted under Article NINTH of the
Charter, for any consideration (or any moneys to be paid to or made available
for a sinking fund for the redemption of any shares of such stock) by the
Corporation, directly or indirectly (except by conversion into or exchange for
Junior Shares), nor shall any payment or distribution of cash or other property
be made for the benefit of any holder of Junior Stock, directly or indirectly,
unless in each case (i) the full cumulative dividends on all outstanding Series
A Preferred Shares and any other Parity Shares of the Corporation shall have
been paid or declared and funds have been set apart for payment for all past
Dividend Periods with respect to the Series A Preferred Shares and all past
dividend periods with respect to such Parity Shares and (ii) sufficient funds
shall have been paid or set apart for the payment of the dividend for the
current Dividend Period with respect to the Series A Preferred Shares and any
Parity Shares; provided, however, that the foregoing limitations do not restrict
the Corporation's ability to take the foregoing actions with respect to any
Parity Stock.
Section 4 Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of Junior Shares, the holders of Series
A Preferred Shares shall be entitled to receive Twenty-Five Dollars ($25.00) per
Series A Preferred Share (the "Liquidation Preference") plus an amount equal to
all dividends (whether or not earned or declared) accumulated, accrued and
unpaid thereon to the date of final distribution to such holder; but such
holders of Series A Preferred Shares shall not be entitled to any further
payment. If, upon any such liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of Series A Preferred Shares shall be insufficient to pay in
full the preferential amount aforesaid and liquidating payments on any other
Parity Shares, then such assets, or the proceeds thereof, shall be distributed
among the holders of such Series A Preferred Shares and any such other Parity
Shares ratably in accordance with the respective amounts that would be payable
on such Series A Preferred Shares and any such other Parity Shares if all
amounts payable thereon were paid in full. For the purposes of this Section 4,
(i) a consolidation or merger of the Corporation with one or more entities, (ii)
a statutory share exchange and (iii) a sale or transfer of all or substantially
all of the Corporation's assets shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series
or class or classes of shares of capital stock ranking on a parity with or prior
to the Series A Preferred Shares upon liquidation, dissolution or winding up,
upon any liquidation, dissolution or winding up of the Corporation, after
payment shall have been made in full to the holders of the Series A Preferred
Shares, as provided in this Section 4, any series or class or classes of Junior
Shares shall, subject to any respective terms and provisions applying thereto,
be entitled to receive any and all assets remaining to be paid or distributed,
and the holders of the Series A Preferred Shares shall not be entitled to share
therein.
Section 5 Redemption at the Option of the Corporation.
(a) The Series A Preferred Shares shall not be redeemable by the
Corporation prior to January 16, 2003. On and after January 16, 2003 the
Corporation, at its option, may redeem the Series A Preferred Shares, in whole
or in part, as set forth herein, subject to the provisions described below.
(b) On and after January 16, 2003, the Series A Preferred Shares
may be redeemed in cash at the option of the Corporation, in whole or from time
to time in part, at the following redemption prices per share of Series A
Preferred Stock if redeemed during the twelve-month period beginning January 16
of the year indicated below (the "Redemption Date"), plus, in each case, all
dividends accumulated, accrued and unpaid on the Series A
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Preferred Shares up to the Redemption Date, whether or not earned or declared,
upon giving notice as provided below:
Redemption Price (Percentage
of Liquidation Price) Per
Year Series A Preferred Share
- ------------------------------------------ -----------------------------
2003...................................... $25.97 103.880%
2004...................................... 25.775 103.100
2005...................................... 25.5825 102.330
2006...................................... 25.3875 101.550
2007...................................... 25.195 100.780
2008 and thereafter....................... 25.00 100.000%
(c) If fewer than all of the outstanding Series A Preferred
Shares are to be redeemed, the shares to be redeemed will be determined pro rata
or by lot or in such other manner as prescribed by the Corporation's Board of
Directors. In addition, the Corporation may redeem Series A Preferred Shares in
certain circumstances relating to the maintenance of its ability to qualify as a
REIT for Federal income tax purposes.
(d) Notice of redemption will be mailed, not less than 30 nor
more than 60 days prior to the Redemption Date, to each holder of record of
Series A Preferred Shares to be redeemed, notifying such holder of the
Corporation's election to redeem such shares, stating the Redemption Date, the
redemption price, the number of shares to be redeemed (and, if fewer than all
the Series A Preferred Shares are to be redeemed, the number of shares to be
redeemed from such holder) and the place(s) where the Series A Preferred are to
be surrendered for payment.
(e) Upon any redemption of Series A Preferred Shares, the
Corporation shall pay in cash on each Series A Preferred Share to be redeemed
any accumulated, accrued and unpaid dividends for any Dividend Period ending on
or prior to the Redemption Date, whether or not earned or declared. If the
Redemption Date falls after a Dividend Payment Record Date and prior to the
corresponding Dividend Payment Date, then each holder of Series A Preferred
Shares at the close of business on such Dividend Payment Record Date shall be
entitled to the dividend payable on such Series A Preferred Shares on the
corresponding Dividend Payment Date notwithstanding the redemption of such
Series A Preferred Shares before such Dividend Payment Date. Except as provided
above, the Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on Series A Preferred Shares called for redemption.
(f) If full cumulative dividends on the Series A Preferred Shares
and any other series or class or classes of Parity Shares of the Corporation
have not been paid or declared and set apart for payment, except as otherwise
permitted under Article NINTH of the Charter, the Series A Preferred Shares may
not be redeemed in part, and the Corporation may not purchase, or otherwise
acquire Series A Preferred Shares otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of Series A Preferred
Shares.
(g) Notice of redemption having been published or mailed as
aforesaid, from and after the Redemption Date (unless the Corporation shall fail
to make available an amount of cash necessary to effect such redemption), (i)
except as otherwise provided herein, dividends on the Series A Preferred Shares
so called for redemption shall cease to accrue, (ii) said shares shall no longer
be deemed to be outstanding, and (iii) all rights of the holders thereof as
holders of Series A Preferred Shares of the Corporation shall cease (except the
rights to receive the cash payable upon such redemption, without interest
thereon, upon surrender and endorsement of their certificates if so required and
to receive any dividends payable thereon). The Corporation's obligation to
provide cash in accordance with the preceding sentence shall be deemed fulfilled
if, or before the Redemption Date, the Corporation shall deposit with a bank or
trust company (which may be an affiliate of the Corporation) that has an office
in the Borough of Manhattan, City of New York, in San Francisco, California or
in Baltimore, Maryland and that has, or is an affiliate of a bank or trust
company that has, a capital and surplus of at least $50,000,000, the cash
necessary for such redemption, in trust, with irrevocable instructions that such
cash be applied to the redemption of the Series A Preferred Shares so called for
redemption. No interest shall accrue for the benefit of the holder of
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Series A Preferred Shares to be redeemed on any cash so set aside by the
Corporation. Subject to applicable escheat laws, any such cash unclaimed at the
end of two years from the Redemption Date shall revert to the general funds of
the Corporation, after which reversion the holders of such shares so called for
redemption shall look only to the general funds of the Corporation for the
payment of such cash.
(h) The Series A Preferred Shares have no stated maturity date
and will not be subject to any sinking fund or mandatory redemption provisions.
Section 6 Reclassification of Converted Shares.
All Series A Preferred Shares which shall have been converted pursuant
to Section 7 herein shall automatically be reclassified as Common Stock. The
number of shares of Common Stock issuable upon conversion shall be determined in
accordance with Section 7 hereof.
Section 7 Conversion.
Holders of Series A Preferred Shares shall have the right to convert
all or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 7, a holder of Series A Preferred Shares shall have the right, at his or
her option, at any time to convert such shares into the number of fully paid and
non-assessable Common Shares obtained by dividing the aggregate Liquidation
Preference of such Series A Preferred Shares by the Conversion Price (as in
effect at the time and on the date provided for in the last paragraph of
paragraph (b) of this Section 7) by surrendering such Series A Preferred Shares
to be converted, such surrender to be made in the manner provided in paragraph
(b) of this Section 7; provided, however, that the right to convert Series A
Preferred Shares called for redemption pursuant to Section 5 hereof shall
terminate at the close of business on the Redemption Date fixed for such
redemption, unless the Corporation shall default in making payment of the cash
payable upon such redemption under Section 5 hereof.
(b) In order to exercise the conversion right, the holder of each
Series A Preferred Share to be converted shall surrender the certificate
representing such Series A Preferred Share, duly endorsed or assigned to the
Corporation or in blank, at the office of the Corporation or the office of the
Transfer Agent, accompanied by written notice to the Corporation that the holder
thereof elects to convert such Series A Preferred Shares. Unless the Common
Shares issuable on conversion are to be issued in the same name as the name in
which such Series A Preferred Shares are registered, each share surrendered for
conversion shall be accompanied by instruments of transfer, in form satisfactory
to the Corporation, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that such
taxes have been paid).
Holders of Series A Preferred Shares at the close of business on a
Dividend Payment Record Date shall be entitled to receive the dividend payable
on such Series A Preferred Shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such Dividend Payment Record
Date and prior to such Dividend Payment Date. However, Series A Preferred Shares
surrendered for conversion during the period between the close of business on
any Dividend Payment Record Date and the opening of business on the
corresponding Dividend Payment Date (except Series A Preferred Shares converted
after the issuance of a notice of redemption with respect to a Redemption Date
during such period or coinciding with such Dividend Payment Date, such Series A
Preferred Shares being entitled to such dividend on the Dividend Payment Date)
must be accompanied by payment of an amount equal to the dividend payable on
such Series A Preferred Shares on such Dividend Payment Date. A holder of Series
A Preferred Shares on a Dividend Payment Record Date who (or whose transferees)
tenders any such Series A Preferred Shares for conversion into Common Shares on
such Dividend Payment Date will receive the dividend payable by the Corporation
on such Series A Preferred Shares on such date, and the converting holder need
not include payment of the amount of such dividend upon surrender of Series A
Preferred Shares for conversion. Except as provided above, the Corporation shall
make no payment or allowance for unpaid
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dividends, whether or not in arrears, on converted Series A Preferred Shares or
for dividends on the Common Shares issued upon such conversion.
As promptly as practicable after the surrender of certificates for
Series A Preferred Shares as aforesaid, the Corporation shall issue and shall
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full Common Shares issuable upon
the conversion of such shares in accordance with the provisions of this Section
7, and any fractional interest in respect of a Common Share arising upon such
conversion shall be settled as provided in paragraph (c) of this Section 7.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for Series
A Preferred Shares shall have been surrendered and such notice (and if
applicable, payment of an amount equal to the dividend payable on such Series A
Preferred Shares) received by the Corporation as aforesaid, and the person or
persons in whose name or names any certificate or certificates for Common Shares
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the Common Shares represented thereby at such time on
such date, and such conversion shall be at the Conversion Price in effect at
such time and on such date unless the stock transfer books of the Corporation
shall be closed on that date, in which event such person or persons shall be
deemed to have become such holder or holders of record at the close of business
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date on which such
Series A Preferred Shares shall have been surrendered and such notice received
by the Corporation.
(c) No fractional shares or scrip representing fractions of
Common Shares shall be issued upon conversion of the Series A Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise be
deliverable upon the conversion of a Series A Preferred Share, the Corporation
shall pay to the holder of such Series A Preferred Share an amount in cash based
upon the Current Market Price of Common Shares on the Trading Day immediately
preceding the date of conversion. If more than one Series A Preferred Share
shall be surrendered for conversion at one time by the same holder, the number
of full Common Shares issuable upon conversion thereof shall be computed on the
basis of the aggregate number of Series A Preferred Shares so surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after the Issue Date (A) pay a
dividend or make a distribution payable in Common Shares on any class of shares
of capital stock of the Corporation, (B) subdivide its outstanding Common Shares
into a greater number of shares, (C) combine its outstanding Common Shares into
a smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Shares, the Conversion Price in effect at the
opening of business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or distribution or at the opening
of business on the day following the day on which such subdivision, combination
or reclassification becomes effective, as the case may be, shall be adjusted so
that the holder of any Series A Preferred Share thereafter surrendered for
conversion shall be entitled to receive the number of Common Shares that such
holder would have owned or have been entitled to receive after the happening of
any of the events described above had such Series A Preferred Shares been
converted immediately prior to the record date in the case of a dividend or
distribution or the effective date in the case of a subdivision, combination or
reclassification. An adjustment made pursuant to this subparagraph (i) shall
become effective immediately upon the opening of business on the day next
following the record date (subject to paragraph (h) below) in the case of a
dividend or distribution and shall become effective immediately upon the opening
of business on the day next following the effective date in the case of a
subdivision, combination or reclassification.
(ii) If the Corporation shall issue after the Issue Date
rights, options or warrants to all holders of Common Shares entitling them (for
a period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase Common Shares at a price per share less than the Fair
Market Value per Common Share on the record date for the determination of
stockholders entitled to receive such rights, options or warrants, then the
Conversion Price in effect at the opening of business on the day next following
such record date shall be adjusted to equal the price determined by multiplying
(I) the Conversion Price in effect immediately prior to
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the opening of business on the day following the date fixed for such
determination by (II) a fraction, the numerator of which shall be the sum of (A)
the number of Common Shares outstanding on the close of business on the date
fixed for such determination and (B) the number of shares that the aggregate
proceeds to the Corporation from the exercise of such rights, options or
warrants for Common Shares would purchase at such Fair Market Value, and the
denominator of which shall be the sum of (A) the number of Common Shares
outstanding on the close of business on the date fixed for such determination
and (B) the number of additional Common Shares offered for subscription or
purchase pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately upon the opening of business on the day next
following such record date (subject to paragraph (h) below). In determining
whether any rights, options or warrants entitle the holders of Common Shares to
subscribe for or purchase Common Shares at less than such Fair Market Value,
there shall be taken into account any consideration received by the Corporation
upon issuance and upon exercise of such rights, options or warrants, the value
of such consideration, if other than cash, to be determined by the Chief
Executive Officer or the Board of Directors, whose determination shall be
conclusive.
(iii) If the Corporation shall distribute to all holders of
its Common Shares any shares of capital stock of the Corporation (other than
Common Shares) or evidence of its indebtedness or assets (excluding cash
dividends or distributions paid out of current or accumulated funds from
operations to the extent the same results in a payment of an equal cash dividend
to the holders of Series A Preferred Shares or rights or warrants to subscribe
for or purchase any of its securities (excluding those rights and warrants
issued to all holders of Common Shares entitling them for a period expiring
within 45 days after the record date referred to in subparagraph (ii) above to
subscribe for or purchase Common Shares, which rights and warrants are referred
to in and treated under subparagraph (ii) above) (any of the foregoing being
hereinafter in this subparagraph (iii) called the "Securities"), then in each
case the Conversion Price shall be adjusted so that it shall equal the price
determined by multiplying (I) the Conversion Price in effect immediately prior
to the close of business on the date fixed for the determination of stockholders
entitled to receive such distribution by (II) a fraction, the numerator of which
shall be the Fair Market Value per share of the Common Shares on the record date
mentioned below less the then fair market value (as determined by the Chief
Executive officer or the Board of Directors, whose determination shall be
conclusive) of the portion of the shares of capital stock or assets or evidences
of indebtedness so distributed or of such rights or warrants applicable to one
Common Share, and the denominator of which shall be the Fair Market Value per
share of the Common Shares on the record date mentioned below. Such adjustment
shall become effective immediately upon the opening of business on the day next
following (subject to paragraph (h) below) the record date for the determination
of stockholders entitled to receive such distribution. For the purposes of this
subparagraph (iii), the distribution of a Security, which is distributed not
only to the holders of the Common Shares on the date fixed for the determination
of stockholders entitled to such distribution of such Security, but also is
required to be distributed with each Common Share delivered to a Person
converting a Series A Preferred Share after such determination date, shall not
require an adjustment of the Conversion Price pursuant to this subparagraph
(iii); provided that on the date, if any, on which a person converting a Series
A Preferred Share would no longer be entitled to receive such Security with a
Common Share (other than as a result of the termination of all such Securities),
a distribution of such Securities shall be deemed to have occurred, and the
Conversion Price shall be adjusted as provided in this subparagraph (iii) (and
such day shall be deemed to be "the date fixed for the determination of the
stockholders entitled to receive such distribution" and "the record date" within
the meaning of the two preceding sentences).
The occurrence of a distribution or the occurrence of any other event
as a result of which holders of Series A Preferred Shares shall not be entitled
to receive rights, including exchange rights (the "Rights"), pursuant to any
stockholders protective rights agreement (the "Agreement") that may be adopted
by the Corporation as if such holders had converted such shares into Common
Shares immediately prior to the occurrence of such distribution or event shall
not be deemed a distribution of Securities for the purposes of any Conversion
Price adjustment pursuant to this subparagraph (iii) or otherwise give rise to
any Conversion Price adjustment pursuant to this Section 7; provided, however,
that in lieu of any adjustment to the Conversion Price as a result of any such a
distribution or occurrence, the Corporation shall make provision so that Rights,
to the extent issuable at the time of conversion of any Series A Preferred
Shares into Common Shares, shall issue and attach to such Common Shares then
issued upon conversion in the amount and manner and to the extent and as
provided in the Agreement in respect of issuances at the time of Common Shares
other than upon conversion.
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(iv) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or decrease of at
least 1% in such price; provided, however, that any adjustments that by reason
of this subparagraph (iv) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment until made; and provided,
further, that any adjustment shall be required and made in accordance with the
provisions of this Section 7 (other than this subparagraph (iv)) not later than
such time as may be required in order to preserve the tax-free nature of a
distribution to the holders of Common Shares. Notwithstanding any other
provisions of this Section 7, the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any Common Shares
pursuant to any plan providing for the reinvestment of dividends or interest
payable on securities of the Corporation and the investment of additional
optional amounts in Common Shares under such plan. All calculations under this
Section 7 shall be made to the nearest cent (with $.005 being rounded upward) or
to the nearest one-tenth of a share (with .05 of a share being rounded upward),
as the case may be. Anything in this paragraph (d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent permitted by
law, to make such reductions in the Conversion Price, in addition to those
required by this paragraph (d), as it in its discretion shall determine to be
advisable in order that any stock dividends, subdivision of shares,
reclassification or combination of shares, distribution of rights, options or
warrants to purchase stock or securities, or a distribution of other assets
(other than cash dividends) hereafter made by the Corporation to its
stockholders shall not be taxable or, if that is not possible, to diminish any
income taxes that are otherwise payable because of such event.
(e) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share exchange,
self tender offer for all or substantially all Common Shares, sale of all or
substantially all of the Corporation's assets or recapitalization of the Common
Shares and excluding any transaction as to which subparagraph (d)(i) of this
Section 7 applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which Common Shares shall be
converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each Series A Preferred Share that
is not converted into the right to receive stock, securities or other property
in connection with such Transaction shall thereafter be convertible into the
kind and amount of shares of stock, securities and other property (including
cash or any combination thereof) receivable upon the consummation of such
Transaction by a holder of that number of Common Shares into which one Series A
Preferred Share was convertible immediately prior to such Transaction, assuming
such holder of Common Shares (i) is not a Person with which the Corporation
consolidated or into which the Corporation merged or which merged into the
Corporation or to which such sale or transfer was made, as the case may be (a
"Constituent Person"), or an affiliate of a Constituent Person and (ii) failed
to exercise his or her rights of the election, if any, as to the kind or amount
of stock, securities and other property (including cash or any combination
thereof) receivable upon such Transaction (provided that if the kind or amount
of stock, securities and other property (including cash or any combination
thereof) receivable upon such Transaction is not the same for each Common Share
of the Corporation held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-Electing Share"), then for the
purpose of this paragraph (e) the kind and amount of stock, securities and other
property (including cash or any combination thereof) receivable upon such
Transaction by each Non-Electing Share shall be deemed to be the kind and amount
so receivable per share by a plurality of the Non-Electing Shares). The
Corporation shall not be a party to any Transaction unless the terms of such
Transaction are consistent with the provisions of this paragraph (e), and it
shall not consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Series A
Preferred Shares that will contain provisions enabling the holders of the Series
A Preferred Shares that remain outstanding after such Transaction to convert
their Series A Preferred Shares into the consideration received by holders of
Common Shares at the Conversion Price in effect immediately prior to such
Transaction. The provisions of this paragraph (e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Shares (other than in cash out of the current or
accumulated funds from operations to the extent the same results in a payment of
an equal cash dividend to the holders of Series A Preferred Shares); or
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(ii) the Corporation shall authorize the granting to the
holders of the Common Shares of rights or warrants to subscribe for or purchase
any shares of any class or any other rights or warrants (other than Rights to
which the second paragraph of subparagraph (d)(iii) of this Section 7 applies);
or
(iii) there shall be any reclassification of the Common
Shares (other than an event to which subparagraph (d) (i) of this Section 7
applies) or any consolidation or merger to which the Corporation is a party and
for which approval of any stockholders of the Corporation is required, or a
statutory share exchange involving the conversion or exchange of Common Shares
into securities or other property, or a self tender offer by the Corporation for
all or substantially all of its outstanding Common Shares, or the sale or
transfer of all or substantially all of the assets of the Corporation as an
entirety and for which approval of any stockholders of the Corporation is
required; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
then the Corporation shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of the Series A Preferred Shares at their
addresses as shown on the stock records of the Corporation, as promptly as
possible, but at least 15 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Shares of
record to be entitled to such dividend, distribution or rights or warrants are
to be determined or (B) the date on which such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Shares of record shall be entitled to exchange
their Common Shares for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, statutory share exchange, sale,
transfer, liquidation, dissolution or winding up. Failure to give or receive
such notice or any defect therein shall not affect the legality or validity of
the proceedings described in this Section 7.
(g) Whenever the Conversion Price is adjusted as herein provided,
the Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment, which
certificate shall be conclusive evidence of the correctness of such adjustment
absent manifest error. Promptly after delivery of such certificate, the
Corporation shall prepare a notice of such adjustment of the Conversion Price
setting forth the adjusted Conversion Price and the effective date of such
adjustment becomes effective and shall mail such notice of such adjustment of
the Conversion Price to the holders of each Series A Preferred Share at such
holder's last address as shown on the stock records of the Corporation.
(h) In any case in which paragraph (d) of this Section 7 provides
that an adjustment shall become effective on the day next following the record
date for an event, the Corporation may defer until the occurrence of such event
(A) issuing to the holder of any Series A Preferred Share converted after such
record date and before the occurrence of such event the additional Common Shares
issuable upon such conversion by reason of the adjustment required by such event
over and above the Common Shares issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount of cash in
lieu of any fraction pursuant to paragraph (c) of this Section 7.
(i) There shall be no adjustment of the Conversion Price in case
of the issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as specifically
set forth in this Section 7. If any action or transaction would require
adjustment of the Conversion Price pursuant to more than one paragraph of this
Section 7, only one adjustment shall be made, and such adjustment shall be the
amount of adjustment that has the highest absolute value.
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 7, that in the opinion of
the Board of Directors would materially adversely affect the conversion rights
of the holders of the Series A Preferred Shares, the Conversion Price for the
Series A Preferred
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Shares may be adjusted, to the extent permitted by law, in such manner, if any,
and at such time, as the Board of Directors, in its sole discretion, may
determine to be equitable in the circumstances.
(k) The Corporation covenants that, following any increase in the
Conversion Price that results in a conversion rate of more than one Common Share
for each Series A Preferred Share, it will reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Shares, for the purpose of issuance upon conversion of the Series A Preferred
Shares, that number of Common Shares required by any such increase in the
Conversion Price. For purposes of this paragraph (k), such number of Common
Shares shall be computed as if at the time of computation all such Series A
Preferred Shares were held by a single holder.
The Corporation further covenants that any Common Shares issued upon
conversion of the Series A Preferred Shares shall be validly issued, fully paid
and non-assessable. Before taking any action that would cause an adjustment
reducing the Conversion Price below the then-par value of the Common Shares
deliverable upon conversion of the Series A Preferred Shares, the Corporation
shall take any corporate action that, in the opinion of its counsel, may be
necessary in order that the Corporation may validly and legally issue fully paid
and non-assessable Common Shares at such adjusted Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series A Preferred Shares, prior to such
delivery, upon each national securities exchange, if any, upon which the
outstanding Common Shares are listed at the time of such delivery.
Prior to the delivery of any securities that the Corporation shall be
obligated to deliver upon conversion of the Series A Preferred Shares, the
Corporation shall endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof, by any governmental
authority.
(l) The Corporation shall pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
Common Shares or other securities or property on conversion of the Series A
Preferred Shares pursuant hereto; provided, however, that the Corporation shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of any Common Shares or other securities or
property in a name other than that of the holder of the Series A Preferred
Shares to be converted, and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Corporation
the amount of any such tax or established, to the reasonable satisfaction of the
Corporation, that such tax has been paid.
Section 8 Permissible Distributions. In determining whether a
distribution (other than upon liquidation, dissolution or winding up), whether
by dividend, or upon redemption or other acquisition of shares or otherwise, is
permitted under Maryland law, amounts that would be needed, if the Corporation
were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of holders of shares of any class or series
of capital stock whose preferential rights upon dissolution are superior or
prior to those receiving the distribution shall not be added to the
Corporation's total liabilities.
Section 9. Ranking. Any class or series of shares of capital stock of
the Corporation shall be deemed to rank:
(a) prior to the Series A Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
Series A Preferred Shares;
(b) on a parity with the Series A Preferred Shares, as to the
payment of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof be different from
those of the Series A Preferred Shares, if the holders of such class of stock or
series and the Series A Preferred Shares shall be entitled to the receipt
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of dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or priority
one over the other ("Parity Shares"); and
(c) junior to the Series A Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Common Shares or if the holders of
Series A Preferred Shares shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of shares of such stock or
series, and such stock or series shall not in either case rank prior to the
Series A Preferred Shares.
Section 10 Voting. Except as otherwise set forth herein, the Series A
Preferred Shares shall not have any relative, participating, optional or other
special voting rights and powers, and the consent of the holders thereof shall
not be required for the taking of any corporate action.
If and whenever six quarterly dividends (whether or not consecutive)
payable on the Series A Preferred Shares or any series or class of Parity Shares
shall be in arrears (which shall, with respect to any such quarterly dividend,
mean that any such dividend has not been paid in full), whether or not earned or
declared, the number of directors then constituting the Board of Directors shall
be increased by two and the holders of Series A Preferred Shares, together with
the holders of shares of every other series or class of Parity Shares having
like voting rights (shares of any such other series, the "Voting Preferred
Shares"), voting as a single class regardless of series, shall be entitled to
elect two additional directors (who shall, as a qualification for election,
agree to resign effective upon such time as required below) to serve on the
Board of Directors at any annual meeting of stockholders or special meeting held
in place thereof, or at a special meeting of the holders of Series A Preferred
Shares and the Voting Preferred Shares called as hereinafter provided. Whenever
all dividends in arrears on the Series A Preferred Shares and the Voting
Preferred Shares then outstanding shall have been paid and full dividends
thereon for the current quarterly dividend period shall have been paid or
declared and set apart for payment, then the right of the holders of the Series
A Preferred Shares and the Voting Preferred Shares to elect such additional two
directors shall cease (but subject always to the same provision for the vesting
of such voting rights in the case of any similar future arrearages in six
quarterly dividends), and the terms of office of all persons elected as
directors by the holders of the Series A Preferred Shares and the voting
Preferred Shares shall forthwith terminate and the number of directors
constituting the Board of Directors shall be reduced accordingly. At any time
after such voting power shall have been so vested in the holders of shares of
Series A Preferred Shares and the Voting Preferred Shares, the Secretary of the
Corporation may, and upon the written request of any holder of Series A
Preferred Shares (addressed to the Secretary at the principal office of the
Corporation) shall, call a special meeting of the holders of the Series A
Preferred Shares and of the Voting Preferred Shares for the election of the two
directors to be elected by them as herein provided, such call to be made by
notice similar to that provided in the Bylaws of the Corporation for a special
meeting of the stockholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the Secretary
within 20 days after receipt of such request, then any holder of Series A
Preferred Shares may call such meeting, upon the notice above provided, and for
that purpose shall have access to the stock books of the Corporation. The
directors elected at any such special meeting shall hold office until the next
annual meeting of the stockholders or special meeting held in lieu thereof if
such office shall not have previously terminated as above provided. If any
vacancy shall occur among the directors elected by the holders of the Series A
Preferred Shares and the Voting Preferred Shares, a successor shall be elected
by the Board of Directors, upon the nomination of the then-remaining director
elected by the holders of the Series A Preferred Shares and the Voting Preferred
Shares or the successor of such remaining director, to serve until the next
annual meeting of the stockholders or special meeting held in place thereof if
such office shall not have previously terminated as provided above.
So long as any Series A Preferred Shares are outstanding, in addition
to any other vote or consent of stockholders required by the Charter, the
affirmative vote of at least 66-2/3% of the votes entitled to be cast by the
holders of Series A Preferred Shares and the Voting Preferred Shares, at the
time outstanding, voting as a single class regardless of series, given in person
or by proxy, at any meeting called for the purpose, or by unanimous written
consent, shall be necessary for effecting or validating:
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(a) Any amendment, alteration or repeal of any of the provisions
of the Charter or these Articles Supplementary that materially adversely affects
the voting powers, rights or preferences of the holders of the Series A
Preferred Shares or the Voting Preferred Shares; provided, however, that (i) the
amendment of the provisions of the Charter so as to authorize or create or to
increase the authorized amount of, any Junior Shares or any shares of any class
or series ranking on a parity with the Series A Preferred Shares or the Voting
Preferred Shares shall not be deemed to materially adversely affect the voting
powers, rights or preferences of the holders of Series A Preferred Shares and
(ii) any filing with the State Department of Assessments and Taxation of
Maryland by the Corporation in connection with a merger, consolidation or sale
of all or substantially all of the assets of the Corporation shall not be deemed
to be an amendment, alteration or repeal of any of the provisions of the Charter
or these Articles Supplementary; and provided further, that if any such
amendment, alteration or repeal would materially adversely affect any voting
powers, rights or preferences of the Series A Preferred Shares or one or more
but not all series of Voting Preferred Shares at the time outstanding, the
affirmative vote of at least 66-2/3% of the votes entitled to be cast by the
holders of all series similarly affected, similarly given, shall be required in
lieu of the affirmative vote of at least 66-2/3% of the votes entitled to be
cast by the holders of the Series A Preferred Shares and the Voting Preferred
Shares otherwise entitled to vote in accordance herewith; or
(b) The authorization or creation of, or the increase in the
authorized amount of, any shares of any class or series or any security
convertible into shares of any class or series ranking prior to the Series A
Preferred Shares in the distribution of assets on any liquidation, dissolution
or winding up of the Corporation or in the payment of dividends; provided,
however, that, in the case of each of subparagraphs (a) and (b), no such vote of
the holders of Series A Preferred Shares or Voting Preferred Shares, as the case
may be, shall be required if, at or prior to the time when such amendment,
alteration or repeal is to take effect, or when the issuance of any such prior
shares or convertible security is to be made, as the case may be, provision is
made for the redemption of all Series A Preferred Shares or Voting Preferred
Shares, as the case may be, at the time outstanding in accordance with Section 5
hereof.
For purposes of the foregoing provisions of this Section 10, each
Series A Preferred Share shall have one (1) vote per share, except that when any
other series of Preferred Stock shall have the right to vote with the Series A
Preferred Shares as a single class on any matter, then the Series A Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $25.00 of stated liquidation preference.
Section 11. Record Holders. The Corporation and the Transfer Agent may
deem and treat the record holder of any Series A Preferred Shares as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
Section 12. Restrictions on Ownership and Transfer. The Series A
Preferred Shares constitute Capital Stock of the Corporation, and as such are
governed by and issued subject to all the limitations, terms and conditions of
the Charter applicable to Capital Stock generally, including but not limited to
the terms and conditions (including exceptions and exemptions) of Article NINTH
of the Charter applicable to Capital Stock. The foregoing sentence shall not be
construed to limit the applicability to the Series A Preferred Shares of any
other term or provision of the Charter.
SECOND: Except as may otherwise be required by law, the Series A
Preferred Shares shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in these Articles Supplementary (as such Articles Supplementary may be
amended from time to time) and in the Charter. The Series A Preferred Shares
shall have no preemptive or subscription rights.
THIRD: The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
FOURTH: If any voting powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Shares and
qualifications, limitations and restrictions thereof set forth in these Articles
Supplementary (as such Articles Supplementary may be amended from time to time)
is invalid, unlawful or incapable of being enforced by reason of any rule of law
or public policy, all other voting powers, preferences and
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relative, participating, optional and other special rights of Series A Preferred
Shares and qualifications, limitations and restrictions thereof set forth in
these Articles Supplementary (as so amended) which can be given effect shall
remain in full force and effect.
FIFTH: The Shares were initially classified and designated in the
Charter as Common Stock.
SIXTH: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
SEVENTH: Each of the undersigned acknowledges these Articles
Supplementary to be the act of the Corporation and, as to all matters or facts
required to be verified under oath, the undersigned acknowledges that to the
best of his knowledge, information and belief, these matters and facts are true
in all material respects and that this statement is made under the penalties for
perjury.
* * * * *
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IN WITNESS WHEREOF, GLENBOROUGH REALTY TRUST INCORPORATED has caused
these presents to be signed in its name and on its behalf by its Chief Executive
Officer, and witnessed by its Secretary on January 22, 1998.
WITNESS GLENBOROUGH REALTY
TRUST INCORPORATED
_____________________________ By:
Frank E. Austin Robert Batinovich
Secretary Chief Executive Officer
THE UNDERSIGNED, Chief Executive Officer of GLENBOROUGH REALTY TRUST
INCORPORATED, who executed on behalf of the Corporation, the Articles
Supplementary of which this certificate is made a part, hereby acknowledges in
the name and on behalf of said Corporation the foregoing Articles Supplementary
to be the corporate act of said Corporation and hereby certifies that the
matters and facts set forth herein with respect to the authorization and
approval thereof are true in all material respects under the penalties of
perjury.
By:
Robert Batinovich
Chief Executive Officer
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Exhibit 10.56
CREDIT AGREEMENT
(Revolver)
AMONG
GLENBOROUGH PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP,
AS BORROWER,
AND
WELLS FARGO BANK, NATIONAL ASSOCIATION
AND
THOSE ASSIGNEES
BECOMING PARTIES HERETO PURSUANT
TO SECTION 12.19,
AS LENDERS,
AND
WELLS FARGO BANK, NATIONAL ASSOCIATION,
AS AGENT
Dated as of December __, 1997
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LIST OF EXHIBITS AND SCHEDULES
Exhibits:
A - Form of Assignment and Assumption
B - Form of Unencumbered Pool Certificate
C - Form of Compliance Certificate
D - Form of Loan Notes
E - Form of Notice of Borrowing
F - Form of Fixed Rate Notice
G - Form of Solvency Certificate
Schedules:
1 - List of Unencumbered Pool Properties
5.1(c) - Ownership of Borrower and the Associated Companies
5.1(t) - Environmental Matters
5.2(e) - Benefit Plans
5.2(q) - Robert Batinovich and Andrew Batinovich Ownership
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of December __, 1997 (as amended,
supplemented or modified from time to time, the "Agreement") and is among
GLENBOROUGH PROPERTIES, L.P., a California limited partnership ("Borrower"),
each of the Lenders, as hereinafter defined, and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Wells Fargo"), in its capacity as agent acting in the manner
described in Article XI and as a Lender.
RECITALS
WHEREAS, Borrower has previously entered into a $50,000,000 revolving
credit facility (the "Secured Facility") with Wells Fargo and certain other
lenders, secured by a variety of Borrower's properties;
WHEREAS, Borrower desires to increase the amount of revolving credit
available to it, on an unsecured basis, and has determined to replace the
Secured Facility with the unsecured revolving credit facility contemplated by
this Agreement;
WHEREAS, Wells Fargo is willing to make such an unsecured revolving
credit facility available to Borrower, on the terms, and subject to the
conditions set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. The following terms used in this Agreement shall have
the following meanings (such meanings to be applicable, except to the extent
otherwise indicated in a definition of a particular term, both to the singular
and the plural forms of the terms defined):
"Accommodation Obligations", as applied to any Person, means any
Indebtedness or other contractual obligation or liability, contingent or
otherwise, of another Person in respect of which that Person is liable,
including, without limitation, any such Indebtedness, obligation or liability
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable (including, in respect of Borrower, each
Investment Partnership), Contractual Obligations (contingent or otherwise)
arising through any agreement to purchase, repurchase or otherwise acquire such
Indebtedness, obligation or liability or any security therefor, or to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition, or to make
payment other than for value received.
"Accountants" means Arthur Andersen LLP, any other "big six"
accounting firm or another firm of certified public accountants of national
standing selected by Borrower and acceptable to Agent.
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"Acquisition Price" means the aggregate purchase price (or Borrower's
Share thereof, as applicable) for an asset, including bona fide purchase money
financing provided by the seller and all prior Indebtedness encumbering such
asset at the time of acquisition.
"Adjusted Net Worth" means, at any time, stockholders' equity as shown
on the Financial Statements prepared in accordance with GAAP, plus minority
interests in Borrower, plus cumulative net additions to depreciation and
amortization reflected in statements of operation after September 30, 1997,
minus intangible assets.
"Affiliates" as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as applied to any Person, means (a) the possession, directly or
indirectly, of the power to vote ten percent (10%) or more of the Securities
having voting power for the election of directors of such Person or otherwise to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting Securities or by contract or otherwise,
or (b) the ownership of a general partnership interest or a limited partnership
interest representing ten percent (10%) or more of the outstanding limited
partnership interests of such Person.
"Agent" means Wells Fargo in its capacity as agent for the Lenders
under this Agreement, and shall include any successor Agent appointed pursuant
hereto and shall be deemed to refer to Wells Fargo in its individual capacity as
a Lender where the context so requires.
"Aggregate Occupancy Rate" means, at any time (a) with respect to the
Unencumbered Pool Properties of a Type other than Apartment Projects or Hotel
Projects, the ratio, as of such date, expressed as a percentage, of (i) the net
rentable square footage of all Unencumbered Pool Properties occupied by tenants
paying rent pursuant to binding leases as to which no monetary default has
occurred and is continuing, to (ii) the aggregate net rentable square footage of
all Unencumbered Pool Properties; (b) with respect to Unencumbered Pool
Properties that are Apartment Projects, the ratio, as of such date, expressed as
a percentage, of (i) the total number of apartment units of all such Apartment
Projects that are occupied by tenants paying rent pursuant to binding leases as
to which no monetary default has occurred and is continuing, to (ii) the total
number of apartment units included in all such Apartment Projects; and (c) with
respect to Unencumbered Pool Properties that are Hotel Projects, the average
occupancy rate, for the period of twelve consecutive calendar months then most
recently ended, for all such Hotel Projects, determined on a collective basis.
"Apartment Project" means a Property improved with a multi-family
apartment project.
"Applicable LIBO Rate Margin" means, as of any date of determination:
(a) If Borrower's senior long-term unsecured debt obligations have
been rated by both Moody's and Standard & Poor's or by either Moody's or
Standard & Poor's and at least one other Rating Agency: (i) 0.80%, if Borrower's
Rating is at least A-/A3, (ii) 0.90%, if Borrower's Rating is at least BBB+/Baa1
but the condition set forth in clause (i) of this definition is not satisfied,
(iii) 1.00%, if Borrower's Rating is at least BBB/Baa2 but neither the condition
set forth in clause (i) of this definition nor the condition set forth in clause
(ii) of this definition is satisfied, or (iv) 1.15%, if Borrower's Rating is at
least BBB-/Baa3 but neither the condition set forth in clause (i) of this
definition, nor the condition set forth in clause (ii) of this definition, nor
the condition set forth in clause (iii) of this definition is satisfied; or
(b) in any other case (including, without limitation, if Borrower's
senior long-term unsecured debt obligations have not been rated by at least two
Rating Agencies, one of which is either Moody's or Standard & Poor's, but
subject to the proviso at the end of the following paragraph): (i) 1.10% if, for
the most recent Fiscal Quarter in respect of which Borrower is required to have
delivered Financial Statements, the Weighted Average Leverage Ratio was less
than 0.25:1; (ii) 1.20% if, for the most recent Fiscal Quarter in respect of
which Borrower is required to have delivered Financial Statements, the Weighted
Average Leverage Ratio was greater
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than or equal to 0.25:1 but less than 0.35:1; (iii) 1.25% if, for the most
recent Fiscal Quarter in respect of which Borrower is required to have delivered
Financial Statements, the Weighted Average Leverage Ratio was greater than or
equal to 0.35:1 but less than 0.45:1; or (iv) 1.30% if, for the most recent
Fiscal Quarter in respect of which Borrower is required to have delivered
Financial Statements, the Weighted Average Leverage Ratio was not less than
0.45:1.
If Borrower receives ratings from two Rating Agencies and such ratings are not
equivalent to each other, then, if the higher of the two ratings is from either
Moody's or Standard & Poor's, such higher rating constitute Borrower's "Rating"
for purposes of determining the Applicable LIBO Rate Margin; otherwise, the
lower of the two ratings shall constitute Borrower's "Rating" for purposes of
this definition. If Borrower receives ratings from more than two Rating Agencies
and such ratings are not equivalent to each other, then, if one of the two
highest ratings is from either Moody's or Standard & Poor's, the average of such
two highest ratings shall constitute Borrower's "Rating" for purposes of
determining the Applicable LIBO Rate Margin; otherwise the average of the two
lowest ratings shall constitute Borrower's "Rating" for such purposes. Each
change in the Applicable LIBO Rate shall become effective (x) if paragraph (a)
of this definition applies, on the date as of which any change in Borrower's
Rating becomes effective; or (y) if paragraph (b) of this definition applies, on
the forty-fifth (45th) day after the end of the relevant Fiscal Quarter;
provided that if, as of the forty-fifth (45th) day after the end of a Fiscal
Quarter, Borrower has not delivered the Compliance Certificate required to be
delivered pursuant to Section 6.1(d) setting forth the Weighted Average Leverage
Ratio for such Fiscal Quarter, then, for the period commencing on such
forty-fifth (45th) day and continuing until such Compliance Certificate is so
delivered, the "Applicable LIBO Rate Margin" shall be 1.30%.
"Assignment and Assumption" means an Assignment and Assumption in the
form of Exhibit A hereto (with blanks appropriately filled in) delivered to
Agent in connection with each assignment of a Lender's interest under this
Agreement pursuant to Section 12.19.
"Associated Companies" means Glenborough Corporation, a California
corporation, and Glenborough Hotel Group, a Nevada corporation.
"Base Rate" means, on any day, the higher of (a) the base rate of
interest per annum established from time to time by Agent at its principal
office in San Francisco, California, and designated as its prime rate as in
effect on such day, and (b) one-half of one percent (0.50%) per annum plus the
Federal Funds Rate in effect on such day.
"Base Rate Loans" means those Loans bearing interest at the Base Rate.
"Benefit Plan" means any employee pension benefit plan as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) in respect of which a
Person or an ERISA Affiliate is, or within the immediately preceding five (5)
years was, an "employer" as defined in Section 3(5) of ERISA.
"Borrower" means Glenborough Properties, L.P., together with, in the
case of each representation (unless the context herein otherwise specifically
refers solely to Glenborough Properties, L.P.) and covenant (including all
financial covenants) in this Agreement, all Subsidiaries.
"Borrower Debt" means (without duplication) all Indebtedness of
Borrower or any Subsidiary (without offset or reduction in respect of prepaid
interest, restructuring fees or similar items) minus, in the case of Nonrecourse
Indebtedness of an Unconsolidated Entity that is otherwise included in
Indebtedness of Borrower, the amount of such Indebtedness in excess of
Borrower's Share thereof.
"Borrower's Share" means Borrower's, or any Subsidiary's, percentage
ownership interest in the Unconsolidated Entity in question.
"Borrowing" means a borrowing under the Facility, including a Swing
Line Borrowing.
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"Business Day" means (a) with respect to any Borrowing, payment or
rate determination of LIBOR Loans, a day, other than a Saturday or Sunday, on
which Agent is open for business in San Francisco and on which dealings in
Dollars are carried on in the London interbank market, and (b) for all other
purposes any day excluding Saturday, Sunday and any day which is a legal holiday
under the laws of the State of California, or is a day on which banking
institutions located in California are required or authorized by law or other
governmental action to close.
"Capital Expenditures" means, for any period, the sum of the
following, as applicable: (a) for Properties other than hotel properties or
multifamily apartment projects, the product of (i) (A) for industrial properties
or office/flex properties, $0.10, or (B) for office properties or retail
properties, $0.15 (in each case, prorated if the relevant period is shorter or
longer than one year), times (ii) the sum of (A) total net rentable square
footage of properties of that type then owned or leased by Borrower or a
Subsidiary of Borrower, plus (B) Borrower's Share of net rentable square footage
of that type owned or leased by any Investment Partnership; plus (b) the product
of (i) (A) for hotel properties, $750, or (B) for multifamily apartment
projects, $200 (in each case, prorated, if the relevant period is shorter or
longer than one year), times (ii) (A) the number of rooms (in the case of hotel
properties) or (B) the number of units (in the case of multifamily apartment
projects), included therein.
"Capital Leases", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by an
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year after the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within ninety (90) days after the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from any two of the Rating Agencies (or, if at any
time no two of the foregoing shall be rating such obligations, then from such
other nationally recognized rating services as may be acceptable to Agent) and
not listed for possible down-grade in Credit Watch published by Standard &
Poor's; (c) commercial paper, other than commercial paper issued by Borrower or
any of its Affiliates, maturing no more than ninety (90) days after the date of
creation thereof and, at the time of acquisition, having a rating of at least
A-1 or P-1 from either Standard & Poor's or Moody's (or, if at any time neither
Standard & Poor's nor Moody's shall be rating such obligations, then the highest
rating from such other nationally recognized rating services as may be
acceptable to Agent); and (d) domestic and Eurodollar certificates of deposit or
time deposits or bankers' acceptances maturing within ninety (90) days after the
date of acquisition thereof, overnight securities repurchase agreements, or
reverse repurchase agreements secured by any of the foregoing types of
securities or debt instruments issued, in each case, by (i) any commercial bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia or Canada having combined capital and surplus of not
less than Two Hundred Fifty Million Dollars ($250,000,000) or (ii) any Lender.
"Change in Control" means (a) any transaction or series of related
transactions in which any Person or two or more Persons acting in concert
acquire beneficial ownership, directly or indirectly, of securities of the REIT
(or of other securities convertible into securities of the REIT) representing
forty percent (40%) or more of the combined voting power of all securities of
the REIT entitled to vote in the election of directors; or (b) (i) during any
period of up to twelve (12) consecutive months commencing on or after the
Closing Date individuals who were directors of the REIT at the beginning of such
period shall cease for any reason to constitute a majority of the Board of
Directors, and (ii) the individuals replacing such directors shall not have been
nominated by the Board of Directors of the REIT.
"Closing Date" means the date on which this Agreement shall become
effective in accordance with Section 12.16.
"Commission" means the Securities and Exchange Commission.
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"Commitment" means, with respect to any Lender, such Lender's Pro Rata
Share of the Facility, which amount shall not exceed the principal amount set
out under such Lender's name under the heading "Loan Commitment" on the
signature pages attached to this Agreement or as set forth on an Assignment and
Assumption executed by such Lender, as assignee.
"Compliance Certificate" means a certificate in the form of Exhibit C
delivered to Agent by Borrower pursuant to Section 6.1(d) or other provision of
this Agreement and covering (a) Borrower's compliance with the covenants
contained in Sections 8.4 and 8.5 and Article IX, and (b) the Weighted Average
Leverage Ratio for the Fiscal Quarter then most recently ended.
"Contaminant" means any pollutant (as that term is defined in 42
U.S.C. 9601(33)) or toxic pollutant (as that term is defined in 33 U.S.C.
1362(13)), hazardous substance (as that term is defined in 42 U.S.C. 9601(14)),
hazardous chemical (as that term is defined by 29 CFR Section 1910.1200(c)),
toxic substance, hazardous waste (as that term is defined in 42 U.S.C. 6903(5)),
radioactive material, special waste, petroleum (including crude oil or any
petroleum-derived substance, waste, or breakdown or decomposition product
thereof), any constituent of any such substance or waste, including, but not
limited to, polychlorinated biphenyls and asbestos, or any other substance or
waste deleterious to the environment the release, disposal or remediation of
which is now or at any time becomes subject to regulation under any
Environmental Law.
"Contractual Obligation," as applied to any Person, means any
provision of any Securities issued by that Person or any indenture, mortgage,
deed of trust, lease, contract, undertaking, document or instrument to which
that Person is a party or by which it or any of its properties is bound, or to
which it or any of its properties is subject (including, without limitation, any
restrictive covenant affecting such Person or any of its properties).
"Court Order" means any judgment, writ, injunction, decree, rule or
regulation of any court or Governmental Authority binding upon or applicable the
Person in question.
"Debt Service" means, for any period, Interest Expense for such period
plus scheduled principal amortization (i.e., excluding any balloon or bullet
payment due at maturity) for such period on all Indebtedness of Borrower and the
Subsidiaries and Borrower's Share of all Indebtedness of each Other Investment
Entity (excluding the Associated Companies).
"Defaulting Lender" means any Lender which fails or refuses to perform
its obligations under this Agreement within the time period specified for
performance of such obligation or, if no time frame is specified, if such
failure or refusal continues for a period of five (5) Business Days after notice
from Agent.
"DOL" means the United States Department of Labor and any successor
department or agency.
"Dollars" and "$" means the lawful money of the United States of
America.
"Duff & Phelps" means Duff & Phelps Credit Rating Co.
"EBITDA" means, for any Person and at any time, for the most recently
ended Fiscal Quarter, (a) the sum of the following, as determined in accordance
with GAAP (i) Net Income (excluding Net Income or related items attributable to
any unconsolidated Person), (ii) depreciation and amortization expense and other
non-cash items deducted in determining such Net Income, (iii) interest expense,
(iv) Taxes and (v) an amount equal to such Person's prorata share (based upon
ownership interest) of the EBITDA of each Unconsolidated Entity for the most
recently ended Fiscal Quarter; minus (b) in the case of Borrower, that portion
of Net Income attributable to an investment interest in the Associated
Companies, except to the extent of preferred dividends received by Borrower from
the Associated Companies during such period; and (c) minus gains (and plus
losses) from extraordinary items or asset sales or write-ups or forgiveness of
indebtedness.
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"Eligible Assignee" means (a) (i) (A) a commercial bank organized
under the laws of the United States or any state thereof; (B) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof; or (C) a commercial bank organized under the laws of any other
country or a political subdivision thereof, provided that (x) such bank is
acting through a branch or agency located in the United States, or (y) such bank
is organized under the laws of a country that is a member of the Organization
for Economic Cooperation and Development or a political subdivision of such
country; that (ii) in each case, is (A) reasonably acceptable to Agent and
Borrower, and (B) has total assets in excess of $10,000,000,000 and a rating on
its (or its parent's) senior unsecured debt obligations of at least BBB by one
of the Rating Agencies; or (b) any Lender or Affiliate of any Lender; provided
that no Affiliate of Borrower shall be an Eligible Assignee.
"Environmental Laws" has the meaning set forth in Section 5.1(t).
"Environmental Lien" means a Lien in favor of any Governmental
Authority for (a) any liability under Environmental Laws, or (b) damages arising
from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of a Contaminant into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA Affiliate" means, as to any Person, any (a) corporation which
is, becomes, or is deemed to be a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Internal Revenue Code)
as such Person, (b) partnership, trade or business (whether or not incorporated)
which is, becomes or is deemed to be under common control (within the meaning of
Section 414(c) of the Internal Revenue Code) with such Person, (c) other Person
that is, becomes or is deemed to be, a member of the same "affiliated service
group" (as defined in Section 414(m) of the Internal Revenue Code) as such
Person, or (d) any other organization or arrangement described in Section 414(o)
of the Internal Revenue Code which is, becomes or is deemed to be required to be
aggregated pursuant to regulations issued under Section 414(o) of the Internal
Revenue Code with such Person pursuant to Section 414(o) of the Internal Revenue
Code.
"Event of Default" means any of the occurrences set forth in Article X
after the expiration of any applicable grace period expressly provided therein.
"Extension Fee" has the meaning given to such term in Section 2.1(d).
"Facility" means the loan facility of Two Hundred Fifty Million
Dollars ($250,000,000) described in Section 2.1(a).
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereto.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal Funds brokers of recognized
standing selected by Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any governmental authority succeeding to its functions.
"Fitch" means Fitch Investors Service, L.P.
"Financial Statements" has the meaning given to such term in Section
6.1(b).
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"FIRREA" means the Financial Institutions Recovery, Reform and
Enforcement Act of 1989, as amended from time to time.
"Fiscal Quarter" means each three-month period ending on March 31,
June 30, September 30 and December 31.
"Fiscal Year" means the fiscal year of Borrower which shall be the
twelve (12) month period ending on the last day of December in each year.
"Fixed Rate Notice" means, with respect to a LIBOR Loan pursuant to
Section 2.1(b), a notice substantially in the form of Exhibit F.
"Fixed Rate Price Adjustment" has the meaning given to such term in
Section 2.4(h)(iii).
"Funding Date" means, with respect to any Loan made after the Closing
Date, the date of the funding of such Loan.
"Funds from Operations" means, for any period, Borrower's Net Income
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization of real estate assets, and after adjustments for
Unconsolidated Entities. (Adjustments for Unconsolidated Entities shall be
calculated to reflect funds from operations on the same basis.)
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, or in such other statements by such
other entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any federal,
state, local, municipal or other political subdivision thereof or any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Gross Asset Value" means, as of the date of determination, the sum
(without duplication of any item) of (a) an amount equal to (i) Borrower EBITDA
for the most recently ended Fiscal Quarter (excluding Net Income or related
items attributable to any Unconsolidated Entity or any asset referred to in
clauses (b) through (d) or (h) below), times (ii) four (4), divided by (C) 0.10;
(b) in the case of Borrower or any Subsidiary, the Acquisition Price paid by
Borrower or such Subsidiary for any Property acquired during the most recently
ended Fiscal Quarter; (c) cash and Cash Equivalents owned by Borrower or any
Subsidiary as of the most recently ended Fiscal Quarter (but excluding any
tenant deposits); (d) with respect to each Investment Mortgage (including Pool
Investment Mortgages) held by Borrower or any Subsidiary, the lesser of the book
value thereof or an amount equal to ninety percent (90%) of (i) net operating
income (less Capital Expenditures) (determined on a basis consistent with the
definition of "Net Operating Income" in this Agreement) for the most recently
ended Fiscal Quarter attributable to the Property securing such mortgage
receivable, times (ii) four (4), divided by (iii) 0.10; (e) an amount equal to
Borrower's Share of (i) the EBITDA of each Unconsolidated Entity (other than the
Associated Companies) for the most recently ended Fiscal Quarter (excluding
EBITDA attributable to any Property not owned by any such Unconsolidated Entity
for the entire most recently ended Fiscal Quarter), times (iii) four (4),
divided by (iii) 0.10; (f) Borrower's Share of the Acquisition Price paid for
any Property acquired by an Unconsolidated Entity during the most recently ended
Fiscal Quarter; (g) an amount equal to (i) preferred dividends received by
Borrower from the Associated Companies during the most recently ended Fiscal
Quarter, times (iii) four (4), divided by (iii) 0.20; and (h) one hundred
percent (100%) of publicly-traded stock held by Borrower (in the case of each
such stock, at the lesser of cost or market value).
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"Guaranty" means the guaranty of payment and performance executed by
the REIT in favor of Agent and the Lenders.
"Hotel Project" means a Property improved with a hotel.
"Indebtedness", as applied to any Person (and without duplication),
means (a) all indebtedness, obligations or other liabilities of such Person for
borrowed money, whether or not subordinated and whether with or without recourse
beyond any collateral security, (b) all indebtedness, obligations or other
liabilities of such Person evidenced by Securities or other similar instruments,
(c) all reimbursement obligations and other liabilities of such Person with
respect to letters of credit or banker's acceptances issued for such Person's
account, (d) all obligations of such Person to pay the deferred purchase price
of Property or services, (e) all obligations in respect of both operating and
Capital Leases of such Person, (f) all Accommodation Obligations of such Person,
(g) all indebtedness, obligations or other liabilities of such Person or others
secured by a Lien on any asset of such Person, whether or not such indebtedness,
obligations or liabilities are assumed by, or are a personal liability of, such
Person (including, without limitation, the principal amount of any assessment or
similar indebtedness encumbering any property), (h) all indebtedness,
obligations or other liabilities (other than interest expense liability) in
respect of Interest Rate Contracts and foreign currency exchange agreements, (i)
ERISA obligations currently due and payable, (j) Borrower's Share of all
Nonrecourse Indebtedness owed by Unconsolidated Entities other than the
Associated Companies, and (k) without duplication or limitation, all liabilities
and other obligations included in the financial statements (or notes thereto) of
such Person as prepared in accordance with GAAP.
"Individual Occupancy Rate" means, with respect to any Property, at
any time, the ratio (expressed as a percentage), as of such date, of (a) if such
Property is not an Apartment Project or a Hotel Project, (i) the net rentable
square footage of such Property occupied by tenants paying rent pursuant to
binding leases as to which no monetary default has occurred and is continuing,
to (ii) the total net rentable square footage comprising such Property; (b) if
such Property is an Apartment Project, (i) the total number of apartment units
in such Apartment Project that are occupied by tenants paying rent pursuant to
binding leases as to which not monetary default has occurred and is continuing,
to (ii) the total number of apartment units comprising such Apartment Project;
and (c) if such Property is a Hotel Project, the average occupancy rate of such
Hotel Project for the period of twelve consecutive calendar months then most
recently ended.
"Interest Expense" means, for any period, the sum of (without
redundancy) (a) total interest expense, whether paid, accrued or capitalized
(including the interest component of Capital Leases and capitalized interest
covered by an interest reserve established under a loan facility) in respect of
Indebtedness of Borrower or any Subsidiary, including, without limitation, all
commissions, discounts and other fees and charges owed with respect to letters
of credit, net costs under Interest Rate Contracts, and fees payable to Lenders
pursuant to Section 2.1(d) and Section 2.5, (b) Borrower's Share of total
interest expense, whether paid, accrued or capitalized (including the interest
component of Capital Leases and capitalized interest covered by an interest
reserve established under a loan facility) in respect of Indebtedness of Other
Investment Entities (other than the Associated Companies), and (c) any other
accrued, paid or capitalized interest incurred on any obligation for which
Borrower is wholly or partially liable under repayment, interest carry or
performance guarantees, or other relevant liabilities.
"Interest Period" means, relative to any LIBOR Loans comprising part
of the same Borrowing, the period beginning on (and including) the date on which
such LIBOR Loans are made as, or converted into, LIBOR Loans, and ending on (but
excluding) the day which numerically corresponds to such date thirty (30), sixty
(60), ninety (90) or one hundred eighty (180) days thereafter, in each case as
Borrower may select in its relevant Notice of Borrowing pursuant to Section
2.1(b); provided, however, that:
(a) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the next following Business
Day; and
(b) no Interest Period may end later than the then applicable Maturity
Date.
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"Interest Rate Contracts" means, collectively, interest rate swap,
collar, cap or similar agreements providing interest rate protection (including
any reserve or cost adjustments.
"Interim Period" means the period commencing on September 30, 1997,
and ending on the Closing Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time hereafter, and any successor statute.
"Investment Mortgages" mean mortgages securing indebtedness directly
or indirectly owned by Borrower, including certificates of interest in real
estate mortgage investment conduits.
"Investment Partnership" means any general or limited partnership (or
joint venture) in which Borrower has a general partnership interest, whose
financial results are not consolidated under GAAP in the Financial Statements.
"IRS" means the Internal Revenue Service and any Person succeeding to
the functions thereof.
"Land" means unimproved real estate, including future phases of a
partially completed project, owned or leased by Borrower for the purpose of
future development of improvements. For purposes of the foregoing definition,
"unimproved" shall mean Land on which the construction of building improvements
has not commenced or has been discontinued for a continuous period longer than
sixty (60) days prior to completion.
"Lender Taxes" has the meaning given to such term in Section 2.4(g).
"Lenders" means Wells Fargo and any other bank, finance company,
insurance or other financial institution which is or becomes a party to this
Agreement by execution of a counterpart signature page hereto or an Assignment
and Assumption, as assignee. At all times that there are no Lenders other than
Wells Fargo, the terms "Lender" and "Lenders" means Wells Fargo in its
individual capacity. With respect to matters requiring the consent to or
approval of all Lenders at any given time, all then existing Defaulting Lenders
will be disregarded and excluded, and, for voting purposes only, "all Lenders"
shall be deemed to mean "all Lenders other than Defaulting Lenders".
"Letter of Credit Documents" has the meaning given to such term in
Section 2.1(e)(ii).
"Letter of Credit Obligations" mean, collectively, (a) all
reimbursement and other obligations of Borrower in respect of Letters of Credit,
and (b) all amounts advanced by Lenders in respect of draws paid by Wells Fargo
under Letters of Credit.
"Letters of Credit" mean the standby letters of credit (a) issued and
outstanding under the Secured Facility as of the Closing Date, or (b) issued
from time to time by Wells Fargo, for the account of Borrower, pursuant to
Section 2.1(e), as the same may be drawn on, advanced, replaced or modified from
time to time.
"Liabilities and Costs" means all claims, judgments, liabilities,
obligations, responsibilities, losses, damages (including lost profits),
punitive or treble damages, costs, disbursements and expenses (including,
without limitation, reasonable attorneys', experts' and consulting fees and
costs of investigation and feasibility studies), fines, penalties and monetary
sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future.
"LIBOR" means, relative to any Interest Period for any LIBOR Loan
included in any Borrowing, the per annum rate (reserve adjusted as hereinbelow
provided) of interest quoted by Agent, rounded upwards, if necessary, to the
nearest one-sixteenth of one percent (0.0625%) at which Dollar deposits in
immediately available
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funds are offered by Agent to leading banks in the Eurodollar interbank market
at approximately 9:00 A.M. San Francisco time two (2) Business Days prior to the
beginning of such Interest Period, for delivery on the first day of such
Interest Period for a period approximately equal to such Interest Period and in
an amount equal or comparable to the LIBOR Loan to which such Interest Period
relates. The foregoing rate of interest shall be reserve adjusted by dividing
LIBOR by one (1.00) minus the LIBOR Reserve Percentage, with such quotient to be
rounded upward to the nearest whole multiple of one-hundredth of one percent
(0.01%). All references in this Agreement or other Loan Documents to LIBOR
include the aforesaid reserve adjustment.
"LIBOR Loan" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to LIBOR.
"LIBOR Office" means, relative to any Lender, the office of such
Lender designated as such on the counterpart signature pages hereto or such
other office of a Lender as designated from time to time by notice from such
Lender to Agent, whether or not outside the United States, which shall be making
or maintaining LIBOR Loans of such Lender.
"LIBOR Reserve Percentage" means, relative to any Interest Period for
LIBOR Loans made by any Lender, the reserve percentage (expressed as a decimal)
equal to the actual aggregate reserve requirements (including all basic,
emergency, supplemental, marginal and other reserves and taking into account any
transactional adjustments or other scheduled changes in reserve requirements)
announced within Agent as the reserve percentage applicable to Agent as
specified under regulations issued from time to time by the Federal Reserve
Board. The LIBOR Reserve Percentage shall be based on Regulation D of the
Federal Reserve Board or other regulations from time to time in effect
concerning reserves for "Eurocurrency Liabilities" from related institutions as
though Agent were in a net borrowing position.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, encumbrance (including, but
not limited to, easements, rights-of-way, zoning restrictions and the like),
lien (statutory or other), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever, including without
limitation any conditional sale or other title retention agreement, the interest
of a lessor under a Capital Lease, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement or document having similar effect (other than a financing statement
filed by a "true" lessor pursuant to Section 9408 of the Uniform Commercial
Code) naming the owner of the asset to which such Lien relates as debtor, under
the Uniform Commercial Code or other comparable law of any jurisdiction.
"Loan Account" has the meaning given to such term in Section 2.3.
"Loan Availability" means, at any time, the lesser of (a) an amount
equal to the positive difference, if any, of (i) 57.14286% of the Unencumbered
Pool Value, less (ii) Unsecured Liabilities other than the outstanding principal
of the Loans; and (b) the amount of the Facility from time to time.
"Loan Documents" means this Agreement, the Loan Notes, the Guaranty,
the agency fee agreement described in Section 2.5(b), the Letter of Credit
Documents and all other agreements, instruments and documents (together with
amendments and supplements thereto and replacements thereof) now or hereafter
executed by the REIT or Borrower that evidence, guaranty or secure the
Obligations.
"Loan Notes" means the promissory notes evidencing the Loans in the
aggregate original principal amount of Two Hundred Fifty Million Dollars
($250,000,000) executed by Borrower in favor of Lenders, as they may be amended,
supplemented, replaced or modified from time to time. The initial Loan Note, and
any replacements thereof, shall be substantially in the form of Exhibit D.
"Loans" means the loans made pursuant to the Facility (including,
except where the context otherwise requires, Swing Line Borrowings), as well as
each Loan, initially made under the Swing Line, that is
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deemed converted into a Loan pursuant to Section 11.3(c); provided that (a) if
any such Loan or Loans (or portions thereof) is/are combined or subdivided
pursuant to Section 2.1(b)(iii) or by automatic conversion of LIBOR Loan into a
Base Rate Loan, the term "Loan" means such combination or each such subdivided
portion, as the case may be, and (b) where the context so requires, the term
"Loan" means, with respect to a particular Lender, the advance made (or required
to be made) by such Lender in the amount of such Lender's Pro Rata Share of a
Borrowing under the Facility.
"Major UPP Lease" means a lease affecting fifty percent (50%) or more
of the net rentable square footage of an Unencumbered Pool Property.
"Material Adverse Effect" means, with respect to a Person, a material
adverse effect upon the condition (financial or otherwise), operations,
performance or properties of such Person. The phrase "has a Material Adverse
Effect" or "will result in a Material Adverse Effect" or words substantially
similar thereto shall in all cases be intended to mean "has resulted, or will or
could reasonably be anticipated to result, in a Material Adverse Effect", and
the phrase "has no (or does not have a) Material Adverse Effect" or "will not
result in a Material Adverse Effect" or words substantially similar thereto
shall in all cases be intended to mean "does not or will not or could not
reasonably be anticipated to result in a Material Adverse Effect".
"Maturity Date" has the meaning given to such term in Section 2.1(d).
"Minimum Net Worth" means the sum of (a) Three Hundred Forty-Three
Million Seven Hundred Forty-One Thousand Dollars ($343,741,000) and (b) ninety
percent (90%) of Net Offering Proceeds following the Closing Date.
"Moody's" means Moody's Investors Service.
"Multiemployer Plan" means an employee benefit plan defined in Section
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by a Person or an ERISA Affiliate.
"Net Income" means, for any Person and any period, the net earnings
(or loss), after Taxes and minority interests, calculated for such period on a
consolidated basis in conformity with GAAP. Notwithstanding the foregoing, in
determining "Net Income" for the REIT, minority interests in Borrower shall be
added back.
"Net Offering Proceeds" means (a) all cash proceeds received by the
REIT as a result of the sale of common, preferred or other classes of stock in
the REIT (if and only to the extent reflected in stockholders' equity on the
consolidated balance sheet of the REIT prepared in accordance with GAAP) less
customary costs and discounts of issuance paid by the REIT, all of which
proceeds shall have been concurrently contributed by the REIT to Borrower as
additional capital, plus (b) all cash and the fair market value of the net
equity of all properties contributed to Borrower by one or more Persons in
exchange for limited partnership interests in Borrower.
"Net Operating Income" means, for any period, (a) with respect to an
Unencumbered Pool Property (other than a Pool Investment Mortgage), the net
operating income of such Unencumbered Pool Property for such period determined
in accordance with GAAP, except that, for purposes of determining Net Operating
Income, (i) income shall be calculated on a stabilized basis and shall not
include security or other deposits, late fees, lease termination or other
similar charges, delinquent rent recoveries, unless previously reflected in
reserves, proceeds of business interruption insurance or any other items of a
non-recurring nature, and (ii) to the extent any such Unencumbered Pool Property
is not owned by Borrower for the entire period for which such determination is
being made, then the Net Operating Income for such Unencumbered Pool Property
shall be subject to such adjustment as Agent determines to be appropriate;
provided that, notwithstanding the limitations in clause (i) above, Net
Operating Income may include collected lease termination charges (amortized
monthly over the remaining term of the lease) and delinquent rent recoveries so
long as (x) any such charge or recovery does not relate to a date earlier the
commencement of the period for which Net Operating Income is determined and (y)
no such recovery shall be made for any month during or after which the space to
which such charge or recovery relates has been re-
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leased to another Person and such Person has an obligation to pay rent for such
month(s); and (b) with respect to a Pool Investment Mortgage, the sum of all
regular recurring monthly payments of interest received by Borrower during such
period.
"Non Pro Rata Loan" means a Loan with respect to which fewer than all
Lenders have funded their respective Pro Rata Shares of such Loans and the
failure of the non-funding Lender or Lenders to fund its or their respective Pro
Rata Shares of such Loan constitutes a breach of this Agreement.
"Nonrecourse Indebtedness" means Indebtedness with respect to which
recourse for payment is contractually limited to specific assets encumbered by a
Lien securing such Indebtedness.
"Notice of Borrowing" means, with respect to a proposed Borrowing
pursuant to Section 2.1(b), a notice substantially in the form of Exhibit E.
"Obligations" means, from time to time, all Indebtedness of Borrower
owing to Agent, any Lender or any Person entitled to indemnification pursuant to
Section 12.2, or any of their respective successors, transferees or assigns, of
every type and description, whether or not evidenced by any note, guaranty or
other instrument, arising under or in connection with this Agreement or any
other Loan Document, whether or not for the payment of money, whether direct or
indirect (including those acquired by assignment), absolute or contingent, due
or to become due, now existing or hereafter arising and however acquired. The
term includes, without limitation, all interest, charges, expenses, fees,
reasonable attorneys' fees and disbursements, reasonable fees and disbursements
of expert witnesses and other consultants, and any other sum now or hereinafter
chargeable to Borrower under or in connection with this Agreement or any other
Loan Document.
"Officer's Certificate" means a certificate signed by a specified
officer of a Person certifying as to the matters set forth therein.
"Other Investment Entity" means each corporation (including the
Associated Companies), limited partnership in which Borrower has a limited
partnership interest only, joint stock company, limited liability company,
business trust or other organization of any type or kind in respect of whose
debts and other obligations Borrower has no personal liability (beyond its
investment therein) and whose financial results are not consolidated under GAAP
in the Financial Statements.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to the functions thereof.
"Permit" means any permit, approval, authorization, license, variance
or permission required from a Governmental Authority under an applicable
Requirement of Law.
"Permitted Liens" means:
(a) Liens (other than Environmental Liens and any Lien imposed under
ERISA) for taxes, assessments or charges of any Governmental Authority or claims
not yet due;
(b) Liens (other than any Lien imposed under ERISA) incurred or
deposits made in the ordinary course of business (including without limitation
surety bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts (other than for the
repayment of Indebtedness), statutory obligations;
(c) any laws, ordinances, easements, rights of way, restrictions,
exemptions, reservations, conditions, limitations, covenants or other matters
that, in the aggregate, do not (i) materially interfere with the occupation, use
and enjoyment of the Property or other assets encumbered thereby, by the Person
owning such
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Property or other assets, in the normal course of its business or (ii)
materially impair the value of the Property subject thereto; and
(d) Liens imposed by laws, such as mechanics' liens and other similar
liens arising in the ordinary course of business which secure payment of
obligations not more than thirty (30) days past due.
"Person" means any natural person, employee, corporation, limited
partnership, general partnership, joint stock company, limited liability
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust or other organization, whether or not a legal entity, or
any other non-governmental entity, or any Governmental Authority.
"Pool Investment Mortgage" means each of the three (3) Investment
Mortgages identified on Schedule 1 as an "Unencumbered Pool Property", for so
long as such Investment Mortgage qualifies as both "Unencumbered Property" and
an "Unencumbered Pool Property" in accordance with the definitions of those
terms.
"Pool Investment Mortgage Exclusion Date" means June 30, 1998, or such
later date as the Requisite Lenders may agree to in their sole discretion.
"Plan" means an employee benefit plan defined in Section 3(3) of ERISA
(other than a Multiemployer Plan) in respect of which Borrower or an ERISA
Affiliate, as applicable, is an "employer" as defined in Section 3(5) of ERISA.
"Price Adjustment Date" has the meaning given to such term in Section
2.4(h)(iii).
"Pro Rata Share" means, with respect to any Lender, a fraction
(expressed as a percentage), the numerator of which shall be the amount of such
Lender's Commitment and the denominator of which shall be the aggregate amount
of all of the Lenders' Commitments.
"Proceedings" means, collectively, all actions, suits and proceedings
before, and investigations commenced or threatened by or before, any court or
Governmental Authority with respect to a Person.
"Property" means (a) as to any Person, any real or personal property,
building, facility, structure, equipment or unit, or other asset owned and
operated by such Person in the ordinary course of its business; and (b) with
respect to any Pool Investment Mortgage, except where the context otherwise
requires, the property subject to such Pool Investment Mortgage. For example,
but without limitation, the "Individual Occupancy Percentage" of an Unencumbered
Pool Property that is a Pool Investment Mortgage shall be the "Individual
Occupancy Percentage" of the property subject to such Pool Investment Mortgage,
determined as if such property itself were the Unencumbered Pool Property; the
"Aggregate Occupancy Percentage" of the Unencumbered Pool Properties shall be
determined with reference to the properties subject to the Pool Investment
Mortgages as well as the other Unencumbered Pool Properties; and, except where
the applicable provision of this Agreement expressly requires a different
treatment of the properties subject to Pool Investment Mortgages, all reports,
certifications and other deliveries of information relating to the Unencumbered
Pool Properties shall include the properties subject to the Pool Investment
Mortgages.
"Quarterly Operating Report" has the meaning set forth in Section
6.1(a).
"Rating Agency" means each of Standard & Poor's, Moody's, Fitch and
Duff & Phelps, and such other nationally recognized rating service or services
as may be mutually agreed upon by Borrower and Agent.
"Regulations G, T, U and X" mean such Regulations of the Federal
Reserve Board as in effect from time to time.
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"REIT" means Glenborough Realty Trust Incorporated, a Maryland
corporation.
"Release" means the release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment or into or out of any property, including the
movement of Contaminants through or in the air, soil, surface water, groundwater
or property.
"Remedial Action" means any action required by applicable
Environmental Laws to (a) clean up, remove, treat or in any other way address
Contaminants in the indoor or outdoor environment; (b) prevent the Release or
threat of Release or minimize the further Release of Contaminants so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; or (c) perform pre-remedial studies and
investigations and post-remedial monitoring and care.
"Reportable Event" means any of the events described in Section
4043(b) of ERISA, other than an event for which the thirty (30) day notice
requirement is waived by regulations.
"Requirements of Law" mean, as to any Person, the charter and by-laws,
partnership agreement or other organizational or governing documents of such
Person, and any law, rule or regulation, Permit, or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject, including without limitation, the Securities
Act, the Securities Exchange Act, Regulations G, T, U and X, FIRREA and any
certificate of occupancy, zoning ordinance, building, environmental or land use
requirement or Permit or occupational safety or health law, rule or regulation.
"Requisite Lenders" mean, collectively, Lenders whose Pro Rata Shares,
in the aggregate, are at least sixty-six and two-thirds percent (66-2/3%),
provided that (a) in determining such percentage at any given time, all then
existing Defaulting Lenders will be disregarded and excluded and the Pro Rata
Shares of Lenders shall be redetermined, for voting purposes only, to exclude
the Pro Rata Shares of such Defaulting Lenders, and (b) notwithstanding the
foregoing, at all times when two or more Lenders are party to this Agreement,
the term "Requisite Lenders" shall in no event mean less than two Lenders.
"Secretary's Certificate" has the meaning given to such term in
Section 4.1(c).
"Secured Borrower Debt" means all Borrower Debt that is secured by a
Lien on any interest in real property.
"Secured Facility" has the meaning given to such term in the Recitals.
"Securities" means any stock, shares, voting trust certificates,
bonds, debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any instruments
commonly known as "securities", or any certificates of interest, shares, or
participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire any of the
foregoing, but shall not include any evidence of the Obligations, provided that
Securities shall not include Cash Equivalents, Investment Mortgages or
investments, in the form of equity, in Unconsolidated Entities.
"Securities Act" means the Securities Act of 1933, as amended to the
date hereof and from time to time hereafter, and any successor statute.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended to the date hereof and from time to time hereafter, and any successor
statute.
"Senior Loans" has the meaning given to such term in Section 11.4(b).
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"September 30, 1997 Financials" has the meaning given to such term in
Section 5.1(g).
"Solvency Certificate" means a certificate in the form of Exhibit G.
"Solvent" means, as to any Person at the time of determination, that
such Person (a) owns property the value of which (both at fair valuation and at
present fair salable value) is greater than the amount required to pay all of
such Person's liabilities (including contingent liabilities and debts); (b) is
able to pay all of its debts as such debts mature; and (c) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.
"Standard & Poor's" means Standard & Poor's Rating Services.
"Subsidiary" means each Person (a) in which Borrower has an ownership
interest and (b) the financial results of which are consolidated under GAAP in
the Financial Statements.
"Swing Line" has the meaning given to such term in Section 2.1(a)(ii).
"Swing Line Borrowing" means a Borrowing effected under the Swing
Line.
"Swing Line Lender" means Agent, and any successor to Agent, in its
capacity as the lender under the Swing Line.
"Taxes" means all federal, state and local net income and gross
receipts taxes.
"Termination Event" means (a) any Reportable Event, (b) the withdrawal
of a Person, or an ERISA Affiliate from a Benefit Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA,
(c) the occurrence of an obligation arising under Section 4041 of ERISA of a
Person or an ERISA Affiliate of such Person to provide affected parties with a
written notice of an intent to terminate a Benefit Plan in a distress
termination described in Section 4041(c) of ERISA, (d) the institution by the
PBGC of proceedings to terminate any Benefit Plan under Section 4042 of ERISA,
(e) any event or condition which constitutes grounds under Section 4042 of ERISA
for the appointment of a trustee to administer a Benefit Plan, (f) the partial
or complete withdrawal of such Person or any ERISA Affiliate of such Person from
a Multiemployer Plan, or (g) the adoption of an amendment by any Person or any
ERISA Affiliate of such Person to terminate any Benefit Plan.
"Termination of Designation" has the meaning set forth in Section 3.2.
"Total Liabilities" means the sum of (a) all Indebtedness of Borrower
and the Subsidiaries, and (b) Borrower's Share of the Indebtedness of each Other
Investment Entity (other than the Associated Companies).
"Type" means, with respect to any Property, the classification of such
Property as (a) an Apartment Project, (b) a Hotel Project or (c) a Property
other than an Apartment Project or a Hotel Project.
"Unconsolidated Entity" means each Investment Partnership and Other
Investment Entity.
"Unencumbered NOI" means, for any period, the aggregate Net Operating
Income of all Unencumbered Pool Properties for such period.
"Unencumbered Pool Certificate" has the meaning given to such term in
Section 6.1(f).
"Unencumbered Pool Property Statements" has the meaning set forth in
Section 6.1(a).
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"Unencumbered Pool Properties" means the Unencumbered Properties
listed on Schedule 1, as such Schedule 1 may be amended from time to time to
reflect the addition and deletion of Unencumbered Pool Properties pursuant to
Article III; provided, in each case:
(a) that (i) the Individual Occupancy Rate of such Property is at
least fifty percent (50%) and (ii) such Property has not suffered damage
rendering untenantable more than fifty percent (50%) (determined as if such
Property had not been damaged) of its (A) net rentable square footage (if such
Property is not an Apartment Project or a Hotel Project, (B) total units (if
such Property is an Apartment Project) or (C) total rooms (if such Property is a
Hotel Project); and
(b) with respect to a Pool Investment Mortgage, that (in addition to
satisfaction of the preceding clause (a), as it relates to the property subject
to such Pool Investment Mortgage), (i) the obligation secured thereby is not in
default, (ii) the obligor thereunder is not the subject of any proceeding under
the United States Bankruptcy Code, and (iii) the Pool Investment Exclusion Date
has not occurred.
"Unencumbered Pool Value" means, at any time, an amount equal to the
sum of (a) an amount equal to (i) the aggregate Net Operating Income of the
Unencumbered Pool Properties (other than Pool Investment Mortgages and
Unencumbered Pool Properties not owned by Borrower for the entire Fiscal Quarter
then most recently ended) for the most recently ended Fiscal Quarter, times (ii)
four (4), divided by (iii) 0.10; and (b) with respect to each Pool Investment
Mortgage, an amount equal to the lesser of the book value thereof or an amount
equal to ninety percent (90%) of (i) net operating income (less Capital
Expenditures) (determined on a basis consistent with the definition of "Net
Operating Income" in this Agreement) for the most recently ended Fiscal Quarter
attributable to the property subject thereto, times (ii) four (4), divided by
(iii) 0.10; and (c) for each Unencumbered Pool Property not owned by Borrower
for the entire Fiscal Quarter then most recently ended, the Acquisition Price
paid by Borrower for such Unencumbered Pool Property.
"Unencumbered Property" means (a) real property improved with one or
more completed office, industrial or retail buildings, hotels, or multifamily
apartment buildings, that is directly and wholly-owned by Borrower in fee
simple, or (b) a Pool Investment Mortgage that is directly and wholly-owned by
Borrower; provided in each case that such real property or Pool Investment
Mortgage is not subject to any Lien (other than Permitted Liens) or to any
agreement (other than this Agreement or any other Loan Document) that prohibits
the creation of any Lien thereon as security for Indebtedness of the Person
owning such real property or Pool Investment Mortgage; and provided further,
with respect to a particular such Property, the Individual Occupancy Rate of
such Property is at all times at least fifty percent (50%).
"Unmatured Event of Default" means an event which, with the giving of
notice or the lapse of time, or both, would constitute an Event of Default.
"Unsecured Interest Expense" means, for any period, (i) total Interest
Expense for such period, less (ii) Interest Expense attributable to any Secured
Borrower Debt for such period.
"Unsecured Liabilities" means, at any time, (i) Total Liabilities,
less (ii) Secured Borrower Debt.
"Unused Facility Fee" has the meaning given to such term in Section
2.5(a).
"Weighted Average Leverage Ratio" means, with respect to any Fiscal
Quarter, the average daily ratio of Total Liabilities to Gross Asset Value.
1.2 Computation of Time Periods. In this Agreement, in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to and
including". Periods of days referred to in this Agreement shall be counted in
calendar days unless Business Days are expressly prescribed.
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1.3 Terms.
(a) Any accounting terms used in this Agreement which are not
specifically defined shall have the meanings customarily given them in
accordance with GAAP.
(b) Any time the phrase "to the best of Borrower's knowledge" or a
phrase similar thereto is used herein, it means: "to the actual knowledge of the
then executive or senior officers of Borrower and the REIT, after reasonable
inquiry of those agents, employees or contractors of the REIT or Borrower who
could reasonably be anticipated to have knowledge with respect to the subject
matter or circumstances in question and after review of those documents or
instruments which could reasonably be anticipated to be relevant to the subject
matter or circumstances in question."
(c) In each case where the consent or approval of Agent, all Lenders
and/or Requisite Lenders is required, or their non-obligatory action is
requested by Borrower, such consent, approval or action shall be in the sole and
absolute discretion of Agent and, as applicable, each Lender, unless otherwise
specifically indicated.
(d) Any time the word "or" is used herein, unless the context
otherwise clearly requires, it has the inclusive meaning represented by the
phrase "and/or". The words "hereof", "herein", "hereby", "hereunder" and similar
terms refer to this Agreement as a whole and not to any particular provision of
this Agreement. Article, section, subsection, clause, exhibit and schedule
references are to this Agreement unless otherwise specified. Any reference in
this Agreement to this Agreement or to any other Loan Document includes any and
all amendments, modifications, supplements, renewals or restatements thereto or
thereof, as applicable.
(e) Any time the defined term "Borrower", or any other defined term
incorporating the defined term "Borrower" within its definition, is used in
Article IX, it has the inclusive meaning of "REIT, Borrower and any other
Affiliate of REIT or Borrower which is consolidated within REIT's Financial
Statements".
ARTICLE II
LOANS
2.1 Loan Advances and Repayment; Letters of Credit.
(a) Loan Availability.
(i) Subject to the terms and conditions set forth in this Agreement,
Lenders hereby agree to make Loans to Borrower from time to time during the
period from the Closing Date to the Business Day next preceding the Maturity
Date, in an aggregate outstanding principal amount (including outstanding Swing
Line Borrowings and the aggregate amount available to be drawn under outstanding
Letters of Credit) which shall not exceed Loan Availability at any time;
provided that if any Swing Line Borrowings are outstanding as of the date of any
such Loan, (A) such Loan shall be in an amount equal to at least the aggregate
outstanding principal of all outstanding Swing Line Borrowings, and (B) the
proceeds thereof shall be applied first to the payment of such outstanding Swing
Line Borrowings. Except as provided in Section 2.1(a)(ii) with respect to Swing
Line Borrowings, all Loans under this Agreement shall be made by Lenders
simultaneously and proportionately to their respective Pro Rata Shares, it being
understood that no Lender shall be responsible for any failure by any other
Lender to perform its obligation to make a Loan hereunder and that the
Commitment of any Lender shall not be increased or decreased as a result of the
failure by any other Lender to perform its obligation to make a Loan. Loans may
be voluntarily prepaid pursuant to Section 2.6(a) and, subject to the provisions
of this Agreement, any amounts so prepaid may be
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reborrowed under this Section 2.1(a)(i). The principal balance of the Loans
shall be payable in full on the Maturity Date. The Loans will be evidenced by
the Loan Notes.
(ii) (A) There is hereby established a sub-facility (the "Swing
Line"), in the amount of Twenty Million Dollars ($20,000,000), under and as a
part of the Facility. The Swing Line shall not for any purpose be an addition to
the Commitments or the Facility, but shall be a sub-feature thereunder. All
Loans requested to be made pursuant to the Swing Line shall be subject to the
same terms and conditions applicable to other Borrowings under the Facility, and
all outstanding Swing Line Borrowings shall likewise be subject to the same
terms and conditions applicable to other outstanding Borrowings under the
Facility, except as expressly provided in (1) the following Section
2.1(a)(ii)(B), (2) Section 2.1(b)(ii) with respect to the number of Borrowings
permitted in any calendar month, the time within which the Notice of Borrowing
for Swing Line Borrowings must be given, the minimum and incremental amounts
applicable to Swing Line Borrowings and the interest rate applicable thereto,
(3) Section 2.6(a)(i) with respect to prepayments of Swing Line Borrowings, and
(4) Section 11.3(c).
(B) The Swing Line Lender hereby agrees to make advances to Borrower
from time to time during the period from the Closing Date to the Business Day
next preceding the Maturity Date, in an aggregate principal amount not exceeding
at any one time the lesser of (1) (i) the Loan Availability, less (ii) the
outstanding principal of all Loans other than Swing Line Borrowings, and (2)
Twenty Million Dollars ($20,000,000). The Swing Line Lender's obligation to fund
Swing Line Borrowings shall be unaffected by its making of any other Loans,
notwithstanding that the sum of the Swing Line Borrowings plus the Swing Line
Lender's Pro Rata Share of the aggregate principal amount of the outstanding
Loans other than Swing Line Borrowings may exceed the Swing Line Lender's
Commitment.
(iii) If at any time the outstanding principal balance of the Loans
exceeds the Loan Availability, as a result of a reduction in the Unencumbered
Pool Value, the failure of any Property previously constituting an Unencumbered
Pool Property to continue to qualify as such, the incurrence of additional
Unsecured Liabilities or for any other reason whatsoever, Borrower shall, not
later than thirty (30) days following such occurrence, (A) reduce the Unsecured
Liabilities in such amounts and/or (B) identify to Agent such additional
Unencumbered Pool Property(-ies) as Agent may approve and Requisite Lenders may
accept under Section 3.1 as are necessary so that the outstanding principal
balance of the Loans does not exceed the Loan Availability. Failure by Borrower
to have complied with the foregoing in a timely manner shall constitute an Event
of Default without further notice or grace period hereunder. No further
Borrowings, or Termination of Designation with respect to any Unencumbered Pool
Property, shall be permitted so long as such excess borrowing condition shall
continue to exist. Nothing in this subparagraph (iii) shall excuse Borrower's
compliance with all terms, conditions, covenants and other obligations imposed
upon it under the Loan Documents during the period of such excess borrowing, nor
in any manner condition or impair Agent's or Lenders' rights thereunder in
respect of any such breach thereof by Borrower.
(b) Notice of Borrowing.
(i) Whenever Borrower desires to borrow under this Section 2.1, but in
no event more than three (3) times during any one (1) calendar month, Borrower
shall give Agent, at Wells Fargo Real Estate Group Disbursement Center, 2120
East Park Place, Suite 100, El Segundo, California 90245, with a copy to: Wells
Fargo Bank, Real Estate Capital Markets, 555 Montgomery Street, Seventeenth
Floor, San Francisco, California 94111, Attention: Lezlie Beam, or such other
address(es) as Agent shall designate, an original or facsimile Notice of
Borrowing no later than 9:00 A.M. (San Francisco time), not less than three (3)
nor more than five (5) Business Days prior to the proposed Funding Date of each
Loan. Each Notice of Borrowing shall specify (A) the Funding Date (which shall
be a Business Day) in respect of the Loan, (B) the amount of the proposed Loan,
provided that the aggregate amount of such proposed Loan shall not be less than
One Million Dollars ($1,000,000), (C) whether the Loan to be made thereunder
will
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be a Base Rate Loan or a LIBOR Loan and, if a LIBOR Loan, the Interest Period,
(D) to which account of Borrower the funds are to be directed, and (E) the
proposed use of such Loan. Any Notice of Borrowing pursuant to this Section
2.1(b) shall be irrevocable.
(ii) Notwithstanding the foregoing or any other provision hereof to
the contrary: in addition to the number of Loans permissible monthly under the
general Facility pursuant to Section 2.1(b)(i), Borrower shall be permitted to
borrow under the Swing Line up to two (2) times during any calendar month,
provided that (A) the Notice of Borrowing with respect to any Swing Line
Borrowing shall be given by Borrower to Agent no later than 9:00 a.m. (San
Francisco time) on the proposed Funding Date of such Swing Line Borrowing and
shall designate such Borrowing as a Base Rate Loan; and (B) each requested
Borrowing under the Swing Line shall equal Five Hundred Thousand Dollars
($500,000) or an integral multiple of Ten Thousand Dollars ($10,000) in excess
thereof. The obligation of the Agent (as the Swing Line Lender) to fund Swing
Line Borrowings in accordance with Section 2.1.4 shall not be subject to Section
11.3: the other Lenders have no obligation under Section 11.3(a) to fund their
Pro Rata Share of any Swing Line Borrowing, and the Agent alone (as the Swing
Line Lender) shall fund all Swing Line Borrowings. Except as provided in Section
2.1(a)(ii), in the preceding sentences of this Section 2.1(b)(ii), in Section
2.6.1(a) or in Section 11.3, all other provisions of this Agreement shall apply
to any such Swing Line Borrowing.
(iii) Borrower may elect (A) to convert LIBOR Loans or any portion
thereof into Base Rate Loans, (B) to convert Base Rate Loans or any portion
thereof to LIBOR Loans, or (C) to continue any LIBOR Loans or any portion
thereof for an additional Interest Period, provided, however, that the aggregate
amount of the Loans being converted into or continued as LIBOR Loans shall, in
the aggregate, equal at least One Million Dollars ($1,000,000). The applicable
Interest Period for the continuation of any LIBOR Loan shall commence on the day
on which the next preceding Interest Period expires. The conversion of a LIBOR
Loan to a Base Rate Loan shall only occur on the last Business Day of the
Interest Period relating to such LIBOR Loan; such conversion shall occur
automatically in the absence of an election under Clause (C) above. Each
election under Clause (B) or Clause (C) above shall be made by Borrower giving
Agent an original or facsimile Notice of Borrowing no later than 9:00 A.M. (San
Francisco time), not less than three (3) nor more than five (5) Business Days
prior to the date of a conversion to or continuation of a LIBOR Loan,
specifying, in each case (1) the amount of the conversion or continuation, (2)
the Interest Period therefor, and (3) the date of the conversion or continuation
(which date shall be a Business Day).
(iv) Upon receipt of a Notice of Borrowing in proper form requesting
LIBOR Loans under subparagraph (i) or (iii) above, Agent shall determine the
LIBOR applicable to the Interest Period for such LIBOR Loans, and shall, two (2)
Business Days prior to the beginning of such Interest Period, give (by
facsimile) a Fixed Rate Notice in respect thereof to Borrower and Lenders;
provided, however, that failure to give such notice to Borrower shall not affect
the validity of such rate. Each determination by Agent of the LIBOR shall be
conclusive and binding upon the parties hereto in the absence of manifest error.
(c) Making of Loans. Subject to Section 11.3 or as otherwise provided
herein, Agent shall disburse the proceeds of Loans, on the applicable Funding
Date, by wire transfer to such account as may be specified in Borrower's Notice
of Borrowing. All Loans made hereunder shall bear interest from the Funding Date
thereof.
(d) Term. The outstanding balance of the Loans shall be payable in full on
the earliest to occur of (i) the third anniversary of the Closing Date, (ii) the
acceleration of the Loans pursuant to Section 10.2(a), or (iii) Borrower's
written notice to Agent (pursuant to Section 2.6(a)) of Borrower's election to
prepay all accrued Obligations and terminate all Commitments (said earliest date
referred to herein as the "Maturity Date"); provided, however, that Borrower
shall have the right to request an extension of the date referred to in clause
(i) above for two (2) years, as follows: (A) Borrower shall give Agent written
notice of Borrower's request for an extension of the Maturity Date (a copy of
which notice shall be sent promptly
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by Agent to each other Lender) not earlier than one hundred fifty (150 days),
nor later than ninety (90) days, prior to the second anniversary of the Closing
Date, and (B) Borrower's request for an extension must be unanimously approved
by all Lenders in their sole discretion. Agent shall notify Borrower in writing,
not later than the second anniversary of the Closing Date, as to whether or not
such request for extension has been approved by Lenders; any failure of Agent to
deliver such notice, however, shall be deemed a denial of Borrower's request. In
addition to such other conditions as may be imposed on any approval of the
requested extension, any such approval shall be conditioned upon there existing
no Unmatured Event of Default or Event of Default on the second anniversary of
the Closing Date, and on Borrower's payment to the Agent (for the benefit of all
Lenders, subject to Section 11.4(b)) in the manner provided in Section 2.6(b),
no later than the third anniversary of the Closing Date, a non-refundable
extension fee (the "Extension Fee") in an amount equal to one-eighth of one
percent (0.125%) of the amount of the Facility.
(e) Letters of Credit.
(i) In addition to such Letters of Credit as may be outstanding as of
the Closing Date (each of which shall be deemed to have been issued under this
Agreement), subject to the terms and conditions set forth in this Agreement, at
any time and from time to time through the day that is ninety (90) days prior to
the Maturity Date, Agent shall cause Wells Fargo to issue such Letters of Credit
for the account of Borrower as Borrower may request; provided that (A) upon
issuance of any such Letter of Credit, the sum of the aggregate outstanding
principal amount of all Loans plus the aggregate amount available to be drawn
under all outstanding Letters of Credit shall not exceed Loan Availability; (B)
the aggregate face amount of all outstanding Letters of Credit shall not exceed
Ten Million Dollars ($10,000,000); and (C) unless all Lenders otherwise consent
in writing, the term of any Letter of Credit (including any automatic extension
or renewal clause) shall not extend beyond the date thirty (30) days preceding
the Maturity Date. All references herein to "the outstanding principal balance
of the Loans" or similar references shall be deemed to include, for all
purposes, the aggregate undrawn face amount of all outstanding Letters of
Credit; and, unless the context otherwise requires, each reference herein to
"Loan" or "Borrowing" shall include the issuance of a Letter of Credit, the
payment of any draw thereunder by Wells Fargo and/or advances by Lenders to
reimburse Wells Fargo, as appropriate.
(ii) Borrower shall deliver to Agent and Wells Fargo a duly executed
request for a Letter of Credit not later than 9:00 A.M. (San Francisco time), at
least five (5) Business Days prior to the date upon which the requested Letter
of Credit is to be issued. Borrower shall further execute and/or deliver to
Agent and Wells Fargo such additional instruments and documents as Agent and/or
Wells Fargo may require, in conformity with the then standard practices of Wells
Fargo's letter of credit department, in connection with the issuance of such
Letter of Credit (collectively, the "Letter of Credit Documents").
(iii) Agent shall, if it approves of the content of the request for a
Letter of Credit, and subject to the conditions set forth in Section 4.2, cause
the issuance of the Letter of Credit on or before 5:00 P.M. (San Francisco
time), on or before the day five (5) Business Days following receipt of the
documents last due pursuant to subsection (ii) above. Upon issuance of a Letter
of Credit, Agent shall promptly provide a copy thereof to each Lender and shall
notify Lenders promptly of all payments, reimbursements, expirations,
negotiations, transfers and other activity with respect to outstanding Letters
of Credit.
(iv) Upon the issuance of a Letter of Credit, each Lender shall be
deemed to have purchased a pro rata issuer participation therein from Wells
Fargo in an amount equal to such Lender's Pro Rata Share of the face amount of
the Letter of Credit.
(v) If and to the extent that any amounts are drawn under any Letter
of Credit, the amount so drawn shall be considered a Loan for all purposes
hereunder as of the date of such draw. Promptly after payment by Wells Fargo of
any amount drawn under a Letter of Credit, Agent shall, without
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notice to or the consent of Borrower, direct Lenders to advance to Agent their
Pro Rata Share of the amount so drawn, whether or not there then exists an
Unmatured Event of Default or Event of Default, and whether or not any other
condition precedent to the making of such Loan under Section 4.2 shall be
satisfied. The proceeds of such advances shall be applied by Agent to reimburse
Wells Fargo for the payment made by it under the Letter of Credit. Such Loan by
Lenders pursuant to this Section 2.1(e)(v) shall be deemed to be a Base Rate
Loan.
(vi) Upon the occurrence of the Maturity Date prior to the expiration
of all Letters of Credit, Borrower shall immediately provide to Agent a standby
letter of credit issued by a bank satisfactory to Agent, in form and substance
satisfactory to Agent, in favor of Agent in a face amount equal to the aggregate
amount remaining available to be drawn under all Letters of Credit outstanding
on that date, or shall immediately make other provisions satisfactory to Agent
for the full collateralization, by cash or cash equivalent, of all such
outstanding Letters of Credit. Upon the failure of Borrower to comply with the
foregoing requirements, that portion of the face amount of all outstanding
Letters of Credit as to which Borrower has failed to comply shall be deemed to
be immediately due and payable.
(vii) The issuance of any supplement, modification, amendment, renewal
or extension to or of any Letter of Credit shall be treated in all respects the
same as the issuance of a new Letter of Credit. (viii) Borrower assumes all
risks as to the acts or omissions of any beneficiary or transferee of any Letter
of Credit with respect to its use of such Letter of Credit. Neither Wells Fargo,
Agent, any Lender nor any of their respective officers or directors shall be
liable or responsible for, nor shall Borrower's obligations hereunder in respect
of any Letter of Credit be impaired as a result of:
(A) any lack of validity or enforceability of any Letter of
Credit or any Letter of Credit Documents;
(B) the use that may be made of any Letter of Credit or any acts
or omissions of any beneficiary or transferee in connection therewith;
(C) any statement or any other document presented under a Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(D) the existence of any claim, set-off, defense or other right
that Borrower may have at any time against any beneficiary or any transferee of
a Letter of Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), Wells Fargo or any other Person, whether in
connection with the transactions contemplated by the Letter of Credit Documents
or any unrelated transaction;
(E) payment by Wells Fargo against presentation of documents that
do not comply with the terms of a Letter of Credit, including failure of any
documents to bear any reference or adequate reference to the Letter of Credit;
or
(F) any other circumstance whatsoever in making or failing to
make payment under any Letter of Credit.
In furtherance and not in limitation of the foregoing, Wells Fargo may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
2.2 Authorization to Obtain Loans. Borrower shall provide Agent with
documentation satisfactory to Agent indicating the names of those employees of
Borrower authorized by Borrower to sign Notices of Borrowing
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or requests for Letters of Credit, and Agent and Lenders shall be entitled to
rely on such documentation until notified in writing by Borrower of any
change(s) of the persons so authorized. Agent shall be entitled to act on the
instructions of anyone identifying himself or herself as one of the Persons
authorized to execute a Notice of Borrowing or a request for a Letter of Credit,
and Borrower shall be bound thereby in the same manner as if such Person were
actually so authorized. Borrower agrees to indemnify, defend and hold Lenders
and Agent harmless from and against any and all Liabilities and Costs which may
arise or be created by the acceptance of instructions in any Notice of Borrowing
or request for a Letter of Credit, unless caused by the gross negligence or
willful misconduct of the Person to be indemnified.
2.3 Lenders' Accounting. Agent shall maintain a loan account (the
"Loan Account") on its books in which shall be recorded (a) the names and
addresses and the Commitments of Lenders, and principal amount of Loans owing to
each Lender from time to time, and (b) all advances and repayments of principal
and payments of accrued interest under the Loans, as well as payments of the
Unused Facility Fee, as provided in this Agreement, separately identifying Loans
and prepayments under the Swing Line. All entries in the Loan Account shall be
made in accordance with Agent's customary accounting practices as in effect from
time to time. Monthly or at such other interval as is customary with Agent's
practice, Agent will render a statement of the Loan Account to Borrower and will
deliver a copy thereof to each Lender. Each such statement shall be deemed
final, binding and conclusive upon Borrower in all respects as to all matters
reflected therein (absent manifest error), unless Borrower, within thirty (30)
days after the date such statement is mailed or otherwise delivered to Borrower,
delivers to Agent written notice of any objections which Borrower may have to
any such statement, or within ten (10) days after discovery by Borrower of an
error with respect to which Borrower had no knowledge and which could not have
been determined after reasonable inquiry during said 30-day period. In that
event, only those items expressly objected to in such notice shall be deemed to
be disputed by Borrower. In the event that any such objection cannot be settled
by Agent and Borrower within thirty (30) days after Agent receives notice
thereof from Borrower, Agent shall notify all Lenders of such objection.
Notwithstanding the foregoing, Agent's entries in the Loan Account evidencing
Loans and other financial accommodations made from time to time shall be final,
binding and conclusive upon Borrower (absent manifest error) as to the existence
and amount of the Obligations recorded in the Loan Account.
2.4 Interest on the Loans.
(a) Base Rate Loans. Subject to Section 2.4(d), all Base Rate
Loans shall bear interest on the daily unpaid principal amount thereof from the
date made until paid in full at a fluctuating rate per annum equal to the Base
Rate. Except as to Letters of Credit, Base Rate Loans shall be made in minimum
amounts of One Million Dollars ($1,000,000).
(b) LIBOR Loans. Subject to Sections 2.4(d) and 2.4(h), all LIBOR
Loans shall bear interest on the unpaid principal amount thereof during the
Interest Period applicable thereto at a rate per annum equal to the sum of LIBOR
for such Interest Period plus the Applicable LIBO Rate Margin. LIBOR Loans shall
be in tranches of at least One Million Dollars ($1,000,000). No more than four
(4) LIBOR Loan tranches shall be outstanding at any one time. Notwithstanding
anything to the contrary contained herein and subject to the Default Interest
provisions contained in Section 2.4(d), if an Event of Default occurs and as a
result thereof the Commitments are terminated, all LIBOR Loans will convert to
Base Rate Loans upon the expiration of the applicable Interest Periods therefor
or the date all Loans become due, whichever occurs first.
(c) Interest Payments. Subject to Section 2.4(d), interest
accrued on all Loans shall be payable by Borrower, in the manner provided in
Section 2.6(b), in arrears on the first Business Day of the first calendar month
following the Closing Date, the first Business Day of each succeeding calendar
month thereafter, and on the Maturity Date.
(d) Default Interest. Notwithstanding the rates of interest
specified in Sections 2.4(a) and 2.4(b) and the payment dates specified in
Section 2.4(c), effective immediately upon the occurrence and during the
continuance of any Event of Default, the principal balance of all Loans then
outstanding and, to
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the extent permitted by applicable law, any interest payments on the Loans not
paid when due, shall bear interest payable upon demand at a rate which is five
percent (5%) per annum in excess of the rate(s) of interest otherwise payable
from time to time under this Agreement. All other amounts due Agent or Lenders
(whether directly or for reimbursement) under this Agreement or any of the other
Loan Documents if not paid when due, or if no time period is expressed, if not
paid within ten (10) days after demand, shall bear interest from and after
demand at the rate set forth in this Section 2.4(d).
(e) Late Fee. Borrower acknowledges that late payment to Agent
will cause Agent and Lenders to incur costs not contemplated by this Agreement.
Such costs include, without limitation, processing and accounting charges.
Therefore, if Borrower fails timely to pay any sum due and payable hereunder
through the Maturity Date (other than payment of the entire outstanding balance
of the Loans on the Maturity Date), unless waived by Agent or Requisite Lenders
pursuant to Section 11.11(a), a late charge of four cents ($.04) for each dollar
of any such principal payment, interest or other charge due hereon and which is
not paid within fifteen (15) days after such payment is due, shall be charged by
Agent (for the benefit of Lenders) and paid by Borrower for the purpose of
defraying the expense incident to handling such delinquent payment. Borrower and
Agent agree that this late charge represents a reasonable sum considering all of
the circumstances existing on the date hereof and represents a fair and
reasonable estimate of the costs that Agent and Lenders will incur by reason of
late payment. Borrower and Agent further agree that proof of actual damages
would be costly and inconvenient. Acceptance of any late charge shall not
constitute a waiver of the default with respect to the overdue installment, and
shall not prevent Agent from exercising any of the other rights available
hereunder or any other Loan Document. Such late charge shall be paid without
prejudice to any other rights of Agent.
(f) Computation of Interest. Interest shall be computed on the
basis of the actual number of days elapsed in the period during which interest
or fees accrue and a year of three hundred sixty (360) days. In computing
interest on any Loan, the date of the making of the Loan shall be included and
the date of payment shall be excluded; provided, however, that if a Loan is
repaid on the same day on which it is made, one (1) day's interest shall be paid
on that Loan. Notwithstanding any provision in this Section 2.4, interest in
respect of any Loan shall not exceed the maximum rate permitted by applicable
law.
(g) Changes; Legal Restrictions. In the event that after the
Closing Date (i) the adoption of or any change in any law, treaty, rule,
regulation, guideline or determination of a court or Governmental Authority or
any change in the interpretation or application thereof by a court or
Governmental Authority, or (ii) compliance by Agent or any Lender with any
request or directive made or issued after the Closing Date (whether or not
having the force of law and whether or not the failure to comply therewith would
be unlawful) from any central bank or other Governmental Authority or
quasi-governmental authority:
(A) subjects Agent or any Lender to any tax, duty or other
charge of any kind with respect to the Facility, this Agreement or any of the
other Loan Documents, or the Loans or changes the basis of taxation of payments
to Agent or such Lender of principal, fees, interest or any other amount payable
hereunder, except for net income, gross receipts, gross profits or franchise
taxes imposed by any jurisdiction and not specifically based upon loan
transactions (all such non-excepted taxes, duties and other charges being
hereinafter referred to as "Lender Taxes");
(B) imposes, modifies or holds applicable, in the
determination of Agent or any Lender, any reserve, special deposit, compulsory
loan, FDIC insurance, capital allocation or similar requirement against assets
held by, or deposits or other liabilities in or for the account of, advances or
loans by, or other credit extended by, or any other acquisition of funds by,
Agent or such Lender or any applicable lending office (except to the extent that
the reserve and FDIC insurance requirements are reflected in the "Base Rate" or
in determining LIBOR); or
(C) imposes on Agent or any Lender any other condition
materially more burdensome in nature, extent or consequence than those in
existence as of the Closing Date,
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and the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing, maintaining or participating in the Loans or the
Letters of Credit or to reduce any amount receivable thereunder; then, in any
such case, Borrower shall promptly pay to Agent or such Lender, as applicable,
upon demand, such amount or amounts (based upon a reasonable allocation thereof
by Agent or such Lender to the financing transactions contemplated by this
Agreement and affected by this Section 2.4(g)) as may be necessary to compensate
Agent or such Lender for any such additional cost incurred or reduced amounts
received; provided, however, that (i) neither Agent nor any Lender may claim
under this Section 2.4(g) any such additional amount attributable to any period
preceding the date that is ninety (90) days prior to the date of its demand,
(ii) before making any such demand, Agent, and each Lender, agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different lending office as its lending office for
purposes of the Loans and its Commitment, if (1) the making of such a
designation would avoid the need for, or reduce the amount of, such demand and
(2) would not, in the reasonable judgment of Agent or such Lender, as the case
may be, be otherwise disadvantageous to it, and (iii) if the payment of such
compensation may not be legally made (whether by modification of the applicable
interest rate or otherwise), then Lenders shall have no further obligation to
make Loans that cause Agent or any Lender to incur such increased cost, and all
affected Loans shall become immediately due and payable by Borrower. Agent or
such Lender shall deliver to Borrower and in the case of a delivery by Lender,
such Lender shall also deliver to Agent, a written statement of the claimed
additional costs incurred or reduced amounts received and the basis therefor as
soon as reasonably practicable after such Lender obtains knowledge thereof. If
Agent or any Lender subsequently recovers any amount of Lender Taxes previously
paid by Borrower pursuant to this Section 2.4(g), whether before or after
termination of this Agreement, then, upon receipt of good funds with respect to
such recovery, Agent or such Lender will refund such amount to Borrower if no
Event of Default or Unmatured Event of Default then exists or, if an Event of
Default or Unmatured Event of Default then exists, such amount will be credited
to the Obligations in the manner determined by Agent or such Lender.
(h) Certain Provisions Regarding LIBOR Loans.
(i) LIBOR Lending Unlawful. If any Lender shall determine
(which determination shall, upon notice thereof to Borrower and Agent, be
conclusive and binding on the parties hereto) that the introduction of or any
change in or in the interpretation of any law makes it unlawful, or any central
bank or other Governmental Authority asserts that it is unlawful, for such
Lender to make or maintain any Loan as a LIBOR Loan, (A) the obligations of such
Lenders to make or maintain any Loans as LIBOR Loans shall, upon such
determination, forthwith be suspended until such Lender shall notify Agent that
the circumstances causing such suspension no longer exist, and (B) if required
by such law or assertion, the LIBOR Loans of such Lender shall automatically
convert into Base Rate Loans.
(ii) Deposits Unavailable. If Agent shall have determined in
good faith that adequate means do not exist for ascertaining the interest rate
applicable hereunder to LIBOR Loans, then, upon notice from Agent to Borrower,
the obligations of all Lenders to make or maintain Loans as LIBOR Loans shall
forthwith be suspended until Agent shall notify Borrower that the circumstances
causing such suspension no longer exist. Agent will give such notice when it
determines, in good faith, that such circumstances no longer exist; provided,
however, that Agent shall not have any liability to any Person with respect to
any delay in giving such notice.
Fixed Rate Price Adjustment. Borrower acknowledges that prepayment or
acceleration of a LIBOR Loan during an Interest Period will result in Lenders
incurring additional costs, expenses and/or liabilities and that it is extremely
difficult and impractical to ascertain the extent of such costs, expenses and/or
liabilities. (For all purposes of this subparagraph (iii), any Loan not being
made as a LIBOR Loan in accordance with the Notice of Borrowing therefor, as a
result of Borrower's cancellation thereof or failure to satisfy the conditions
precedent thereto, shall be treated as if such LIBOR Loan had been prepaid.)
Therefore, on the date a LIBOR Loan is prepaid or the date all sums payable
hereunder become due and payable, by acceleration or otherwise ("Price
Adjustment Date"), Borrower will pay to Agent, for the account of each Lender,
(in addition to all other sums then owing), an amount ("Fixed Rate Price
Adjustment") equal to the
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then present value of (A) the amount of interest that would have accrued on the
LIBOR Loan for the remainder of the Interest Period at the rate applicable to
such LIBOR Loan, less (B) the amount of interest that would accrue on the same
LIBOR Loan for the same period if LIBOR were set on the Price Adjustment Date.
The present value shall be calculated by using as a discount rate LIBOR quoted
on the Price Adjustment Date. Upon the written notice to Borrower from Agent,
Borrower shall immediately pay to Agent, for the account of Lenders, the Fixed
Rate Price Adjustment as calculated by Agent. Such written notice (which shall
include calculations in reasonable detail) shall, in the absence of manifest
error, be conclusive and binding on the parties hereto.
(iii) Borrower understands, agrees and acknowledges the
following: (A) no Lender has any obligation to purchase, sell and/or match funds
in connection with the use of LIBOR as a basis for calculating the rate of
interest on a LIBOR Loan or a Fixed Rate Price Adjustment; (B) LIBOR is used
merely as a reference in determining such rate and/or Fixed Rate Price
Adjustment; and (C) Borrower has accepted LIBOR as a reasonable and fair basis
for calculating such rate and a Fixed Rate Price Adjustment. Borrower further
agrees to pay the Fixed Rate Price Adjustment and Lender Taxes, if any, whether
or not a Lender elects to purchase, sell and/or match funds.
(i) Withholding Tax Exemption. At least five (5) Business Days
prior to the first day on which interest or fees are payable hereunder for the
account of any Lender, each Lender that is not incorporated under the laws of
the United States of America, or a state thereof, agrees that it will deliver to
Agent and Borrower two (2) duly completed copies of United States Internal
Revenue Service Form 1001 or Form 4224, certifying in either case that such
Lender is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes. Each Lender which so
delivers a Form 1001 or Form 4224 further undertakes to deliver to Agent and
Borrower two (2) additional copies of such form (or any applicable successor
form) on or before the date that such form expires (currently, three (3)
successive calendar years for Form 1001 and one (1) calendar year for Form 4224)
or becomes obsolete or after the occurrence of any event requiring a change in
the most recent forms so delivered by it, and such amendments thereto or
extensions or renewals thereof as may be reasonably requested by Agent or
Borrower, in each case certifying that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender advises Agent that
it is not capable of receiving payments without any deduction or withholding of
United States federal income taxes. If any Lender cannot deliver such form, then
Borrower may withhold from such payments such amounts as are required by the
Internal Revenue Code.
2.5 Fees.
(a) Unused Facility Fee. From and after the Closing Date and until the
Obligations are paid in full and this Agreement is terminated or, if sooner, the
date the Commitments terminate, and subject to Section 11.4(b), Borrower shall
pay to Agent, for the account of each Lender, a fee (the "Unused Facility Fee")
accruing at the rate of fifteen hundredths of one percent (0.15%) per annum upon
an amount equal to (i) the amount of the Facility minus (ii) the average daily
principal balance of all Loans (including, without limitation, the aggregate
undrawn face amount of all outstanding Letters of Credit), as determined for
each Fiscal Quarter. The Unused Facility Fee shall be payable, in the manner
provided in Section 2.6(b), in arrears on the first Business Day in each Fiscal
Quarter, beginning with the first Fiscal Quarter after the Closing Date, and
ending on the date of payment in full of all Obligations to Lenders or all
Obligations to a Lender pursuant to Section 2.1(d) or, if sooner, the date the
Commitments terminate (but in no event later than the conversion of the Facility
to the Term Loan in accordance with subparagraph 2.1(d) above), with the Unused
Facility Fee to be prorated to the date of such final payment.
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(b) Agency Fees. Borrower shall pay Agent such fees as are provided
for in the agency fee agreement between Agent and Borrower, as in existence from
time to time.
(c) Letter of Credit Fees. As additional consideration for the
issuance of Letters of Credit pursuant to Section 2.1(e), Borrower agrees to pay
to Agent, for the account of each Lender, a Letter of Credit fee equal to one
and three-tenths percent (1.3%) per annum of the face amount of the Letters of
Credit (but in no event less than $2,500 in respect of any Letter of Credit),
payable upon issuance. In addition, Borrower shall pay directly to Wells Fargo,
for Wells Fargo's sole account, all processing, administrative, transfer,
amendment and similar fees normally charged by Wells Fargo in connection with
the issuance of standby letters of credit.
(d) Payment of Fees. The fees described in Sections 2.1(d) and 4.1(j)
and in this Section 2.5 represent compensation for services rendered and to be
rendered separate and apart from the lending of money or the provision of credit
and do not constitute compensation for the use, detention or forbearance of
money, and the obligation of Borrower to pay the fees described herein shall be
in addition to, and not in lieu of, the obligation of Borrower to pay interest,
other fees and expenses otherwise described in this Agreement. All fees shall be
payable when due in immediately available funds and shall be non-refundable when
paid. If Borrower fails to make any payment of fees or expenses specified or
referred to in this Agreement due to Agent or Lenders, including without
limitation those referred to in this Section 2.5, in Section 12.1, or otherwise
under this Agreement or any separate fee agreement between Borrower and Agent or
any Lender relating to this Agreement, when due, the amount due shall bear
interest until paid at the Base Rate and, after ten (10) days, at the rate
specified in Section 2.4(d) (but not to exceed the maximum rate permitted by
applicable law), and shall constitute part of the Obligations. The Unused
Facility Fee and all Letter of Credit fees shall be calculated on the basis of
the actual number of days elapsed in a three hundred sixty (360) day year.
2.6 Payments.
(a) Voluntary Prepayments. Borrower may, upon not less than three (3)
Business Days prior written notice to Agent not later than 11:00 a.m. (San
Francisco time) on the date given, at any time and from time to time, prepay any
Loans in whole or in part; provided that, notwithstanding the foregoing,
Borrower may, upon not less than one (1) Business Day's prior written notice to
Agent not later than 11:00 a.m. (San Francisco time) on the date given, at any
time and from time to time, prepay Swing Line Borrowings in whole or in part.
If, at the time of prepayment of the Loans, there are outstanding any Swing Line
Borrowings, such prepayment shall be applied first to the prepayment of
outstanding Swing Line Borrowings, and second to the prepayment of other Loans.
Any notice of prepayment given to Agent under this Section 2.6(a) shall specify
the date of prepayment and the aggregate principal amount of the prepayment. In
the event of a prepayment of LIBOR Loans, Borrower shall concurrently pay any
Fixed Rate Price Adjustment payable in respect thereof. Agent shall provide to
each Lender a confirming copy of such notice on the same Business Day such
notice is received.
(b) Manner and Time of Payment. All payments of principal, interest
and fees hereunder payable to Agent or the Lenders shall be made without
condition or reservation of right and free of set-off or counterclaim, in
Dollars and by wire transfer (pursuant to Agent's written wire transfer
instructions) of immediately available funds, to Agent, for the account of each
Lender, not later than 11:00 A.M. (San Francisco time) on the date due; and
funds received by Agent after that time and date shall be deemed to have been
paid on the next succeeding Business Day.
(c) Payments on Non-Business Days. Whenever any payment to be made by
Borrower hereunder shall be stated to be due on a day which is not a Business
Day, payments shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder and of any of the fees specified in Section 2.5, as the case
may be.
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2.7 Increased Capital. If either (a) the introduction of or any change
in or in the interpretation of any law or regulation or (b) compliance by Agent
or any Lender with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law and whether or
not the failure to comply therewith would be unlawful) made or issued after the
Closing Date affects or would affect the amount of capital required or expected
to be maintained by Agent or such Lender or any corporation controlling Agent or
such Lender, and Agent or such Lender determines that the amount of such capital
is increased by or based upon the existence of Agent's obligations hereunder or
such Lender's Commitment, then, upon demand by Agent or such Lender, Borrower
shall immediately pay to Agent or such Lender, from time to time as specified by
Agent or such Lender, additional amounts sufficient to compensate Agent or such
Lender in the light of such circumstances, to the extent that Agent or such
Lender determines such increase in capital to be allocable to the existence of
Agent's obligations hereunder or such Lender's Commitment; provided, however,
that (i) neither Agent nor any Lender may claim under this Section 2.7 any such
additional amount attributable to any period preceding the date that is ninety
(90) days prior to the date of its demand, and (ii) before making any such
demand, Agent, and each Lender, agrees to use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to designate a
different lending office as its lending office for purposes of the Loans and its
Commitment, if (1) the making of such a designation would avoid the need for, or
reduce the amount of, such demand and (2) would not, in the reasonable judgment
of Agent or such Lender, as the case may be, be otherwise disadvantageous to it.
A certificate as to such amounts submitted to Borrower by Agent or such Lender
shall, in the absence of manifest error, be conclusive and binding for all
purposes.
2.8 Notice of Increased Costs. Each Lender agrees that, as promptly as
reasonably practicable after it becomes aware of the occurrence of an event or
the existence of a condition which would cause it to be affected by any of the
events or conditions described in Section 2.4(g) or (h) or Section 2.7, it will
notify Borrower, and provide a copy of such notice to Agent, of such event and
the possible effects thereof, provided that the failure to provide such notice
shall not affect Lender's rights to reimbursement provided for herein.
ARTICLE III
UNENCUMBERED POOL PROPERTIES
3.1 Acceptance of Unencumbered Pool Properties. Subject to compliance
with the terms and conditions of Section 4.1, Lenders have accepted the
Properties listed on Schedule 1 as of the Closing Date as Unencumbered Pool
Properties. If Borrower desires that Lenders accept an additional Property as an
Unencumbered Pool Property, Borrower shall so notify Agent, and Agent shall
promptly notify each other Lender. No such additional Property will be evaluated
by Lenders as a potential Unencumbered Pool Property unless (x) the Individual
Occupancy Rate of such Property is at least fifty percent (50%); and (y) the
Aggregate Occupancy Rate of the portion of the Unencumbered Pool comprised of
Properties of the same Type as such Property (were such Property to be accepted
as an Unencumbered Pool Property), would not be less than (i) if such Property
is a Hotel Project, fifty-five percent (55%), or (ii) in any other case, eighty
five percent (85%); and (z) Borrower delivers to Agent the following:
(a) A current operating statement for such Property audited or
certified by Borrower as being true and correct in all material respects and
prepared in accordance with GAAP and comparative operating statements (in the
general form of the Quarterly Operating Reports) for the Fiscal Quarter then
most recently ended.
(b) A current rent roll for such Property (for the most recently
ended Fiscal Quarter), establishing compliance with the conditions set forth in
the preceding clauses (x) and (y) and certified by Borrower to be true and
correct.
(c) An operating budget for such Property for the current fiscal
year;
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(d) A copy of Borrower's most recent Owner's Policy of Title
Insurance (or, if not yet issued, commitment for the issuance thereof) and
survey of such Property (if any);
(e) A "Phase I" environmental assessment of such Property
prepared within twelve (12) months prior to its delivery to Agent, and any
additional environmental studies or assessments in Borrower's possession or
control that have been performed with respect to such Property;
(f) Copies of all Major UPP Leases affecting such Property;
(g) Information regarding the age and location of the Property,
including copies of any engineering, mechanical, structural or maintenance
studies performed with respect to such Property; and
(h) Such other information as may be reasonably requested by
Agent in order to evaluate the potential Unencumbered Pool Property.
Following receipt of the foregoing documents and information, Agent shall review
them as expeditiously as is reasonably practicable under the circumstances. If,
following such review, Agent is prepared to proceed with acceptance of such
Property as an Unencumbered Pool Property, Agent will promptly (i) so notify
Borrower, and (ii) submit the foregoing documents and information to the
Lenders, for approval by Requisite Lenders, which approval may be granted or
withheld by them in their sole discretion. Upon such approval by Requisite
Lenders, and upon execution and delivery of such items or documents as may be
appropriate under the circumstances, such Property shall become an Unencumbered
Pool Property.
3.2 Termination of Designation as Unencumbered Pool Property. From and
after the Pool Investment Mortgage Exclusion Date, the Pool Investment Mortgages
shall cease to constitute Unencumbered Pool Properties. In addition, from time
to time Borrower may request, upon not less than thirty (30) days' prior written
notice to Agent (which shall promptly send a copy thereof to each other Lender),
that an Unencumbered Pool Property cease to be designated as such, which
termination of designation ("Termination of Designation") shall be consented to
by Agent if all of the following conditions are satisfied as of the date of such
Termination of Designation (and after giving effect thereto):
(a) No Unmatured Event of Default or Event of Default has
occurred and is continuing; and
(b) Borrower shall have delivered to Agent an Unencumbered Pool
Certificate demonstrating on a pro forma basis, and Agent shall have determined,
that the outstanding principal balance of the Loans will not exceed the Loan
Availability after giving effect to such Termination of Designation and any
prepayment to be made and/or the acceptance of any Property as an additional or
replacement Unencumbered Pool Property to be given concurrently with such
Termination of Designation.
ARTICLE IV
CONDITIONS TO LOANS
4.1 Conditions to Initial Disbursement of Loans. The obligation of
Lenders to make the initial disbursement of the Loans shall be subject to
satisfaction of each of the following conditions precedent on or before the
Closing Date:
(a) Borrower Documents; Evidence of Loan Availability. Borrower
shall have executed and/or delivered (or caused to be delivered) to Agent each
of the following, in form and substance acceptable to Agent and each other
Lender:
(i) this Agreement;
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(ii) the Loan Notes;
(iii) a Funds Transfer Agreement, in Agent's standard form;
(iv) an Unencumbered Property Certificate and a Compliance
Certificate evidencing sufficient Loan Availability to support the Loans being
requested as of such date;
(v) Copy of Borrower's Limited Partnership Agreement, as
amended, certified by the Secretary or an Assistant Secretary of the REIT;
(vi) Certified copy of Borrower's Certificate of Limited
Partnership (Form LP-1) from the California Secretary of State, dated as of a
date no later than thirty (30) days prior to the Closing Date;
(vii) Certificate of Status - California Limited Partnership
from the California Secretary of State, dated as of a date no later than thirty
(30) days prior to the Closing Date; and
(viii) Partnership Borrowing Certificate, in substantially
Agent's standard form.
(b) REIT Documents. The REIT shall have executed and/or delivered
(or caused to be delivered) to Agent each of the following, in form and
substance acceptable to Agent and each other Lender:
(i) the Guaranty;
(ii) Articles of Incorporation, as amended, of the REIT, as
certified by the Secretary of State of Maryland as of a date no later than
thirty (30) days prior to the Closing Date;
(iii) By-laws of the REIT, as certified by the Secretary of
the REIT;
(iv) Good Standing Certificate for the REIT from the
Secretary of State of Maryland, dated as of a date no later than thirty (30)
days prior to the Closing Date;
(v) Certificate of Status of Foreign Corporation -
California Secretary of State with respect to the REIT, dated as of a date no
later than thirty (30) days prior to the Closing Date;
(A) Letter from the California Franchise Tax Board regarding
status of the REIT in California, dated as of a date no later than thirty (30)
days prior to the Closing Date;
(vi) Corporate resolutions of the REIT, as certified by the
Secretary of the REIT (re: authorization to engage in partnership activity,
including borrowing, and authorization to execute guaranty); and
(vii) Incumbency Certificate as to the officers of the REIT
signing Loan Documents on behalf of the REIT or Borrower.
(c) Notice of Borrowing. Borrower shall have delivered to Agent a
Notice of Borrowing and, if applicable, Agent shall have delivered to Borrower a
Fixed Rate Notice, in each case in compliance with Section 2.1(b).
(d) Performance. Borrower and the REIT shall have performed in
all material respects all agreements and covenants required by Agent to be
performed by them on or before the Closing Date.
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(e) Solvency. Each of the REIT and Borrower shall be Solvent and
shall have delivered to Agent a Solvency
Certificate to that effect.
(f) Material Adverse Changes. No change, as determined by Agent
and Lenders, shall have occurred, during the Interim Period, which has a
Material Adverse Effect on Borrower, any Unencumbered Pool Property, the REIT or
the operating performance of any Unencumbered Pool Property.
(g) Litigation Proceedings. There shall not have been instituted
or threatened, during the Interim Period, any litigation or proceeding in any
court or Governmental Authority affecting or threatening to affect Borrower, any
Unencumbered Pool Property or the REIT which has a Material Adverse Effect,
thereon as reasonably determined by Agent.
(h) Indefeasible Title. Borrower shall have good, indefeasible
and merchantable title to the Unencumbered Pool Properties, free and clear of
all Liens other than Permitted Liens.
(i) No Event of Default; Satisfaction of Financial Covenants. On
the Closing Date and after giving effect to the initial disbursements of the
Loans, no Event of Default or Unmatured Event of Default shall exist and all of
the covenants contained in Sections 8.4 and 8.5 and Article IX shall be
satisfied.
(j) Fees. Agent shall have received (i) an arrangement fee in the
amount separately agreed to between Agent and Borrower, and (ii) all other fees
then due under the agency fee letter described in Section 2.5(b), and Borrower
shall have performed all of its other obligations as set forth in the Loan
Documents to make payments to Agent on or before the Closing Date and all
expenses of Agent incurred prior to such Closing Date shall have been paid by
Borrower.
(k) Opinion of Counsel. Agent shall have received, on behalf of
Agent and Lenders, favorable opinions of counsel (which may, as to certain
matters, be rendered by in-house counsel) for Borrower and the REIT dated as of
the Closing Date, in form and substance satisfactory to Agent, Lenders and their
respective counsel.
(l) Consents and Approvals. All material licenses, permits,
consents, regulatory approvals and corporate action necessary to enter into the
financing transactions contemplated by this Agreement shall have been obtained
by Borrower and the REIT.
(m) Due Diligence. Agent and Lenders shall have completed such
due diligence investigations as Agent or any Lender deems necessary, and such
review and investigations shall provide Agent with results and information
which, in Agent's determination, are satisfactory to permit Agent to enter into
this Agreement and fund the Loans.
(n) Representations and Warranties. All representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all material respects.
(o) REIT Financial Statements. Agent shall have received audited
REIT Financial Statements, dated December 31, 1996 and unaudited REIT Financial
Statements, dated September 30, 1997 (together with the financial statements of
each of the Associated Companies).
(p) Termination of Secured Facility. Borrower shall have
terminated the Secured Facility, and shall have paid in full all amounts,
whether of principal, interest, fees or other charges, due thereunder.
4.2 Conditions Precedent to All Loans. The obligation of each Lender
to make any Loan requested to be made by it, on any date, is subject to
satisfaction of the following conditions precedent as of such date:
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(a) Documents. With respect to a request for a Loan, Agent shall
have received, on or before the Funding Date and in accordance with the
provisions of Section 2.1(b), an original and duly executed Notice of Borrowing,
and, if not previously delivered with respect to the account to which the
proceeds of such Loan are to be wire transferred, a certificate, in the form
required under the Funds Transfer Agreement referred to above, with respect to
such account.
(b) Additional Matters. As of the Funding Date for any Loan and
after giving effect to the Loans being requested:
(i) Representations and Warranties. All of the
representations and warranties contained in this Agreement and in any other Loan
Document (other than representations and warranties which expressly speak only
as of a different date and other than for changes permitted or contemplated by
this Agreement) shall be true and correct in all material respects on and as of
such Funding Date, as though made on and as of such date;
(ii) No Default. No Event of Default or Unmatured Event of
Default shall have occurred and be continuing or would result from the making of
the requested Loan, and all of the covenants contained in Sections 8.4 and 8.5
and Article IX shall be satisfied; and
(iii) No Material Adverse Change. No change shall have
occurred which shall have a Material Adverse Effect on Borrower or the REIT, as
determined by Agent.
Each submission by Borrower to Agent of a Notice of Borrowing with respect to a
Loan and the acceptance by Borrower of the proceeds of each such Loan made
hereunder shall constitute a representation and warranty by Borrower as of the
Funding Date in respect of such Loan that all the conditions contained in this
Section 4.2(b) have been satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties as to Borrower, Etc.. In order to
induce Lenders to make the Loans, Borrower hereby represents and warrants to
Lenders as follows:
(a) Organization; Partnership Powers. Borrower (i) is a limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation, (ii) is duly qualified to do business as a
foreign limited partnership and in good standing under the laws of each
jurisdiction in which (A) any Unencumbered Pool Property is located, or (B) it
owns or leases other real property or in which the nature of its business
requires it to be so qualified, except for such other jurisdictions where
failure to so qualify and be in good standing would not have a Material Adverse
Effect on Borrower, and (iii) has all requisite partnership power and authority
to own and operate its property and assets and to conduct its business as
presently conducted and as proposed to be conducted in connection with and
following the consummation of the Loans contemplated by the Loan Documents.
(b) Authority. Borrower has the requisite partnership power and
authority to execute, deliver and perform each of the Loan Documents to which it
is or will be a party. The execution, delivery and performance thereof, and the
consummation of the transactions contemplated thereby, have been duly approved
by the general partner of Borrower, and no other partnership proceedings or
authorizations on the part of Borrower or its general or limited partners are
necessary to consummate such transactions. Each of the Loan Documents to which
Borrower is a party has been duly executed and delivered by Borrower and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency and other laws
affecting creditors' rights generally.
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(c) Ownership of Borrower and the Associated Companies. Schedule
5.1(c) sets forth the owners of Borrower and the Associated Companies and the
owners' respective ownership percentages therein, and there are no other
ownership interests outstanding. Except as set forth or referred to in the
partnership agreement, articles of incorporation or bylaws, as applicable, of
Borrower and the Associated Companies, no ownership interest (or any securities,
instruments, warrants, option or purchase rights, conversion or exchange rights,
calls, commitments or claims of any character convertible into or exercisable
for any ownership interest) of any such Person is subject to issuance under any
security, instrument, warrant, option or purchase rights, conversion or exchange
rights, call, commitment or claim of any right, title or interest therein or
thereto. All of the ownership interests in Borrower and the Associated Companies
have been issued in compliance with all applicable Requirements of Law.
(d) No Conflict. The execution, delivery and performance by
Borrower of the Loan Documents to which it is or will be a party, and each of
the transactions contemplated thereby, do not and will not (i) conflict with or
violate Borrower's limited partnership agreement or certificate of limited
partnership or other organizational documents, as the case may be, or (ii)
conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under any Requirement of Law, Contractual
Obligation or Court Order of or binding upon Borrower, or (iii) require
termination of any Contractual Obligation, or (iv) result in or require the
creation or imposition of any Lien whatsoever upon any of the properties or
assets of Borrower (other than Liens in favor of Agent arising pursuant to the
Loan Documents or Permitted Liens).
(e) Consents and Authorizations. Borrower has obtained all
consents and authorizations required pursuant to its Contractual Obligations
with any other Person, and shall have obtained all consents and authorizations
of, and effected all notices to and filings with, any Governmental Authority, as
may be necessary to allow Borrower to lawfully execute, deliver and perform its
obligations under the Loan Documents to which Borrower is a party.
(f) Governmental Regulation. Neither Borrower nor the REIT is
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act, the Investment Company Act of
1940 or any other federal or state statute or regulation such that its ability
to incur indebtedness is limited or its ability to consummate the transactions
contemplated by the Loan Documents is materially impaired.
(g) Prior Financials. The September 30, 1997, Consolidated
Balance Sheet, Statement of Operations and Statement of Cash Flows of the REIT
contained in the REIT's Form 10Q (the "September 30, 1997 Financials") delivered
to Agent prior to the date hereof were prepared in accordance with GAAP and
fairly present the assets, liabilities and financial condition of the REIT on a
consolidated basis, at such date and the results of its operations and its cash
flows, on a consolidated basis, for the period then ended.
(h) Financial Statements; Projections and Forecasts. Each of the
Financial Statements to be delivered to Agent pursuant to Sections 6.1(b) and
(c), (i) has been, or will be, as applicable, prepared in accordance with the
books and records of the REIT on a consolidated basis, and (ii) either fairly
present, or will fairly present, as applicable, the financial condition of the
REIT on a consolidated basis, at the dates thereof (and, if applicable, subject
to normal year-end adjustments) and the results of its operations and cash
flows, on a consolidated basis, for the period then ended. Each of the
projections delivered to Agent prior to the date hereof and the financial plans
and projections to be delivered to Agent pursuant to Section 6.1(e), (1) has
been, or will be, as applicable, prepared by the REIT in light of the past
business and performance of the REIT on a consolidated basis and (2) represent,
or will represent, as of the date thereof, the reasonable good faith estimates
of the REIT's financial personnel.
(i) Prior Operating Statements. Each of the operating statements
pertaining to each of the Unencumbered Pool Properties delivered to Agent prior
to the date hereof was prepared in accordance with GAAP in effect on the date
such operating statement of each Unencumbered Pool Property was prepared
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and fairly presents the results of operations of such Unencumbered Pool Property
for the period then ended.
(j) Quarterly Operating Reports and Projections. Each of the
Quarterly Operating Reports or other Unencumbered Pool Property Statements to be
delivered to Agent pursuant to Section 6.1(a) (i) has been or will be, as
applicable, prepared in accordance with the books and records of the applicable
Unencumbered Pool Property, and (ii) fairly presents or will fairly present, as
applicable, the results of operations of such Unencumbered Pool Property for the
period then ended. Each of the projections, financial plans and budgets
delivered to Agent prior to the date hereof and the projections and budgets to
be delivered to Agent pursuant to Sections 6.1(e) and 6.1(g) (1) has been, or
will be, as applicable, prepared for each Unencumbered Pool Property in light of
the past business and performance of such Unencumbered Pool Property and (2)
represents or will represent, as of the date thereof, the reasonable good faith
estimates of the REIT's financial personnel.
(k) Litigation; Adverse Effects.
(i) There is no action, suit, proceeding, governmental
investigation or arbitration, at law or in equity, or before or by any
Governmental Authority, pending or, to the best of Borrower's knowledge,
threatened against Borrower or any Property of Borrower (including any
Unencumbered Pool Property), which if adversely determined would (A) result in a
Material Adverse Effect on Borrower or any Unencumbered Pool Property, (B)
materially and adversely affect the ability of any party to any of the Loan
Documents to perform its obligations thereunder, or (C) materially and adversely
affect the ability of Borrower to perform its obligations contemplated in the
Loan Documents.
(ii) Borrower is not (A) in violation of any applicable law,
which violation has a Material Adverse Effect on Borrower or any Unencumbered
Pool Property, or (B) subject to or in default with respect to any Court Order
which has a Material Adverse Effect on Borrower or any Unencumbered Pool
Property. There are no material Proceedings pending or, to the best of
Borrower's knowledge, threatened against Borrower or any Unencumbered Pool
Property, which, if adversely decided, would have a Material Adverse Effect on
Borrower or any Unencumbered Pool Property.
(l) No Material Adverse Change. Since September 30, 1997, there
has occurred no event which has a Material Adverse Effect on Borrower, and no
material adverse change in Borrower's ability to perform its obligations under
the Loan Documents to which it is a party or the transactions contemplated
thereby.
(m) Payment of Taxes. All tax returns and reports to be filed by
Borrower have been timely filed, and all taxes, assessments, fees and other
governmental charges shown on such returns or otherwise payable by Borrower have
been paid when due and payable (other than real property taxes, which may be
paid prior to delinquency so long as no penalty or interest shall attach
thereto), except such taxes, if any, as are reserved against in accordance with
GAAP and are being contested in good faith by appropriate proceedings or such
taxes, the failure to make payment of which when due and payable will not have,
in the aggregate, a Material Adverse Effect on Borrower. Borrower has no
knowledge of any proposed tax assessment against Borrower that will have a
Material Adverse Effect on Borrower, which is not being actively contested in
good faith by Borrower.
(n) Material Adverse Agreements. Borrower is not a party to or
subject to any Contractual Obligation or other restriction contained in its
limited partnership agreement, certificate of limited partnership or similar
governing documents which has a Material Adverse Effect on Borrower.
(o) Performance. Borrower is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any Contractual Obligation applicable to it, and no condition
exists which, with the giving of notice or the lapse of time or both, would
constitute a
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default under such Contractual Obligation in each case, except where the
consequences, direct or indirect, of such default or defaults, if any, will not
have a Material Adverse Effect on Borrower.
(p) Federal Reserve Regulations. No part of the proceeds of the
Loan hereunder will be used to purchase or carry any "margin security" as
defined in Regulation G or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulation G. Neither Borrower nor
the REIT is engaged primarily in the business of extending credit for the
purpose of purchasing or carrying out any "margin stock" as defined in
Regulation U. No part of the proceeds of the Loan hereunder will be used for any
purpose that violates, or which is inconsistent with, the provisions of
Regulation X or any other regulation of the Federal Reserve Board.
(q) Disclosure. The representations and warranties of Borrower
contained in the Loan Documents and all certificates, financial statements and
other documents delivered to Agent in connection therewith, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. Borrower has given to
Agent true, correct and complete copies of all Major UPP Leases, Pool Investment
Mortgages and the obligations secured thereby, organizational documents,
Financial Statements, Unencumbered Pool Property Statements, and all other
documents and instruments referred to in the Loan Documents as having been
delivered to Agent. Borrower has not intentionally withheld any material fact
from Agent in regard to any matter raised in the Loan Documents. Notwithstanding
the foregoing, with respect to projections of Borrower's future performance such
representations and warranties are made in good faith and to the best judgment
of Borrower.
(r) Requirements of Law. Each of Borrower and the REIT is in
compliance with all Requirements of Law (including without limitation the
Securities Act and the Securities Exchange Act, and the applicable rules and
regulations thereunder, state securities law and "Blue Sky" laws) applicable to
it and its respective businesses, in each case, where the failure to so comply
will have a Material Adverse Effect on Borrower or the REIT. The REIT has made
all filings with and obtained all consents of the Commission required under the
Securities Act and the Securities Exchange Act in connection with the execution,
delivery and performance by the REIT of the Loan Documents.
(s) Patents, Trademarks, Permits, Etc. Borrower and the REIT own,
are licensed or otherwise have the lawful right to use, or have all permits and
other governmental approvals, patents, trademarks, trade names, copyrights,
technology, know-how and processes used in or necessary for the conduct of each
such Person's business as currently conducted, the absence of which would have a
Material Adverse Effect upon such Person. The use of such permits and other
governmental approvals, patents, trademarks, trade names, copyrights,
technology, know-how and processes by each such Person does not infringe on the
rights of any Person, subject to such claims and infringements as do not, in the
aggregate, give rise to any liability on the part of any such Person which would
have a Material Adverse Effect on any such Person.
(t) Environmental Matters. Except as set forth on Schedule
5.1(t), to the best of Borrower's knowledge, (i) the operations of Borrower and
the REIT comply in all material respects with all applicable local, state and
federal environmental, health and safety Requirements of Law ("Environmental
Laws"); (ii) none of Borrower's present Property or operations are subject to
any Remedial Action or other Liabilities and Costs arising from the Release or
threatened Release of a Contaminant into the environment in violation of any
Environmental Laws, which Remedial Action or other Liabilities and Costs would
have a Material Adverse Effect on Borrower or the REIT; (iii) neither Borrower
nor the REIT has filed any notice under applicable Environmental Laws reporting
a Release of a Contaminant into the environment in violation of any
Environmental Laws, except as the same may have been heretofore remedied; (iv)
there is not now on or in the Property of Borrower (except in compliance in all
material respects with all applicable Environmental Laws): (A) any underground
storage tanks, (B) any asbestos-containing material, or (C)
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any polychlorinated biphenyls (PCB's) used in hydraulic oils, electrical
transformers or other equipment owned by such Person; and (v) neither Borrower
nor the REIT has received any notice or claim to the effect that it is or may be
liable to any Person as a result of the Release or threatened Release of a
Contaminant into the environment.
(u) Major UPP Leases. With respect to each Unencumbered Pool
Property, Agent has received true, complete and correct copies of each Major UPP
Lease. All such Major UPP Leases are in full force and effect and have not been
and will not be modified in any way that would affect the economics thereof, or
terminated, except upon ten (10) Business Days' prior written notice to Agent,
and no default or event of default (or event or occurrence which upon with the
passage of time or the giving of notice, or both, will constitute a default or
event of default) exists or will exist under any such Major UPP Lease as a
result of the consummation of the transactions contemplated by the Loan
Documents.
(v) Pool Investment Mortgages. Agent has received true, complete
and correct copies of each Pool Investment Mortgage and the obligations secured
thereby. The original principal amount of each obligation secured by a Pool
Investment Mortgage, and the outstanding principal amount thereof as of the date
of this Agreement, are set forth on Schedule 1. Each Pool Investment Mortgage,
and each obligation secured by such Pool Investment Mortgage (A) is the legal,
valid and binding obligation of the obligor thereunder, enforceable against such
obligor in accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights generally; (B) is in full force and
effect; and (C) has not been and will not be modified or terminated except upon
thirty (30) days' prior written notice to Agent; and no default or event of
default (or event or occurrence which upon with the passage of time or the
giving of notice, or both, will constitute a default or event of default) exists
under any Pool Investment Mortgage or obligation secured thereby, or will exist
as a result of the consummation of the transactions contemplated by the Loan
Documents.
(w) Aggregate Occupancy Rate; Individual Occupancy Rate. The
Aggregate Occupancy Rate of each Type of Property comprising the Unencumbered
Pool Properties is (A) in the case of Hotel Projects, at least fifty-five
percent (55%), and (B) in the case of Properties of a Type other than Hotel
Projects, at least eighty-five percent (85%). The Individual Occupancy Rate of
each Property included as an Unencumbered Pool Property is at least fifty
percent (50%).
(x) Solvency. Borrower is and will be Solvent after giving effect
to the disbursements of the Loans and the payment and accrual of all fees then
payable.
(y) Title to Assets; No Liens. Borrower has good, indefeasible
and merchantable title to all Properties owned or leased by it, including,
without limitation, any Unencumbered Pool Property, and each Unencumbered Pool
Property is free and clear of all Liens, except Permitted Liens.
(z) Use of Proceeds. Borrower's use of the proceeds of the Loans
are, and will continue to be, legal and proper uses (and to the extent
necessary, duly authorized by Borrower's partners) and such uses are consistent
with all applicable laws and statutes and Section 7.1(i).
5.2 Representations and Warranties as to the REIT. In order to induce
Lenders to make the Loans, Borrower hereby represents and warrants to Lenders as
follows:
(a) Organization; Corporate Powers. The REIT (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Maryland, (ii) is duly qualified to do business as a foreign
corporation and in good standing under the laws of each jurisdiction in which it
owns or leases real property or in which the nature of its business requires it
to be so qualified, except for those jurisdictions where failure to so qualify
and be in good standing will not have a Material Adverse Effect on the REIT, and
(iii) has all requisite corporate power and authority to own, operate and
encumber its property and assets and to conduct its business as presently
conducted and as proposed to be conducted in
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connection with and following the consummation of the transactions contemplated
by the Loan Documents.
(b) Authority. The REIT has the requisite corporate power and
authority to execute, deliver and perform each of the Loan Documents to which it
is or will be a party. The execution, delivery and performance thereof, and the
consummation of the transactions contemplated thereby, have been duly approved
by the Board of Directors of the REIT, and no other corporate proceedings on the
part of the REIT are necessary to consummate such transactions. Each of the Loan
Documents to which the REIT is a party has been duly executed and delivered by
Borrower and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights generally.
(c) No Conflict. The execution, delivery and performance by the
REIT of the Loan Documents to which it is party, and each of the transactions
contemplated thereby, do not and will not (i) conflict with or violate its
articles of incorporation, by-laws or other organizational documents, (ii)
conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under any Requirement of Law, Contractual
Obligation or Court Order of the REIT, (iii) require termination of any
Contractual Obligation, (iv) result in or require the creation or imposition of
any Lien whatsoever upon any of the properties or assets of the REIT (other than
Liens in favor of Agent arising pursuant to the Loan Documents), or (v) require
any approval of the stockholders of the REIT.
(d) Consents and Authorizations. The REIT has obtained all
consents and authorizations required pursuant to its Contractual Obligations
with any other Person, and shall have obtained all consents and authorizations
of, and effected all notices to and filings with, any Governmental Authority, as
may be necessary to allow the REIT to lawfully execute, deliver and perform its
obligations under the Loan Documents to which the REIT is a party.
(e) Capitalization. All of the capital stock of the REIT has been
issued in compliance with all applicable Requirements of Law.
(f) Litigation; Adverse Effects.
(i) There is no action, suit, proceeding, governmental
investigation or arbitration, at law or in equity, or before or by any
Governmental Authority, pending or, to best of Borrower's knowledge, threatened
against the REIT or any Property of the REIT, which will (A) result in a
Material Adverse Effect on the REIT, (B) materially and adversely affect the
ability of any party to any of the Loan Documents to perform its obligations
thereunder, or (C) materially and adversely affect the ability of the REIT to
perform its obligations as contemplated in the Loan Documents.
(ii) The REIT is not (A) in violation of any applicable law,
which violation has a Material Adverse Effect on the REIT, or (B) subject to or
in default with respect to any Court Order which has a Material Adverse Effect
on the REIT. There are no Proceedings pending or, to the best of Borrower's
knowledge, threatened against the REIT, which, if adversely decided, would have
a Material Adverse Effect on the REIT, Borrower or any Unencumbered Pool
Property.
(g) No Material Adverse Change. Since September 30, 1997, there
has occurred no event which has a Material Adverse Effect on the REIT, and no
material adverse change in the REIT's ability to perform its obligations under
the Loan Documents to which it is a party or the transactions contemplated
thereby.
(h) Payment of Taxes. All tax returns and reports to be filed by
the REIT have been timely filed, and all taxes, assessments, fees and other
governmental charges shown on such returns have been paid when due and payable,
except such taxes, if any, as are reserved against in accordance with GAAP
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and are being contested in good faith by appropriate proceedings or such taxes,
the failure to make payment of which when due and payable would not have, in the
aggregate, a Material Adverse Effect on the REIT. The REIT has no knowledge of
any proposed tax assessment against the REIT that would have a Material Adverse
Effect on the REIT, which is not being actively contested in good faith by the
REIT.
(i) Material Adverse Agreements. The REIT is not a party to or
subject to any Contractual Obligation or other restriction contained in its
charter, by-laws or similar governing documents which has a Material Adverse
Effect on the REIT or the ability of the REIT to perform its obligations under
the Loan Documents to which it is a party.
(j) Performance. The REIT is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any Contractual Obligation applicable to it, and no condition
exists which, with the giving of notice or the lapse of time or both, would
constitute a default under such Contractual Obligation in each case, except
where the consequences, direct or indirect, of such default or defaults, if any,
would not have a Material Adverse Effect on the REIT.
(k) Disclosure. The representations and warranties of the REIT
contained in the Loan Documents, and all certificates, financial statements and
other documents delivered to Agent in connection therewith, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The REIT has not
intentionally withheld any material fact from Agent in regard to any matter
raised in the Loan Documents. Notwithstanding the foregoing, with respect to
projections of the REIT's future performance such representations and warranties
are made in good faith and to the best judgment of the management of the REIT.
(l) ERISA. Neither the REIT nor any ERISA Affiliate thereof
(including, for all purposes under this Section 5.2(l), Borrower) has in the
past five (5) years maintained or contributed to or currently maintains or
contributes to any Benefit Plan other than the Benefit Plans identified on
Schedule 5.2(l). No Investment Partnership has or is likely to incur any
liability with respect to any Benefit Plan maintained or contributed to by such
Investment Partnership or its ERISA Affiliates, which would have a Material
Adverse Effect on Borrower. Neither the REIT nor any ERISA Affiliate thereof has
during the past five (5) years maintained or contributed to or currently
maintains or contributes to any employee welfare benefit plan within the meaning
of Section 3(1) of ERISA which provides benefits to retirees other than benefits
required to be provided under Section 4980B of the Internal Revenue Code and
Sections 601 through 608 of ERISA (or any successor provisions thereto). Neither
the REIT nor any ERISA Affiliate thereof is now contributing nor has it ever
contributed to or been obligated to contribute to any Multiemployer Plan, no
employees or former employees of the REIT, or such ERISA Affiliate have been
covered by any Multiemployer Plan in respect of their employment by the REIT,
and no ERISA Affiliate of the REIT has or is likely to incur any withdrawal
liability with respect to any Multiemployer Plan which would have a Material
Adverse Effect on the REIT.
(m) Solvency. The REIT is and will be Solvent, in each case after
giving effect to the disbursement of the Loans, and the payment and accrual of
all fees then payable.
(n) Status as a REIT. The REIT (i) is a real estate investment
trust as defined in Section 856 of the Internal Revenue Code (or any successor
provision thereto), (ii) has not revoked its election to be a real estate
investment trust, (iii) has not engaged in any "prohibited transactions" as
defined in Section 856(b)(6)(iii) of the Internal Revenue Code (or any successor
provision thereto), and (iv) for its current "tax year" (as defined in the
Internal Revenue Code) is and for all prior tax years subsequent to its election
to be a real estate investment trust has been entitled to a dividends paid
deduction which meets the requirements of Section 857 of the Internal Revenue
Code.
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(o) Ownership. The REIT does not own or have any direct interest
in any other Person, other than its ownership of (i) one hundred percent (100%)
of the common shares of (A) GRT Industrial Corporation, a Delaware corporation,
(B) GRT Financial Corporation, a Delaware corporation, (C) GRT Corporation, a
Georgia corporation, (D) GRT Sonora, Inc., a California corporation, and (E)
GRTV, Inc., a Delaware corporation; (ii) one hundred percent (100%) of the
non-voting preferred shares of the Associated Companies; and (iii) the general
partnership interest and ninety-two and three-tenths percent (92.3%) of the
limited partnership interests in Borrower.
(p) NYSE Listing. The common stock of the REIT is and will
continue to be listed for trading and traded on the New York Stock Exchange.
(q) Executive Officer Ownership. Schedule 5.2(q) sets forth the
direct and indirect ownership interests of Robert Batinovich and Andrew
Batinovich in Borrower and the REIT, indicating the actual names of such owners,
the actual ownership interests of each such owner in Borrower and the REIT and
the percentage ownership interests of each such owner in Borrower and the REIT
in the aggregate.
ARTICLE VI
REPORTING COVENANTS
Borrower covenants and agrees that, on and after the date hereof,
until payment in full of all of the Obligations, the expiration of the
Commitments and termination of this Agreement:
6.1 Financial Statements and Other Financial and Operating
Information. Borrower shall maintain or cause to be maintained a system of
accounting established and administered in accordance with sound business
practices and consistent with past practice to permit preparation of quarterly
and annual financial statements in conformity with GAAP, and each of the
financial statements described below shall be prepared on a consolidated basis
for the REIT from such system and records. Borrower shall deliver or cause to be
delivered to Agent (with copies sufficient for each Lender):
(a) Unencumbered Pool Property Statements. As soon as
practicable, and in any event within twenty (20) days after the end of each
Fiscal Quarter, quarterly operating statements, in a form approved by Agent,
which operating statements shall include actual quarterly and year-to-date net
operating income and net cash flow results, rent rolls (on Borrower's detailed
form of rent roll), lease status reports and occupancy summaries in the form
customarily generated by Borrower for each Unencumbered Pool Property dated as
of the last day of such Fiscal Quarter (the "Quarterly Operating Reports"), in
form and substance satisfactory to Agent, certified by the REIT's chief
financial officer or chief accounting officer. In addition, as soon as
practicable, and in any event within twenty (20) days after the end of the
fourth Fiscal Quarter, a year-end operating statement, in a form approved by
Agent, which operating statement shall include actual year-to-date net operating
income and net cash flow results for each Unencumbered Pool Property dated as of
the last day of such Fiscal Quarter (collectively with the Quarterly Operating
Reports, the "Unencumbered Pool Property Statements").
(b) Quarterly Financial Statements Certified by CFO. As soon as
practicable, and in any event within forty-five (45) days after the end of each
Fiscal Quarter, consolidated and consolidating balance sheets, statements of
operations and statements of cash flow for the REIT ("Financial Statements"),
which may, in the case of the first three Fiscal Quarters, be in the form
provided to the Commission on the REIT's Form 10Q, and certified by the REIT's
chief financial officer or chief accounting officer. In addition, as soon as
practicable, and in any event within forty-five (45) days after the end of each
Fiscal Quarter, balance sheets, statements of operations and statements of cash
flow for each of the Associated Companies and any Affiliate of Borrower from
time to time specified by Agent.
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(c) Annual Financial Statements. Within ninety (90) days after
the close of each Fiscal Year, annual Financial Statements of the REIT, on a
consolidated and consolidating basis (in the form provided to the Commission on
the REIT's Form 10K), audited and certified without qualification by the
Accountants and accompanied by a statement that, in the course of their audit
(conducted in accordance with generally accepted auditing standards), the
Accountants obtained no knowledge that an Event of Default or Unmatured Event of
Default occurred during the period covered thereby. In addition, as soon as
practicable, and in any event within ninety (90) days after the end of each
Fiscal Year, year-end balance sheets and annual statements of operations and
statements of cash flow for each of the Associated Companies. To the extent
Agent desires additional details or supporting information with respect to
Investment Partnerships, the Associated Companies or individual Properties which
are not Unencumbered Pool Properties not contained in the REIT's Form 10K,
Borrower shall provide Agent with such details or supporting information as
Agent requests which is reasonably available to Borrower. Without limiting the
foregoing, at Agent's request, within ninety (90) days after the end of each
Fiscal Year, Borrower shall provide to Agent operating statements and a schedule
setting forth the percentage of leasable area leased to tenants in occupancy,
with footnotes indicating which leases are in default in rent payments by more
than forty-five (45) days (other than technical, nonmaterial disputes concerning
percentage rentals due) or under any other material provisions in respect to
which the landlord has issued a notice of default, for each Property which is
not an Unencumbered Pool Property.
(d) Officer's Certificate of Borrower. (i) Together with each
delivery of any Quarterly Operating Report or Financial Statement pursuant to
any of clauses (a), (b) and (c) above, an Officer's Certificate of the REIT,
stating that the executive officer who is the signatory thereto (which officer
shall be the chief executive officer, the chief operating officer, the chief
financial officer or the chief accounting officer of the REIT) has reviewed, or
caused under his supervision to be reviewed, the terms of this Agreement and the
other principal Loan Documents, and has made, or caused to be made under his
supervision, a review in reasonable detail of the transactions and condition of
Borrower and the REIT during the accounting period covered by such Quarterly
Operating Report or Financial Statements, and that such review has not disclosed
the existence during or at the end of such accounting period, and that the
signers do not have knowledge of the existence as of the date of the Officer's
Certificate, of any condition or event which constitutes an Event of Default or
Unmatured Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
has been taken, is being taken and is proposed to be taken with respect thereto;
and (ii) together with each delivery pursuant to clauses (a), (b) and (c) above,
a Compliance Certificate demonstrating in reasonable detail (which detail shall
include actual calculation and supporting information satisfactory to Agent) (A)
compliance during and at the end of such accounting periods with the covenants
contained in Sections 8.4 and 8.5 and the financial covenants contained in
Article IX, and (B) the Weighted Average Leverage Ratio for the Fiscal Quarter
then most recently ended.
(e) Cash Flow Projections. Not later than fifteen (15) days prior
to the beginning of each Fiscal Year, projections of Borrower, on a consolidated
basis, detailing expected sources and uses of cash for the next Fiscal Year.
Borrower shall also provide such additional supporting details as Agent may
reasonably request.
(f) Unencumbered Pool Certificate. As soon as practicable, and in
any event within twenty (20) days after the end of each Fiscal Quarter (and more
often if so requested by Agent), a certificate, in substantially the form of
Exhibit B (an "Unencumbered Pool Certificate"), certified as being true and
correct by the REIT's chief executive officer, chief operating officer, chief
financial officer or chief accounting officer. Each Unencumbered Pool
Certificate shall set forth calculations, including a calculation of Loan
Availability, since the date of the last prior Unencumbered Pool Certificate,
and shall reflect any material adverse changes in the Net Operating Income or
other condition of an Unencumbered Pool Property of which such officer has
knowledge and which is not reflected in the most recent Unencumbered Pool
Certificate.
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(g) Budgets For Unencumbered Pool Properties. Not later than
fifteen (15) days prior to the beginning of each Fiscal Year, annual operating
budgets for each Unencumbered Pool Property for the immediately following Fiscal
Year, prepared on an annual basis, in a form approved by Agent, together with
all supporting details reasonably requested by Agent, and certified by the chief
executive officer, chief operating officer, chief financial officer or chief
accounting officer of the REIT as being based upon the REIT's reasonable good
faith estimates, upon information and assumptions at the time.
(h) Knowledge of Event of Default. Promptly upon Borrower
obtaining knowledge (i) of any condition or event which constitutes an Event of
Default or Unmatured Event of Default, or becoming aware that any Lender has
given notice or taken any other action with respect to a claimed Event of
Default or Unmatured Event of Default or (ii) of any condition or event which
has a Material Adverse Effect on Borrower, the REIT or any Unencumbered Pool
Property, an Officer's Certificate specifying the nature and period of existence
of any such condition or event, or specifying the notice given or action taken
by such Lender and the nature of such claimed Event of Default, Unmatured Event
of Default, event or condition, and what action Borrower and/or the REIT has
taken, is taking and proposes to take with respect thereto.
(i) Litigation, Arbitration or Government Investigation. Promptly
upon Borrower or the REIT obtaining knowledge of (i) the institution of, or
threat of, any material action, suit, proceeding, governmental investigation or
arbitration against or affecting Borrower, the REIT or any Unencumbered Pool
Property not previously disclosed in writing by Borrower to Agent pursuant to
this Section 6.1(i), including any eminent domain or other condemnation
proceedings affecting any Unencumbered Pool Property, or (ii) any material
development in any action, suit, proceeding, governmental investigation or
arbitration already disclosed, which, in either case, has a Material Adverse
Effect on Borrower, the REIT or any Unencumbered Pool Property, a notice thereof
to Agent and such other information as may be reasonably available to it to
enable Agent, Lenders and their counsel to evaluate such matters.
(j) ERISA Termination Event. As soon as possible, and in any
event within thirty (30) days after Borrower or the REIT knows that a
Termination Event has occurred, a written statement of the chief financial
officer of the REIT describing such Termination Event and the action, if any,
which Borrower, the REIT or any ERISA Affiliate of either of them has taken, is
taking or proposes to take, with respect thereto, and, when known, any action
taken or threatened by the IRS, the DOL or the PBGC with respect thereto.
(k) Prohibited ERISA Transaction. As soon as possible, and in any
event within thirty (30) days, after Borrower, the REIT or any ERISA Affiliate
of either of them knows that a prohibited transaction (defined in Section 406 of
ERISA and Section 4975 of the Internal Revenue Code) has occurred, a statement
of the chief financial officer of the REIT describing such transaction.
(l) Benefit Plan Annual Report. Within thirty (30) days after the
filing thereof with the DOL, the IRS or the PBGC, copies of each annual report,
including Schedule B thereto, filed with respect to each Benefit Plan of
Borrower, the REIT or any ERISA Affiliate of either of them.
(m) Benefit Plan Funding Waiver Request. Within thirty (30) days
after the filing thereof with the IRS, a copy of each funding waiver request
filed with respect to any Benefit Plan of Borrower, the REIT or any ERISA
Affiliate of either of them and all communications received by Borrower, the
REIT or any ERISA Affiliate of either of them with respect to such request.
(n) Establishment of Benefit Plan and Increase in Contributions
to the Benefit Plan. Not less than ten (10) days prior to the effective date
thereof, a notice to Agent of the establishment of a Benefit Plan (or the
incurrence of any obligation to contribute to a Multiemployer Plan) by Borrower,
the REIT or any ERISA Affiliate of either of them. Within thirty (30) days after
the first to occur of an amendment of any then existing Benefit Plan of
Borrower, the REIT or any ERISA Affiliate of either of them which will result in
an increase in the benefits under such Benefit Plan or a notification of any
such increase, or the
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establishment of any new Benefit Plan by Borrower, the REIT or any ERISA
Affiliate of either of them or the commencement of contributions to any Benefit
Plan to which Borrower, the REIT or any ERISA Affiliate of either of them was
not previously contributing, a copy of said amendment, notification or Benefit
Plan.
(o) Qualification of ERISA Plan. Promptly upon, and in any event
within thirty (30) days after, receipt by Borrower, the REIT or any ERISA
Affiliate of either of them of an unfavorable determination letter from the IRS
regarding the qualification of a Plan under Section 401(a) of the Internal
Revenue Code, a copy of said determination letter, if such disqualification
would have a Material Adverse Effect on Borrower or the REIT.
(p) Multiemployer Plan Withdrawal Liability. Promptly upon, and
in any event within thirty (30) days after receipt by Borrower, the REIT or any
ERISA Affiliate of either of them of a notice from a Multiemployer Plan
regarding the imposition of withdrawal liability, a copy of said notice.
(q) Failure to Make Section 412 Payment. Promptly upon, and in
any event within thirty (30) days after, Borrower, the REIT or any ERISA
Affiliate of either of them fails to make a required installment under
subsection (m) of Section 412 of the Internal Revenue Code or any other payment
required under Section 412 of the Internal Revenue Code on or before the due
date for such installment or payment, a notification of such failure, if such
failure could result in either the imposition of a Lien under said Section 412
or otherwise have or could reasonably be anticipated to have a Material Adverse
Effect on Borrower or the REIT.
(r) Failure of the REIT to Qualify as Real Estate Investment
Trust. Promptly upon, and in any event within forty-eight (48) hours after
Borrower first has actual knowledge of (i) the REIT failing to continue to
qualify as a real estate investment trust as defined in Section 856 of the
Internal Revenue Code (or any successor provision thereof), (ii) any act by the
REIT causing its election to be taxed as a real estate investment trust to be
terminated, (iii) any act causing the REIT to be subject to the taxes imposed by
Section 857(b)(6) of the Internal Revenue Code (or any successor provision
thereto), or (iv) the REIT failing to be entitled to a dividends paid deduction
which meets the requirements of Section 857 of the Internal Revenue Code, a
notice of any such occurrence or circumstance.
(s) Asset Acquisitions and Dispositions, Indebtedness, Merger,
Etc. Without limiting Article VIII or any other restriction in the Loan
Documents, concurrent with notice to Borrower's priority mailing list and in all
events not later than any public disclosure, prior written notice of any
material investments (other than in Cash Equivalents), material acquisitions,
asset purchases, dispositions, disposals, divestitures or similar transactions
involving Property, the raising of additional equity or the incurring or
repayment of material Indebtedness, or any material merger, by or with Borrower
or the REIT, and, promptly upon consummation of such transaction, a Compliance
Certificate demonstrating in reasonable detail (which detail shall include
actual calculations) compliance, after giving effect to such proposed
transaction(s), with the covenants contained in Sections 8.4 and 8.5 and Article
IX. For purposes of this Section 6.1(s), any investment, acquisition, asset
purchase, disposition, disposal, divestiture, merger or similar transaction
shall be considered "material" if it involves assets exceeding thirty-five
percent (35%) of Borrower's assets (as existing prior to giving effect to such
transaction and before accumulated depreciation), determined on a consolidated
basis.
(t) Other Information. Such other information, reports,
contracts, schedules, lists, documents, agreements and instruments in the
possession of the REIT or Borrower with respect to (i) any material change in
the REIT's investment, finance or operating policies, or (ii) Borrower's or the
REIT's business, condition (financial or otherwise), operations, performance,
properties (including the Unencumbered Pool Properties) or prospects as Agent
may from time to time reasonably request, including, without limitation, annual
information with respect to cash flow projections, budgets, operating statements
(current year and immediately preceding year), rent rolls, lease expiration
reports, leasing status
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reports, note payable summaries, bullet note summaries, equity funding
requirements, contingent liability summaries, line of credit summaries, line of
credit collateral summaries, wrap note or note receivable summaries, schedules
of outstanding letters of credit, summaries of cash and Cash Equivalents,
projections of leasing fees and overhead budgets. Provided that Agent gives
Borrower reasonable prior notice and an opportunity to participate, Borrower
hereby authorizes Agent to communicate with the Accountants and authorizes the
Accountants to disclose to Agent any and all financial statements and other
information of any kind, including copies of any management letter or the
substance of any oral information, that such accountants may have with respect
to Borrower's or the REIT's condition (financial or otherwise), operations,
properties, performance and prospects. Concurrently therewith, Agent will notify
Borrower of any such communication. At Agent's request, Borrower shall deliver a
letter addressed to the Accountants instructing them to disclose such
information in compliance with this Section 6.1(t).
(u) Press Releases; SEC Filings and Financial Statements.
Telephonic or telecopy notice to Agent concurrent with or prior to issuance of
any material press release concerning the REIT or Borrower and, as soon as
practicable after filing with the Commission, all reports and notices, proxy
statements, registration statements and prospectuses of the REIT. All materials
sent or made available generally by the REIT to the holders of its publicly-held
Securities or to a trustee under any indenture or filed with the Commission,
including all periodic reports required to be filed with the Commission, will be
delivered to Agent as soon as available.
(v) Accountant Reports. Copies of all reports prepared by the
Accountants and submitted to Borrower or the REIT in connection with each
annual, interim or special audit or review of the financial statements or
practices of Borrower or the REIT, including the comment letter submitted by the
Accountants in connection with their annual audit.
6.2 Environmental Notices. Borrower shall notify Agent, in writing, as
soon as practicable, and in any event within ten (10) days after Borrower's or
the REIT's learning thereof, of any: (a) written notice or claim to the effect
that Borrower or the REIT is or may be liable to any Person as a result of any
material Release or threatened Release of any Contaminant into the environment;
(b) written notice that Borrower or the REIT is subject to investigation by any
Governmental Authority evaluating whether any Remedial Action is needed to
respond to the Release or threatened Release of any Contaminant into the
environment; (c) written notice that any Property is subject to an Environmental
Lien; (d) written notice of violation to Borrower or the REIT or awareness of a
condition which might reasonably result in a notice of violation of any
Environmental Laws by Borrower or the REIT; (e) commencement or written threat
of any judicial or administrative proceeding alleging a violation of any
Environmental Laws by Borrower or the REIT; (f) written notice from a
Governmental Authority of any changes to any existing Environmental Laws that
will have a Material Adverse Effect on the operations of Borrower or the REIT;
or (g) any proposed acquisition of stock, assets, real estate or leasing of
property, or any other action by Borrower that, to the best of Borrower's
knowledge, could subject Borrower or the REIT to environmental, health or safety
Liabilities and Costs that will have a Material Adverse Effect on Borrower or
the REIT. With regard to the matters referred to in Clauses (a) through (e)
above, the same shall apply in respect of each Unencumbered Pool Property and,
in the case of other Property of Borrower or the REIT, only if the matter will
have a Material Adverse Effect on Borrower or the REIT.
6.3 Confidentiality. Confidential information obtained by Agent or
Lenders pursuant to this Agreement or in connection with the Facility shall not
be disseminated by Agent or Lenders and shall not be disclosed to third parties
except to regulators, taxing authorities and other governmental agencies having
jurisdiction over Agent or such Lender or otherwise in response to Requirements
of Law, to their respective auditors and legal counsel and in connection with
regulatory, administrative and judicial proceedings as necessary or relevant
including enforcement proceedings relating to the Loan Documents, and to any
prospective assignee of or participant in a Lender's interest under this
Agreement or any prospective purchaser of the assets or a controlling interest
in any Lender, provided that such prospective assignee, participant or purchaser
first agrees to be bound by the provisions of this Section 6.3. In connection
with disclosures of confidential information to any non-governmental
third-party, the Lender(s) from whom the same has been requested shall, to the
extent feasible and
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permitted, give prior notice of such request to Borrower; however, neither Agent
nor any such Lender shall incur any liability to Borrower for failure to do so.
For purposes hereof, "confidential information" shall mean all nonpublic
information obtained by Agent or Lenders, unless and until such information
becomes publicly known, other than as a result of unauthorized disclosure by
Agent or Lenders of such information.
ARTICLE VII
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, on and after the date hereof,
until payment in full of all of the Obligations, the expiration of the
Commitments and termination of this Agreement:
7.1 With Respect to Borrower:
(a) Existence. Borrower shall at all times maintain its existence
as a limited partnership and preserve and keep in full force and effect its
rights and franchises unless the failure to maintain such rights and franchises
does not have a Material Adverse Effect on Borrower.
(b) Qualification, Name. Borrower shall qualify and remain
qualified to do business in each jurisdiction in which the nature of its
business requires it to be so qualified except for those jurisdictions where
failure to so qualify does not have a Material Adverse Effect on Borrower.
Borrower will transact business solely in its own name.
(c) Compliance with Laws, Etc. Borrower shall (i) comply with all
Requirements of Law, and all restrictive covenants affecting Borrower or the
properties, performance, prospects, assets or operations of Borrower, and (ii)
obtain as needed all Permits necessary for its operations and maintain such in
good standing, except in each of the foregoing cases where the failure to do so
will not have a Material Adverse Effect on Borrower.
(d) Payment of Taxes and Claims. Borrower shall pay (i) all
taxes, assessments and other governmental charges imposed upon it or on any of
its properties or assets or in respect of any of its franchises, business,
income or property before any penalty or interest accrues thereon, the failure
to make payment of which will have a Material Adverse Effect on Borrower, and
(ii) all claims (including, without limitation, claims for labor, services,
materials and supplies) for sums, material in the aggregate to Borrower, which
have become due and payable and which by law have or may become a Lien other
than a judgment lien upon any of Borrower's properties or assets, prior to the
time when any penalty or fine shall be incurred with respect thereto.
Notwithstanding the foregoing, Borrower may contest by appropriate legal
proceedings conducted in good faith and with due diligence, the amount, validity
or application, in whole or in part, of any taxes, assessments, other
governmental charges or claims described above, provided that Borrower shall
provide such security as may be required by Agent to insure ultimate payment of
the same and to prevent any sale or forfeiture of Borrower's Property (or any
portion thereof or interest therein); provided, however, that the provisions of
this Section 7.1(d) shall not be construed to permit Borrower to contest the
payment of any Obligations or any other sums payable by Borrower to Agent or
Lenders hereunder or under any other Loan Document. Notwithstanding any of the
foregoing, Borrower shall indemnify, defend and save Agent and Lenders harmless
from and against any liability, cost or expense of any kind that may be imposed
on Agent or Lenders in connection with any such contest and any loss resulting
therefrom.
(e) Maintenance of Properties; Insurance. Borrower shall maintain
in good repair, working order and condition, excepting ordinary wear and tear,
all of its Property and will make or cause to be made all appropriate repairs,
renewals and replacements thereof. Borrower shall maintain commercially
reasonable and appropriate amounts of fire and extended coverage and liability
insurance.
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(f) Inspection of Property; Books and Records; Discussions.
Borrower shall permit, and shall cause the REIT and each Subsidiary to permit,
any authorized representative(s) designated by any Lender to visit and inspect
any of its properties, including, in the case of Borrower, all Unencumbered Pool
Properties, to inspect financial and accounting records and leases, and to make
copies and take extracts therefrom, all at such times during normal business
hours and as often as any Lender may reasonably request. In connection
therewith, Borrower shall pay all expenses of the types described in Section
12.1. Borrower will keep proper books of record and account in which entries, in
conformity with GAAP and as otherwise required by this Agreement and applicable
Requirements of Law, shall be made of all dealings and transactions in relation
to its businesses and activities and as otherwise required under Section 6.1.
(g) Maintenance of Permits, Etc. Borrower will maintain in full
force and effect all Permits, franchises, patents, trademarks, trade names,
copyrights, authorizations or other rights necessary for the operation of its
business, except where the failure to obtain any of the foregoing would not have
a Material Adverse Effect on Borrower; and notify Agent in writing, promptly
after learning thereof, of the suspension, cancellation, revocation or
discontinuance of or of any pending or threatened action or proceeding seeking
to suspend, cancel, revoke or discontinue any material Permit, patent,
trademark, trade name, copyright, governmental approval, franchise authorization
or right.
(h) Conduct of Business. Except for investments expressly
permitted pursuant to Section 9.9 and investments in cash and Cash Equivalents,
Borrower shall engage only in the business of acquiring, developing, owning and
operating income-producing properties within the continental United States and
any business activities and investments of Borrower shall be incidental thereto.
(i) Use of Proceeds. Borrower shall use the proceeds of the Loans
only for pre-developments costs, development costs, acquisitions, working
capital, equity investments, repayment of Indebtedness, including required
interest and/or principal payments thereon, and for any other general corporate
purposes.
7.2 With Respect to the REIT:
(a) Corporate Existence. The REIT shall at all times maintain its
corporate existence and preserve and keep in full force and effect its rights
and franchises unless the failure to maintain such rights and franchises will
not have a Material Adverse Effect on the REIT.
(b) Qualification, Name. The REIT shall qualify and remain
qualified to do business in each jurisdiction in which the nature of its
business requires it to be so qualified except for those jurisdictions where
failure to so qualify does not have a Material Adverse Effect on the REIT. The
REIT will transact business solely in its own name.
(c) Securities Law Compliance. The REIT shall comply in all
material respects with all rules and regulations of the Commission and file all
reports required by the Commission relating to the REIT's publicly-held
Securities.
(d) Continued Status as a REIT; Prohibited Transactions. The REIT
(i) will continue to be a real estate investment trust as defined in Section 856
of the Internal Revenue Code (or any successor provision thereto), (ii) will not
revoke its election to be a real estate investment trust, (iii) will not engage
in any "prohibited transactions" as defined in Section 856(b)(6)(iii) of the
Internal Revenue Code (or any successor provision thereto), and (iv) will
continue to be entitled to a dividend paid deduction meeting the requirements of
Section 857 of the Internal Revenue Code.
(e) NYSE Listed Company. The common stock of the REIT shall at
all times be listed for trading and be traded on the New York Stock Exchange.
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(f) Compliance with Laws, Etc. The REIT shall (i) comply with all
Requirements of Law and restrictive covenants affecting the REIT and (ii) obtain
as needed all Permits necessary for its operations and maintain such in good
standing, except in each of the foregoing cases where the failure to do so will
not have a Material Adverse Effect on the REIT.
(g) Payment of Taxes and Claims. The REIT shall pay (i) all
taxes, assessments and other governmental charges imposed upon it or on any of
its properties or assets or in respect of any of its franchises, business,
income or property before any penalty or interest accrues thereon, the failure
to make payment of which will have a Material Adverse Effect on the REIT, and
(ii) all claims (including, without limitation, claims for labor, services,
materials and supplies) for sums, material in the aggregate to the REIT, which
have become due and payable and which by law have or may become a Lien other
than a judgment lien upon any of the REIT's properties or assets, prior to the
time when any penalty or fine shall be incurred with respect thereto.
Notwithstanding the foregoing, REIT may contest by appropriate legal proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any taxes, assessments, other governmental
charges or claims described above, provided that REIT shall provide such
security as may be required by Agent to insure ultimate payment of the same and
to prevent any sale or forfeiture of any other of the REIT's Property (or any
portion thereof or interest therein), provided, however, that the provisions of
this Section 7.2(g) shall not be construed to permit the REIT to contest the
payment of any Obligations or any other sums payable by the REIT to Agent or
Lenders hereunder or under any other Loan Document. Notwithstanding any of the
foregoing, the REIT shall indemnify, defend and save Agent and Lenders harmless
from and against any liability, cost or expense of any kind that may be imposed
on Agent or Lenders in connection with any such contest and any loss resulting
therefrom.
(h) Net Offering Proceeds. Unless otherwise agreed in writing by
Agent, the REIT shall immediately contribute any Net Offering Proceeds to
Borrower.
ARTICLE VIII
NEGATIVE COVENANTS
Borrower covenants and agrees that, on and after the date hereof,
until payment in full of all of the Obligations, the expiration of the
Commitments and termination of this Agreement:
8.1 With Respect to all Parties: Neither Borrower nor the REIT, shall:
(a) Liens. Directly or indirectly create, incur, assume or permit
to exist (i) any Lien on or with respect to any Unencumbered Pool Property,
except for Permitted Liens.
(b) Transfers of Unencumbered Pool Property. Transfer, directly
or indirectly, all or any interest in any Unencumbered Pool Property.
(c) Restrictions on Fundamental Changes.
(i) As to Borrower or the REIT only, enter into any merger
or consolidation in which Borrower or REIT, as applicable, is not the surviving
entity without the unanimous prior written consent of the Lenders or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution);
(ii) Change its Fiscal Year; or
(iii) Engage in any line of business other than as expressly
permitted under Section 7.1(h).
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(d) ERISA. Do, or permit any ERISA Affiliate of Borrower or the
REIT to, do any of the following to the extent that such act or failure to act
would result in the aggregate, after taking into account any other such acts or
failure to act, in a Material Adverse Effect on Borrower or the REIT:
(i) Engage, or knowingly permit an ERISA Affiliate of
Borrower or the REIT to engage, in any prohibited transaction described in
Section 406 of the ERISA or Section 4975 of the Internal Revenue Code which is
not exempt under Section 407 or 408 of ERISA or Section 4975(d) of the Internal
Revenue Code for which a class exemption is not available or a private exemption
has not been previously obtained from the DOL;
(ii) Permit to exist any accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code),
whether or not waived;
(iii) Fail, or permit an ERISA Affiliate of Borrower or the
REIT to fail, to pay timely required contributions or annual installments due
with respect to any waived funding deficiency to any Plan if such failure could
result in the imposition of a Lien or otherwise would have a Material Adverse
Effect on Borrower or the REIT;
(iv) Terminate, or permit an ERISA Affiliate of Borrower or
the REIT to terminate, any Benefit Plan which would result in any liability of
Borrower, the REIT or any ERISA Affiliate of either of them under Title IV of
ERISA; or
(v) Fail, or permit any ERISA Affiliate of Borrower or the
REIT to fail, to pay any required installment under section (m) of Section 412
of the Internal Revenue Code or any other payment required under Section 412 of
the Internal Revenue Code on or before the due date for such installment or
other payment, if such failure could result in the imposition of a Lien on any
assets of, or otherwise would have a Material Adverse Effect on, Borrower or the
REIT.
(e) Restrictions on Guaranties, Loans, etc. Make any loans to, or
enter into any guaranty of, or otherwise become personally liable for, any
obligations of, the Associated Companies, any Person advised or managed
(including as a general partner) by an Associated Company or any Affiliate of
any of the foregoing, which collectively exceed Five Million Dollars
($5,000,000).
8.2 Amendment of Constituent Documents. Borrower shall not amend its
partnership agreement or certificate of limited partnership (including, without
limitation, as to the admission of any new partner, directly or indirectly),
except to accommodate the issuance of new units of Borrower in the ordinary
course of business. The REIT shall not amend its articles of incorporation or
by-laws without the prior written consent of Requisite Lenders, except (i) to
increase authorized capital or to authorize preferred stock, (ii) as required by
applicable law or applicable tax requirements or (iii) as prudent to maintain
qualification as a REIT.
8.3 Margin Regulations. No portion of the proceeds of any Loans shall
be used in any manner which might cause the extension of credit or the
application of such proceeds to violate Regulation G, U or X or any other
regulation of the Federal Reserve Board or to violate the Securities Exchange
Act or the Securities Act, in each case as in effect on the applicable Funding
Date.
8.4 Minimum Ownership Interest of Robert and Andrew Batinovich. Robert
Batinovich and Andrew Batinovich shall at all times collectively retain
ownership of no less than seventy-five percent (75%) of the total common shares
of REIT and partnership units of Borrower beneficially owned by Robert
Batinovich or Andrew Batinovich, directly or indirectly, as of the Closing Date
as set forth on Schedule 5.2(q).
8.5 Management; Change in Control.
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(a) Either Robert Batinovich or Andrew Batinovich shall at all
times be active on a full time, continuous basis in the senior management of
Borrower and the REIT pursuant to a written employment contract having a
termination date no earlier than the Maturity Date, as it may be extended
pursuant to Section 2.1(d); provided that, if due to death or incapacity, both
Robert Batinovich and Andrew Batinovich are unable to act in such capacity,
Borrower shall have up to one hundred twenty (120) days to obtain the approval
of Requisite Lenders to additional executive(s), such that the remaining and new
management executives, as a group, have substantial and sufficient knowledge,
experience and capabilities in the management of a publicly-held company engaged
in the operation of a multi-asset real estate business of the type engaged in by
Borrower. In the event Borrower shall fail to obtain approval of Requisite
Lenders as aforesaid within said 120-day period, then Borrower shall, at the
election and upon the demand of Requisite Lenders, pay in full all Obligations
under the Loan Documents not later than thirty (30) days after the end of such
120-day period, whereupon this Agreement and all Commitments hereunder shall be
terminated. No further Borrowings shall be permitted until Borrower shall have
obtained approval of Requisite Lenders under this Section 8.5(a)
(b) Borrower shall not permit any Change in Control to occur.
8.6 Organization of Borrower, Etc. Borrower shall remain a California
limited partnership with the REIT as its sole general partner. At no time shall
Borrower be taxed as an association under the Internal Revenue Code.
8.7 REIT Board of Directors. At least sixty percent (60%) of the
membership of the REIT's board of directors shall remain outside directors who
shall have no material affiliation with the REIT or any of its Affiliates other
than such board position.
8.8 With Respect to the REIT:
(a) The REIT shall not own any material assets or engage in any
line of business other than the ownership of the common shares, preferred shares
and partnership interests described in Section 5.2(o).
(b) The REIT shall not directly or indirectly create, incur,
assume or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, except the Obligations and other Indebtedness of Borrower.
(c) The REIT shall not directly or indirectly create, incur,
assume or permit to exist any Lien on or with respect to any of its Property or
assets.
(d) The REIT shall at no time (i) cease to be a listed company on
the New York Stock Exchange, or (ii) cease to be a qualified real estate
investment trust in the manner referred to in Section 5.2(n).
(e) The REIT will not directly or indirectly convey, sell,
transfer, assign, pledge or otherwise encumber or dispose of any of its
partnership interests in Borrower or any of its other interests in commons
shares and preferred shares described in Section 5.2(o) held as of the Closing
Date.
(f) The REIT will not become a guarantor of, or otherwise become
personally liable for, any obligation of the Associated Companies or any
subsidiaries thereof or make any loans to the Associated Companies or any
subsidiaries thereof, which collectively exceed One Million Dollars
($1,000,000).
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ARTICLE IX
FINANCIAL COVENANTS
Borrower covenants and agrees that, on and after the date of this
Agreement and until payment in full of all the Obligations, the expiration of
all Commitments and the termination of this Agreement:
9.1 Minimum Net Worth. Borrower will maintain an Adjusted Net Worth of
not less than the Minimum Net Worth.
9.2 Total Liabilities to Gross Asset Value Ratio. The ratio of Total
Liabilities to Gross Asset Value shall not exceed 0.55:1.
9.3 Unencumbered NOI to Unsecured Interest Expense Ratio. The ratio of
Unencumbered NOI to Unsecured Interest Expense shall not be less than 2.00:1.
9.4 EBITDA to Debt Service and Capital Expenditures Ratio. The ratio
of Borrower's EBITDA to the sum of Debt Service and Borrower's Capital
Expenditures shall not be less than 2.25:1.
9.5 Secured Debt to Gross Asset Value Ratio. The ratio of Secured
Borrower Debt to Gross Asset Value shall not exceed 0.35:1.
9.6 Unencumbered Pool Value to Unsecured Liabilities. The ratio of the
Unencumbered Pool Value to Unsecured Liabilities shall not be less than 1.75:1.
9.7 Distributions.
(a) Subject to subsection (b) below, aggregate distributions to
shareholders of the REIT and all limited partners of Borrower shall not exceed
ninety percent (90%) of Funds From Operations for any Fiscal Quarter, with a
distribution being deemed made on the earlier of its actual payment or
declaration by Borrower. For purposes of this Section 9.5, the term
"distributions" shall mean and include all dividends (as determined in
accordance with the next sentence) and other distributions to, and the
repurchase of stock or limited partnership interests from, the holder of any
equity interests in Borrower or the REIT (other than the redemption of limited
partnership interests in Borrower in exchange for REIT stock). In the case of a
regular quarterly dividend to the holders of limited partnership units in
Borrower or shares in the REIT, aggregate "dividends" for purposes of
determining compliance with this Section 9.7 shall be calculated as follows: The
actual dividend per unit or share paid or declared by Borrower or the REIT
during such Fiscal Quarter shall be multiplied by the weighted average number of
all outstanding shares (and limited partnership units convertible into shares)
outstanding during such Fiscal Quarter.
(b) Aggregate distributions during the continuance of any Event
of Default shall not exceed the lesser of (i) the aggregate amount permitted to
be made during the continuance thereof under subsection (a) above, and (ii) the
minimum amount that the REIT must distribute to its shareholders in order to
avoid federal tax liability and to remain qualified as a real estate investment
trust as defined in Section 856 of the Internal Revenue Code (or any successor
provision thereto).
9.8 Aggregate Occupancy Rate. The Aggregate Occupancy Rate of each
Type of the Unencumbered Pool Properties shall at no time be less than (i) in
the case of Hotel Projects, fifty-five percent (55%), and (ii) in the case of
Properties of a Type other than Hotel Projects, eighty five percent (85%).
9.9 Restrictions on Certain Investments. Borrower may make the
following investments only so long as (a) the aggregate amount of all such
investments does not exceed, at any time, thirty-five percent (35%) of Gross
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Asset Value, and (b) the aggregate amount of each enumerated category of
investment does not exceed the specified percentage of Gross Asset Value, in
each case as of the date made:
Maximum Percentage of Gross
Restricted Investments Asset Value
- ----------------------- ------------------------------
Land: 8%
Securities: 10%
Investment Mortgages: 15%
Holdings in Unconsolidated Entities: 20%
Construction in Process 10%
For purposes of calculating compliance with the foregoing:
(i) the amount of each investment in (A) Land, Securities or
Investment Mortgages will be deemed to be the lesser of the original Acquisition
Price thereof or the amount at which such asset is carried on Borrower's books,
and (B) Holdings in Unconsolidated Entities will be deemed to be an amount equal
to (1) Borrower's Share of the EBITDA of each Unconsolidated Entity (other than
the Associated Companies) for the most recently ended Fiscal Quarter (excluding
EBITDA attributable to any Property not owned by any such Unconsolidated Entity
for the entire most recently ended Fiscal Quarter), times four (4), divided by
0.10; plus (2) Borrower's Share of the Acquisition Price paid for any Property
acquired by an Unconsolidated Entity during the most recently ended Fiscal
Quarter;
(ii) in the case of each investment in Land, Investment
Mortgages and Unconsolidated Entities, the nature of the underlying real
property asset and the conduct of business in respect thereof shall in all
respects comply with the limitations set forth in Section 7.1(i);
(iii) the amount of Borrower's investment in the Associated
Companies as of the Closing Date shall not be subject to the above limitation on
investments in Unconsolidated Entities, and shall not be included in such
calculation;
(iv) any Land that is planned for development within twelve
months from the date of acquisition by Borrower shall not be subject to the
above limitation on investments in Land, and shall not be included in such
calculation, provided that such exclusion shall cease to apply in the event that
such Land remains unimproved at the end of such 12-month period; and
(v) "Construction in Process" means any improvement on real
property owned or leased by Borrower until such time as a certificate of
occupancy (or its equivalent) has been issued with respect to all of such
improvement.
9.10 Calculation. Each of the foregoing ratios and financial
requirements shall be calculated as of the last day of each Fiscal Quarter, but
shall be satisfied at all times. For purposes of determining compliance with
Sections 9.3 and 9.4, the period covered thereby shall be the most recently
ended Fiscal Quarter preceding the date on which the coverage calculation is
determined.
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ARTICLE X
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
10.1 Events of Default. Each of the following occurrences shall
constitute an Event of Default under this Agreement:
(a) Failure to Make Payments When Due. Borrower shall fail to pay
(i) any amount due on the Maturity Date, (ii) any principal when due, or (iii)
any interest on any Loan, or any fee or other amount payable under any Loan
Documents, within five (5) days after the same becomes due.
(b) Distributions. Borrower or the REIT shall breach any covenant
set forth in Section 7.2(d) or 9.7.
(c) Breach of Financial Covenants. Borrower shall fail to satisfy
any financial covenant set forth in Article IX (other than the requirement in
Section 9.7) and such failure shall continue for thirty (30) days.
(d) Other Defaults. Borrower or the REIT shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on Borrower or the REIT under this Agreement or under any of the other Loan
Documents (other than as described in any other provision of this Section 10.1),
and with respect to agreements, covenants or obligations for which no time
period for performance is otherwise provided, such failure shall continue for
fifteen (15) days after Borrower or the REIT knew of such failure (or such
lesser period of time as is mandated by applicable Requirements of Law);
provided, however, if such failure is not capable of cure within such fifteen
(15) day period, then if Borrower promptly undertakes action to cure such
failure and thereafter diligently prosecutes such cure to completion within
forty-five (45) days after Borrower or the REIT knew of such failure, Borrower
shall not be in default hereunder.
(e) Breach of Representation or Warranty. Any representation or
warranty made or deemed made by Borrower or the REIT to Agent or any Lender
herein or in any of the other Loan Documents or in any statement, certificate or
financial statements at any time given by Borrower or the REIT pursuant to any
of the Loan Documents shall be false or misleading in any material respect on
the date as of which made.
(f) Default as to Other Indebtedness. (i) Borrower, the REIT, or
any Subsidiary or Investment Partnership shall have (A) failed to pay when due
(beyond any applicable grace period) any amount in respect of any Indebtedness
of such party other than the Obligations if the aggregate amount of such other
Indebtedness is Five Million Dollars ($5,000,000) or more; or (B) otherwise
defaulted (beyond any applicable grace period) under any Indebtedness of such
Person other than the Obligations if (1) the aggregate amount of such other
Indebtedness is Five Million Dollars ($5,000,000) or more, and (2) the holder of
such Indebtedness has accelerated such Indebtedness; or (ii) any other
Indebtedness, in an aggregate principal amount of Five Million Dollars
($5,000,000) or more, shall have otherwise become payable, or be required to be
purchased or redeemed, prior to its scheduled maturity; or (iii) the holder(s)
of any Lien, in any amount, commence foreclosure of such Lien upon any Property
owned by Borrower, the REIT or any Subsidiary or Investment Partnership having
an aggregate value in excess of Five Million Dollars ($5,000,000).
(g) Involuntary Bankruptcy; Appointment of Receiver, etc.
(i) An involuntary case shall be commenced against the REIT,
Borrower, or any Subsidiary or Investment Partnership and the petition shall not
be dismissed within sixty (60) days after
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commencement of the case, or a court having jurisdiction shall enter a decree or
order for relief in respect of any such Person in an involuntary case, under any
applicable bankruptcy, insolvency or other similar law now or hereinafter in
effect; or any other similar relief shall be granted under any applicable
federal, state or foreign law; or
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over the REIT, Borrower, or any
Subsidiary or Investment Partnership, or over all or a substantial part of the
property of any such Person, shall be entered; or an interim receiver, trustee
or other custodian of any such Person or of all or a substantial part of the
property of any such Person, shall be appointed or a warrant of attachment,
execution or similar process against any substantial part of the property of any
such Person, shall be issued and any such event shall not be stayed, vacated,
dismissed, bonded or discharged within sixty (60) days of entry, appointment or
issuance.
(h) Voluntary Bankruptcy; Appointment of Receiver, Etc. The REIT,
Borrower, or any Subsidiary or Investment Partnership shall have an order for
relief entered with respect to it or commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking of possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; any such Person shall make any assignment for the benefit of creditors
or shall be unable or fail, or admit in writing its inability, to pay its debts
as such debts become due; or the general partner of Borrower, or any Subsidiary
or Investment Partnership or the REIT's Board of Directors (or any committee
thereof), adopts any resolution or otherwise authorizes any action to approve
any of the foregoing.
(i) Judgments and Attachments. (i) Any money judgment (other than
a money judgment covered by insurance but only if the insurer has admitted
liability with respect to such money judgment), writ or warrant of attachment,
or similar process involving in any case an amount in excess of One Million
Dollars ($1,000,000) shall be entered or filed against the REIT, Borrower or any
Subsidiary or Investment Partnership or their respective assets and shall remain
undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days,
or (ii) any judgment or order of any court or administrative agency awarding
material damages shall be entered against any such Person in any action under
the Federal securities laws seeking rescission of the purchase or sale of, or
for damages arising from the purchase or sale of, any Securities, such judgment
or order shall have become final after exhaustion of all available appellate
remedies and, in Agent's judgment, the payment of such judgment or order would
have a Material Adverse Effect on such Person.
(j) Dissolution. Any order, judgment or decree shall be entered
against the REIT, Borrower, or any Subsidiary or Investment Partnership
decreeing its involuntary dissolution or split up and such order shall remain
undischarged and unstayed for a period in excess of thirty (30) days; or the
REIT or Borrower shall otherwise dissolve or cease to exist.
(k) Loan Documents; Failure of Subordination. If for any reason
any Loan Document shall cease to be in full force and effect or any Obligation
shall be subordinated in right of payment to any other liability of Borrower,
and, in either such case, such condition or event shall continue for fifteen
(15) days after Borrower, or the REIT knew of such condition or event.
(l) ERISA Liabilities. Any Termination Event occurs which will or
is reasonably likely to subject Borrower, the REIT or any ERISA Affiliate of
either of them to a liability which Agent reasonably determines will have a
Material Adverse Effect on Borrower, or the REIT, or the plan administrator of
any Benefit Plan applies for approval under Section 412(d) of the Internal
Revenue Code for a waiver of the minimum funding standards of Section 412(a) of
the Internal Revenue Code and Agent reasonably determines that the business
hardship upon which the Section 412(d) waiver was based will or would
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reasonably be anticipated to subject Borrower, the REIT or any ERISA Affiliate
or either of them to a liability which Agent determines will have a Material
Adverse Effect on Borrower, or the REIT.
(m) Environmental Liabilities. Borrower, the REIT, any Subsidiary
or any Investment Partnership becomes subject to any Liabilities and Costs which
Agent reasonably deems to have a Material Adverse Effect on Borrower or the REIT
arising out of or related to (i) the Release or threatened Release at any
Property of any Contaminant into the environment, or any Remedial Action in
response thereto, or (ii) otherwise any violation of any Environmental Laws.
(n) Solvency; Material Adverse Change. Borrower or the REIT shall
cease to be Solvent, or there shall have occurred any material adverse change in
the business, operations, properties, assets or condition (financial or
otherwise) of Borrower, or the REIT.
(o) Breach of Guaranty. The REIT shall fail to duly and
punctually perform or observe any agreement, covenant or obligation under its
Guaranty.
(p) Any Change in Control shall occur.
An Event of Default shall be deemed "continuing" until cured or
waived in writing in accordance with Section 12.4.
10.2 Rights and Remedies.
(a) Acceleration, Etc.. Upon the occurrence of any Event of
Default described in the foregoing Section 10.1(g) or 10.1(h) with respect to
the REIT or Borrower, the Commitments shall automatically and immediately
terminate and the unpaid principal amount of and any and all accrued interest on
the Loans shall automatically become immediately due and payable, with all
additional interest from time to time accrued thereon and without presentment,
demand or protest or other requirements of any kind (including, without
limitation, valuation and appraisement, diligence, presentment, notice of intent
to demand or accelerate or notice of acceleration), all of which are hereby
expressly waived by Borrower, and the obligations of Lenders to make any Loans
hereunder shall thereupon terminate; and upon the occurrence and during the
continuance of any other Event of Default, Agent shall, at the request, or may,
with the consent of Requisite Lenders, by written notice to Borrower, (i)
declare that the Commitments are terminated, whereupon the Commitments and the
obligation of Lenders to make any Loan hereunder shall immediately terminate,
and/or (ii) declare the unpaid principal amount of, any and all accrued and
unpaid interest on the Loans and all of the other Obligations to be, and the
same shall thereupon be, immediately due and payable with all additional
interest from time to time accrued thereon and without presentment, demand, or
protest or other requirements of any kind (including without limitation,
valuation and appraisement, diligence, presentment, notice of intent to demand
or accelerate and of acceleration), all of which are hereby expressly waived by
Borrower. In addition, Agent and Lenders shall have the rights, and Borrower
shall have the obligations, set forth in Section 2.1(e)(vi) with respect to each
outstanding Letter of Credit. Without limiting Agent's authority hereunder, on
or after the Maturity Date, Agent shall, at the request, or may, with the
consent, of Requisite Lenders exercise any or all rights and remedies under the
Loan Documents or applicable law.
(b) Waiver of Demand. Demand, presentment, protest and notice of
nonpayment are hereby waived by Borrower. Borrower also waives, to the extent
permitted by law, the benefit of all valuation, appraisal and exemption laws.
(c) Waivers, Amendments and Remedies. No delay or omission of
Agent or Lenders to exercise any right under any Loan Document shall impair such
right or be construed to be a waiver of any Event of Default or an acquiescence
therein, and any single or partial exercise of any such right shall not preclude
other or further exercise thereof or the exercise of any other right, and no
waiver, amendment or
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other variation of the terms, conditions or provisions of the Loan Documents
whatsoever shall be valid unless in a writing signed by Agent after obtaining
written approval thereof or the signature thereon of those Lenders required to
approve such waiver, amendment or other variation, and then only to the extent
in such writing specifically set forth. All remedies contained in the Loan
Documents or by law afforded shall be cumulative and all shall be available to
Agent and Lenders until the Obligations have been paid in full, the Commitments
have expired or terminated and this Agreement has been terminated.
10.3 Rescission. If at any time after acceleration of the maturity of
the Loans, Borrower shall pay all arrears of interest and all payments on
account of principal of the Loans which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified in this Agreement) and all Events of
Default and Unmatured Events of Default (other than nonpayment of principal of
and accrued interest on the Loans due and payable solely by virtue of
acceleration) shall be remedied or waived pursuant to Section 12.4, then by
written notice to Borrower, Requisite Lenders may elect, in their sole
discretion, to rescind and annul the acceleration and its consequences; but such
action shall not affect any subsequent Event of Default or Unmatured Event of
Default or impair any right or remedy consequent thereon. The provisions of the
preceding sentence are intended merely to bind Lenders to a decision which may
be made at the election of Requisite Lenders; they are not intended to benefit
Borrower and do not give Borrower the right to require Lenders to rescind or
annul any acceleration hereunder, even if the conditions set forth herein are
met.
ARTICLE XI
AGENCY PROVISIONS
11.1 Appointment.
(a) Each Lender hereby (i) designates and appoints Wells Fargo as
Agent of such Lender under this Agreement and the Loan Documents, (ii)
authorizes and directs Agent to enter into the Loan Documents other than this
Agreement for the benefit of Lenders, and (iii) authorizes Agent to take such
action on its behalf under the provisions of this Agreement and the Loan
Documents and to exercise such powers as are set forth herein or therein,
together with such other powers as are reasonably incidental thereto, subject to
the limitations referred to in Sections 11.10(a) and 11.10(b). Agent agrees to
act as such on the express conditions contained in this Article XI.
(b) The provisions of this Article XI are solely for the benefit
of Agent and Lenders, and Borrower shall not have any rights to rely on or
enforce any of the provisions hereof (other than as expressly set forth in
Sections 11.3, 11.9 and 12.19, provided, however, that the foregoing shall in no
way limit Borrower's obligations under this Article XI. In performing its
functions and duties under this Agreement, Agent shall act solely as Agent of
Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for Borrower or any
other Person.
11.2 Nature of Duties. Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement or in the
Loan Documents. The duties of Agent shall be administrative in nature. Subject
to the provisions of Sections 11.5 and 11.7, Agent shall administer the Loans in
the same manner as it administers its own loans. Promptly following the
effectiveness of this Agreement, Agent shall send to each Lender its originally
executed Note and the executed original, to the extent the same are available in
sufficient numbers, of each other Loan Document other than the Notes in favor of
other Lenders and filed or recorded security document or instruments, with the
latter to be held and retained by Agent for the benefit of all Lenders. Agent
shall not have by reason of this Agreement a fiduciary relationship in respect
of any Lender. Nothing in this Agreement or any of the Loan Documents, expressed
or implied, is intended or shall be construed to impose upon Agent any
obligation in respect of this Agreement or any of the Loan Documents except as
expressly set forth herein or therein. Each Lender shall make its own
independent investigation of the financial condition and affairs of the REIT,
Borrower
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and each Unencumbered Pool Property in connection with the making and the
continuance of the Loans hereunder and shall make its own appraisal of the
creditworthiness of the REIT and Borrower, and, except as specifically provided
herein, Agent shall not have any duty or responsibility, either initially or on
a continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before the Closing Date
or at any time or times thereafter.
11.3 Loan Disbursements.
(a) Not later than 1:00 P.M. (Pacific Standard Time) on the next
Business Day following receipt of a Notice of Borrowing, Agent shall send a copy
thereof by facsimile to each other Lender and shall otherwise notify each Lender
of the proposed Borrowing and the Funding Date. Each Lender shall make available
to Agent (or the funding bank or entity designated by Agent), the amount of such
Lender's Pro Rata Share of such Borrowing in immediately available funds not
later than the times designated in Section 11.3(b). Unless Agent shall have been
notified by any Lender not later than the close of business (San Francisco time)
on the Business Day immediately preceding the Funding Date in respect of any
Borrowing that such Lender does not intend to make available to Agent such
Lender's Pro Rata Share of such Borrowing, Agent may assume that such Lender
shall make such amount available to Agent. If any Lender does not notify Agent
of its intention not to make available its Pro Rata Share of such Borrowing as
described above, but does not for any reason make available to Agent such
Lender's Pro Rata Share of such Borrowing, such Lender shall pay to Agent
forthwith on demand such amount, together with interest thereon at the Federal
Funds Rate. In any case where a Lender does not for any reason make available to
Agent such Lender's Pro Rata Share of such Borrowing, Agent, in its sole
discretion, may, but shall not be obligated to, fund to Borrower such Lender's
Pro Rata Share of such Borrowing. If Agent funds to Borrower such Lender's Pro
Rata Share of such Borrowing and if such Lender subsequently pays to Agent such
corresponding amount, such amount so paid shall constitute such Lender's Pro
Rata Share of such Borrowing. Nothing in this Section 11.3(a) shall alter the
respective rights and obligations of the parties hereunder in respect of a
Defaulting Lender or a Non-Pro Rata Loan.
(b) Requests by Agent for funding by Lenders of Loans will be
made by telecopy. Each Lender shall make the amount of its Loan available to
Agent in Dollars and in immediately available funds, to such bank and account,
in El Segundo, California (to such bank and account in such other place) as
Agent may designate, not later than 9:00 A.M. (San Francisco time) on the
Funding Date designated in the Notice of Borrowing with respect to such Loan,
but in no event earlier than two (2) Business Days following Lender's receipt of
the applicable Notice of Borrowing.
(c) If (i) as of 10:00 a.m. (San Francisco time) on the third
(3rd) Business Day after the Swing Line Lender has funded any Swing Line
Borrowing (the date such Swing Line Borrowing was funded, the "Swing Line
Funding Date"), Borrower has neither (A) repaid such Swing Line Borrowing in
full, nor (B) notified the Swing Line Lender in writing that Borrower intends to
repay such Swing Line Borrowing in full on the next Business Day, nor (C) timely
delivered a Notice of Borrowing requesting a proposed Funding Date, no later
than the fourth (4th) Business Day after such Swing Line Funding Date, with
respect to a Loan in a principal amount sufficient to repay such Swing Line
Borrowing in full; or (ii) as of 11:00 a.m. on the fourth (4th) Business Day
after such Swing Line Funding Date, (A) Borrower has not repaid such Swing Line
Borrowing in full, or (B) the conditions precedent to any requested Loan the
proceeds of which were to have been used (in whole or in part) to repay such
Swing Line Borrowing have not been satisfied; or (iii) if, at any time prior to
the repayment of any Swing Line Borrowing, an Event of Default shall have
occurred or the Loans shall be accelerated, or the Maturity Date shall occur,
for any reason whatsoever: (1) the Swing Line Lender shall promptly (or, if an
Event of Default has occurred but the Loans have not been accelerated and the
Maturity Date has not occurred, may) notify each Lender by telephone (confirmed
promptly by telex, facsimile transmission or cable), telex, facsimile
transmission, or cable of the amount of such Swing Line Borrowing; and (2) each
Lender shall (subject to the limitation that no Lender shall be required to fund
any Loan that would cause its Loans to exceed such Lender's Commitment), (A) in
a case described in clause (i) of this Section 11.3(c), before 10:00 a.m. (San
Francisco time) on the next Business Day, or (B) in a case
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described in clause (ii) or clause (iii) of this Section 11.3(c), before 12:00
noon (San Francisco time) on the date of such notice, pay to the Swing Line
Lender, to such bank and account in El Segundo, California (or to such bank and
account in such other place) as the Swing Line Lender may designate, in
immediately available funds, such Lender's Pro Rata Share of the principal
amount of such Swing Line Borrowing. Upon such funding, each Lender shall be
deemed to have acquired from the Swing Line Lender (and the Swing Line Lender
shall be deemed to have assigned to each such Lender) a percentage interest in
such Swing Line Borrowing equal to such Lender's Pro Rata Share, and, for
purposes of determining the availability of Swing Line Borrowings or Loans, such
Swing Line Borrowing shall be deemed a Loan (and no longer a Swing Line
Borrowing); provided that the obligations of the Lenders under this Section
11.3(c) shall not be subject to the notice or amount requirements, or to
satisfaction of conditions precedent, otherwise applicable to the making of
Loans. Each Lender's obligation to fund, and to purchase from the Swing Line
Lender, its Pro Rata Share of a Swing Line Borrowing pursuant to this Section
11.3(c) shall be absolute and unconditional under any and all circumstances
(including, without limitation, irrespective of any intervening bankruptcy of
Borrower or acceleration of the Loans). It is not the parties' intent that the
obligations of the Lenders under this Section 11.3(c) constitute guaranties or
obligations of suretyship. If and to the extent, however, that the obligations
of any Lender under this Section 11.3(c) are determined to be those of a
guarantor or surety, such Lender, with full knowledge of the consequences
thereof, hereby expressly waives the benefit of each and every right or defense
of a guarantor or surety the effect of which would relieve such Lender of all or
any portion of its obligations under this Section 11.3(c). In the event that any
Lender fails to pay to the Swing Line Lender when due any amount it is required
to fund under this Section 11.3(c), such Lender and Borrower severally agree to
pay to the Swing Line Lender, on demand, the amount such Lender has failed to so
pay, together with interest thereon for each day from the date on which such
payment was due until the date such amount is repaid to the Agent, at (p) in the
case of Borrower, the Base Rate, or (q) in the case of such Lender, the Federal
Funds Rate. Any such repayment by Borrower shall be without prejudice to any
rights it may have against the Lender that has failed pay when due any such
amount.
(d) Nothing in this Section 11.3 shall be deemed to relieve any
Lender of its obligation (subject only to Section 2.1(b)(ii) in respect of the
funding of Swing Line Borrowings) hereunder to make its Pro Rata Share of Loans
on any Funding Date, nor shall any Lender be responsible for the failure of any
other Lender to perform its obligations to make any Loan hereunder, and the
Commitment of any Lender shall not be increased or decreased as a result of the
failure by any other Lender to perform its obligation to make a Loan.
11.4 Distribution and Apportionment of Payments.
(a) Subject to Section 11.4(b), payments actually received by
Agent for the account of Lenders shall be paid to them promptly after receipt
thereof by Agent, but in any event within one (1) Business Day, provided that
Agent shall pay to Lenders interest thereon, at the Federal Funds Rate from the
Business Day following receipt of such funds by Agent until such funds are paid
in immediately available funds to Lenders. Subject to Section 11.4(b), all
payments of principal and interest in respect of outstanding Loans, all payments
of the fees described in this Agreement, and all payments in respect of any
other Obligations shall be allocated among such of Lenders as are entitled
thereto, in proportion to their respective Pro Rata Shares or otherwise as
provided herein. Agent shall promptly distribute, but in any event within one
(1) Business Day, to each Lender at its primary address set forth on the
appropriate signature page hereof or on the Assignment and Assumption, or at
such other address as a Lender may request in writing, such funds as it may be
entitled to receive, provided that Agent shall in any event not be bound to
inquire into or determine the validity, scope or priority of any interest or
entitlement of any Lender and may suspend all payments and seek appropriate
relief (including, without limitation, instructions from Requisite Lenders or
all Lenders, as applicable, or an action in the nature of interpleader) in the
event of any doubt or dispute as to any apportionment or distribution
contemplated hereby. The order of priority herein is set forth solely to
determine the rights and priorities of Lenders as among themselves and may at
any time or from time to time be changed by Lenders as they may elect, in
writing in accordance with Section 12.4, without necessity of notice to or
consent of or approval by Borrower
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or any other Person. All payments or other sums received by Agent for the
account of Lenders shall not constitute property or assets of the Agent and
shall be held by Agent, solely in its capacity as agent for itself and the other
Lenders, subject to the Loan Documents.
(b) Notwithstanding any provision hereof to the contrary:
(i) The Unused Facility Fee shall be apportioned among the
Lenders in proportion to the actual average daily unused portions of their
respective Commitments (treating Swing Line Borrowings, for such purpose, as
usage of Agent's Commitment alone).
(ii) until such time as a Defaulting Lender has funded its
Pro Rata Share of a Loan which was previously a Non Pro Rata Loan, or all other
Lenders have received payment in full (whether by repayment or prepayment) of
the principal and interest due in respect of such Non Pro Rata Loan, all of the
Obligations owing to such Defaulting Lender hereunder shall be subordinated in
right of payment, as provided in the following sentence, to the prior payment in
full of all principal, interest and fees in respect of all Non Pro Rata Loans in
which the Defaulting Lender has not funded its Pro Rata Share (such principal,
interest and fees being referred to as "Senior Loans"). All amounts paid by
Borrower and otherwise due to be applied to the Obligations owing to the
Defaulting Lender pursuant to the terms hereof shall be distributed by Agent to
the other Lenders in accordance with their respective Pro Rata Shares
(recalculated for purposes hereof to exclude the Defaulting Lender's
Commitment), until all Senior Loans have been paid in full. This provision
governs only the relationship among Agent, each Defaulting Lender, and the other
Lenders; nothing hereunder shall limit the obligation of Borrower to repay all
Loans in accordance with the terms of this Agreement. The provisions of this
section shall apply and be effective regardless of whether an Event of Default
occurs and is then continuing, and notwithstanding (i) any other provision of
this Agreement to the contrary, (ii) any instruction of Borrower as to its
desired application of payments or (iii) the suspension of such Defaulting
Lender's right to vote on matters which are subject to the consent or approval
of Requisite Lenders or all Lenders. No Unused Facility Fee shall accrue in
favor of, or be payable to, such Defaulting Lender from the date of any failure
to fund Loans or reimburse Agent for any Liabilities and Costs as herein
provided until such failure has been cured, and Agent shall be entitled to (1)
withhold or setoff, and to apply to the payment of the defaulted amount and any
related interest, any amounts to be paid to such Defaulting Lender under this
Agreement, and (2) bring an action or suit against such Defaulting Lender in a
court of competent jurisdiction to recover the defaulted amount and any related
interest. In addition, the Defaulting Lender shall indemnify, defend and hold
Agent and each of the other Lenders harmless from and against any and all
Liabilities and Costs, plus interest thereon at the Default Rate, which they may
sustain or incur by reason of or as a direct consequence of the Defaulting
Lender's failure or refusal to abide by its obligations under this Agreement.
11.5 Rights, Exculpation, Etc. Neither Agent, any Affiliate of Agent,
nor any of their respective officers, directors, employees, agents, attorneys or
consultants, shall be liable to any Lender for any action taken or omitted by
them hereunder or under any of the Loan Documents, or in connection herewith or
therewith, except that Agent shall be liable for its gross negligence or willful
misconduct. In the absence of gross negligence or willful misconduct, Agent
shall not be liable for any apportionment or distribution of payments made by it
in good faith pursuant to Section 11.4, and if any such apportionment or
distribution is subsequently determined to have been made in error the sole
recourse of any Person to whom payment was due, but not made, shall be to
recover from the recipients of such payments any payment in excess of the amount
to which they are determined to have been entitled. Agent shall not be
responsible to any Lender for any recitals, statements, representations or
warranties herein or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any of the
other Loan Documents, or any of the transactions contemplated hereby and
thereby; or for the financial condition of the REIT or Borrower or any of their
Affiliates. Agent shall not be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
this Agreement or any of the Loan Documents or the financial condition of the
REIT or Borrower or any of their Affiliates, or the existence or possible
existence of any Unmatured Event of Default or Event of Default.
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11.6 Reliance. Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents, telecopies or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice of legal counsel (including counsel for
Borrower), independent public accountant and other experts selected by it.
11.7 Indemnification. To the extent that Agent is not reimbursed and
indemnified by Borrower, Lenders will reimburse, within ten (10) Business Days
after notice from Agent, and indemnify and defend Agent for and against any and
all Liabilities and Costs which may be imposed on, incurred by, or asserted
against it in any way relating to or arising out of this Agreement or any of the
other Loan Documents or any action taken or omitted by Agent or under this
Agreement or any of the other Loan Documents, in proportion to each Lender's Pro
Rata Share; provided that no Lender shall be liable for any portion of such
Liabilities and Costs resulting from Agent's gross negligence or willful
misconduct. The obligations of Lenders under this Section 11.7 shall survive the
payment in full of all Obligations and the termination of this Agreement. In the
event that after payment and distribution of any amount by Agent to Lenders, any
Lender or third party, including Borrower, any creditor of Borrower or a trustee
in bankruptcy, recovers from Agent any amount found to have been wrongfully paid
to Agent or disbursed by Agent to Lenders, then Lenders, in proportion to their
respective Pro Rata Shares, shall reimburse Agent for all such amounts.
Notwithstanding the foregoing, Agent shall not be obligated to advance
Liabilities and Costs and may require the deposit by each Lender of its Pro Rata
Share of any material Liabilities and Costs anticipated by Agent before they are
incurred or made payable.
11.8 Agent Individually. With respect to its Pro Rata Share of the
Commitments hereunder and the Loans made by it, Agent shall have and may
exercise the same rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein for any other
Lender. The terms "Lenders", "Requisite Lenders" or any similar terms may
include Agent in its individual capacity as a Lender or one of the Requisite
Lenders, but Requisite Lenders shall not include Agent solely in its capacity as
Agent and need not necessarily include Agent in its capacity as a Lender. Agent
and any Lender and its Affiliates may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with Borrower
or any of its Affiliates as if it were not acting as Agent or Lender pursuant
hereto.
11.9 Successor Agent; Resignation of Agent; Removal of Agent.
(a) Agent may resign from the performance of all its functions
and duties hereunder at any time by giving at least thirty (30) Business Days'
prior written notice to Lenders and Borrower, and shall automatically cease to
be Agent hereunder in the event a petition in bankruptcy shall be filed by or
against Agent or the Federal Deposit Insurance Corporation or any other
Governmental Authority shall assume control of Agent or Agent's interests under
the Facility. Further, Lenders (other than Agent) may unanimously remove Agent
at any time for good cause by giving at least thirty (30) Business Days' prior
written notice to Agent, Borrower and all other Lenders. Such resignation or
removal shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (b) or (c). Concurrent with the effectiveness of
such appointment, Borrower shall pay to the retiring or removed Agent any
accrued and unpaid agency fee, or Agent shall refund to Borrower any prepaid
agency fee, in each case prorated to the effective date of such appointment of a
successor Agent.
(b) Upon any such notice of resignation by or removal of Agent,
Requisite Lenders shall appoint a successor Agent which appointment shall be
subject to Borrower's consent (other than upon the occurrence and during the
continuance of any Event of Default), which shall not be unreasonably withheld
or delayed. Any successor Agent must be a bank (i) the senior debt obligations
of which (or such bank's parent's senior unsecured debt obligations) are rated
not less than Baa-2 by Moody's or a comparable rating by a rating agency
acceptable to Requisite Lenders and (ii) which has total assets in excess of Ten
Billion Dollars ($10,000,000,000). Such successor Agent shall separately confirm
in writing with Borrower the fee to be paid to such Agent pursuant to Section
2.5(b).
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(c) If a successor Agent shall not have been so appointed within
said thirty (30) Business Day period, the retiring or removed Agent, with the
consent of Borrower (other than upon the occurrence and during the continuance
of any Event of Default)(which may not be unreasonably withheld or delayed),
shall then appoint a successor Agent who shall meet the requirements described
in subsection (b) above and who shall serve as Agent until such time, if any, as
Requisite Lenders, with the consent of Borrower (other than upon the occurrence
and during the continuance of any Event of Default), appoint a successor Agent
as provided above.
(d) Each successor Agent appointed pursuant to this Section 11.9
shall concurrently assume the rights and obligations of the Swing Line Lender
under this Agreement (including the Swing Line Lender's commitment to fund Swing
Line Borrowings and its interest in outstanding advances under the Swing Line).
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and Swing Line
Lender, and the retiring Agent and Swing Line Lender shall be discharged from
its duties and obligations under this Agreement. Notwithstanding any provision
of Section 12.19 to the contrary, the commitment of the Swing Line Lender to
fund Swing Line Borrowings and the Swing Line Lender's interest in outstanding
Swing Line Borrowings may not be assigned to any Person other than a Person who
concurrently becomes both a successor Agent pursuant to this Section 11.9 and
the Swing Line Lender.
11.10 Consent and Approvals.
(a) Each consent, approval, amendment, modification or waiver
specifically enumerated in this Section 11.10(a) shall require the consent of
Requisite Lenders:
(i) Approval of any material amendment of organizational
documents (Section 8.2);
(ii) Approval of new Unencumbered Pool Properties (Section
3.1);
(iii) Approval of certain changes in Borrower's executive
officers (Section 8.5(a));
(iv) Acceleration following an Event of Default (Section
10.2(a)) or rescission of such acceleration (Section 10.3);
(v) Approval of the exercise of rights and remedies under
the Loan Documents following an Event of Default (Section 10.2(a));
(vi) Appointment of a successor Agent (Section 11.9);
(vii) Approval of a change in the method of calculation of
any financial covenants, standards or terms as a result a change in accounting
principles (Section 12.3); and
(viii) Except as referred to in subsection (b) below,
approval of any amendment, modification or termination of this Agreement, or
waiver of any provision herein (Section 12.4).
(b) Each consent, approval, amendment, modification or waiver
specifically enumerated in Section 12.4 as requiring the consent of all Lenders
shall require the consent of all Lenders.
(c) In addition to the required consents or approvals referred to
in subsection (a) above, Agent may at any time request instructions from
Requisite Lenders with respect to any actions or approvals which, by the terms
of this Agreement or of any of the Loan Documents, Agent is permitted or
required to take or to grant without instructions from any Lenders, and if such
instructions are promptly requested,
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Agent shall be absolutely entitled to refrain from taking any action or to
withhold any approval and shall not be under any liability whatsoever to any
Person for refraining from taking any action or withholding any approval under
any of the Loan Documents until it shall have received such instructions from
Requisite Lenders. Without limiting the foregoing, no Lender shall have any
right of action whatsoever against Agent as a result of Agent acting or
refraining from acting under this Agreement or any of the other Loan Documents
in accordance with the instructions of Requisite Lenders or, where applicable,
all Lenders. Agent shall promptly notify each Lender at any time that the
Requisite Lenders have instructed Agent to act or refrain from acting pursuant
hereto.
(d) Each Lender agrees that any action taken by Agent at the
direction or with the consent of Requisite Lenders in accordance with the
provisions of this Agreement or any Loan Document, and the exercise by Agent at
the direction or with the consent of Requisite Lenders of the powers set forth
herein or therein, together with such other powers as are reasonably incidental
thereto, shall be authorized and binding upon all Lenders, except for actions
specifically requiring the approval of all Lenders. All communications from
Agent to Lenders requesting Lenders' determination, consent, approval or
disapproval (i) shall be given in the form of a written notice to each Lender,
(ii) shall be accompanied by a description of the matter or thing as to which
such determination, approval, consent or disapproval is requested, or shall
advise each Lender where such matter or thing may be inspected, or shall
otherwise describe the matter or issue to be resolved, (iii) shall include, if
reasonably requested by a Lender and to the extent not previously provided to
such Lender, written materials and a summary of all oral information provided to
Agent by Borrower in respect of the matter or issue to be resolved, and (iv)
shall include Agent's recommended course of action or determination in respect
thereof. Each Lender shall reply promptly, but in any event within ten (10)
Business Days (the "Lender Reply Period"). Unless a Lender shall give written
notice to Agent that it objects to the recommendation or determination of Agent
(together with a written explanation of the reasons behind such objection)
within the Lender Reply Period, such Lender shall be deemed to have approved of
or consented to such recommendation or determination. With respect to decisions
requiring the approval of Requisite Lenders or all Lenders, Agent shall submit
its recommendation or determination for approval of or consent to such
recommendation or determination to all Lenders and upon receiving the required
approval or consent shall follow the course of action or determination
recommended to Lenders by Agent or such other course of action recommended by
Requisite Lenders, and each non-responding Lender shall be deemed to have
concurred with such recommended course of action.
11.11 Agency Provisions Relating to Enforcement of Certain Rights.
(a) Agent is hereby authorized on behalf of all Lenders, without
the necessity of any notice to or further consent from any Lender, to waive the
imposition of the late fees provided for in Section 2.4(e) up to a maximum of
two (2) times per calendar year, including any extensions.
(b) Should Agent (i) employ counsel for advice or other
representation (whether or not any suit has been or shall be filed) with respect
to any of the Loan Documents, or (ii) commence any proceeding or in any way seek
to enforce its rights or remedies under the Loan Documents, each Lender, upon
demand therefor from time to time, shall contribute its share (based on its Pro
Rata Share) of the reasonable costs and/or expenses of any such advice or other
representation, enforcement or acquisition, including, but not limited to, fees
of receivers, court costs, appraisers' fees and fees and expenses of attorneys
to the extent not otherwise reimbursed by Borrower; provided that Agent shall
not be entitled to reimbursement of its attorneys' fees and expenses incurred in
connection with the resolution of disputes between Agent and other Lenders
unless Agent shall be the prevailing party in any such dispute. Any loss of
principal and interest resulting from any Event of Default shall be shared by
Lenders in accordance with their respective Pro Rata Shares. It is understood
and agreed that in the event Agent determines it is necessary to engage counsel
for Lenders from and after the occurrence of an Event of Default, said counsel
shall be selected by Agent.
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11.12 Ratable Sharing. Subject to Sections 11.3 and 11.4, Lenders
agree among themselves that (i) with respect to all amounts received by them
which are applicable to the payment of the Obligations, equitable adjustment
will be made so that, in effect, all such amounts will be shared among them
ratably in accordance with their Pro Rata Shares, whether received by voluntary
payment, by counterclaim or cross action or by the enforcement of any or all of
the Obligations, (ii) if any of them shall by voluntary payment or by the
exercise of any right of counterclaim or otherwise, receive payment of a
proportion of the aggregate amount of the Obligations held by it which is
greater than its Pro Rata Share of the payments on account of the Obligations,
the one receiving such excess payment shall purchase, without recourse or
warranty, an undivided interest and participation (which it shall be deemed to
have done simultaneously upon the receipt of such payment) in such Obligations
owed to the others so that all such recoveries with respect to such Obligations
shall be applied ratably in accordance with their Pro Rata Shares; provided,
that if all or part of such excess payment received by the purchasing party is
thereafter recovered from it, those purchases shall be rescinded and the
purchase prices paid for such participations shall be returned to that party to
the extent necessary to adjust for such recovery, but without interest except to
the extent the purchasing party is required to pay interest in connection with
such recovery. Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 11.12 may, to the fullest extent
permitted by law, exercise all its rights of payment with respect to such
participation as fully as if such Lender were the direct creditor of Borrower in
the amount of such participation.
11.13 Delivery of Documents. Agent shall as soon as reasonably
practicable distribute to each Lender at its primary address set forth on the
appropriate counterpart signature page hereof, or at such other address as a
Lender may request in writing, (i) copies of all documents to which such Lender
is a party or of which such Lender is a beneficiary set forth in Article 4, (ii)
all documents of which Agent receives copies from Borrower pursuant to Sections
6.1 and 12.6, (iii) all other documents or information which Agent is required
to send to Lenders pursuant to the terms of this Agreement, (iv) other
information or documents received by Agent at the request of any Lender, and (v)
all notices received by Agent pursuant to Section 6.2. In addition, within
fifteen (15) Business Days after receipt of a request in writing from a Lender
for written information or documents provided by or prepared by Borrower, the
REIT or any Subsidiary or Investment Partnership, Agent shall deliver such
written information or documents to such requesting Lender if Agent has
possession of such written information or documents in its capacity as Agent or
as a Lender.
11.14 Notice of Events of Default. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Unmatured Event of Default or Event
of Default (other than nonpayment of principal of or interest on the Loans)
unless Agent has received notice in writing from a Lender or Borrower referring
to this Agreement or the other Loan Documents, describing such event or
condition and expressly stating that such notice is a notice of an Unmatured
Event of Default or Event of Default. Should Agent receive such notice of the
occurrence of an Unmatured Event of Default or Event of Default, or should Agent
send Borrower a notice of Unmatured Event of Default or Event of Default, Agent
shall promptly give notice thereof to each Lender.
ARTICLE XII
MISCELLANEOUS
12.1 Expenses.
(a) Generally. Borrower agrees upon demand to pay, or reimburse
Agent for, all of Agent's external audit, legal (to the extent incurred
following the Closing Date and not relating to the closing of this Agreement),
appraisal, valuation and investigation expenses and for all other reasonable
out-of-pocket costs and expenses of every type and nature (excluding Agent's
travel expenses, but including, without limitation, the reasonable fees,
expenses and disbursements of Agent's internal appraisers, environmental
advisors or legal counsel) incurred by Agent at any time (whether prior to, on
or after the date of this Agreement) in connection with (i) its own audit and
investigation of Borrower and the Unencumbered Pool; (ii) the negotiation,
preparation and execution of this Agreement (including, without limitation, the
satisfaction or attempted satisfaction of any of the conditions set forth in
Article IV) and the other Loan
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<PAGE>
Documents and the making of the Loans; (iii) the review and, if applicable,
acceptance of additional Unencumbered Pool Properties and reasonable attorneys'
fees and costs incurred in connection therewith; (iv) the syndication of the
Loans; (v) the administration of this Agreement, the other Loan Documents and
the Loans, including, without limitation, consultation with attorneys in
connection therewith; and (vi) the protection, collection or enforcement of any
of the Obligations.
(b) After Event of Default. Borrower further agrees to pay, or
reimburse Agent and Lenders, for all reasonable out-of-pocket costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements incurred by Agent or Lenders after the occurrence of an Event of
Default (i) in enforcing any Obligation or exercising or enforcing any other
right or remedy available by reason of such Event of Default; (ii) in connection
with any refinancing or restructuring of the credit arrangements provided under
this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy
proceeding; (iii) in commencing, defending or intervening in any litigation or
in filing a petition, complaint, answer, motion or other pleadings in any legal
proceeding relating to Borrower, the REIT or any Subsidiary and related to or
arising out of the transactions contemplated hereby; or (iv) in taking any other
action in or with respect to any suit or proceeding (whether in bankruptcy or
otherwise).
12.2 Indemnity. Borrower further agrees to defend, protect, indemnify
and hold harmless Agent, each and all of the Lenders, each of their respective
Affiliates and participants and each of the respective officers, directors,
employees, agents, attorneys and consultants (including, without limitation,
those retained in connection with the satisfaction or attempted satisfaction of
any of the conditions set forth in Article IV) of each of the foregoing
(collectively called the "Indemnitees") from and against any and all Liabilities
and Costs imposed on, incurred by, or asserted against such Indemnitees (whether
based on any federal or state laws or other statutory regulations, including,
without limitation, securities and commercial laws and regulations, under common
law or in equity, and based upon contract or otherwise, including any liability
and costs arising as a result of a "prohibited transaction" under ERISA to the
extent arising from or in connection with the past, present or future operations
of the REIT, Borrower or any ERISA Affiliate of either of them or their
respective predecessors in interest) in any manner relating to or arising out of
this Agreement, or the other Loan Documents, or any act, event or transaction
related or attendant thereto, the making of and participation in the Loans and
the management of the Loans, or the use or intended use of the proceeds of the
Loans (collectively, the "Indemnified Matters"); provided, however, that
Borrower shall have no obligation to an Indemnitee hereunder with respect to (a)
matters for which such Indemnitee has been compensated pursuant to or for which
an exemption is provided in Section 2.4(g) or any other provision of this
Agreement, and (b) Indemnified Matters to the extent caused by or resulting from
the willful misconduct or gross negligence of that Indemnitee, as determined by
a court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, Borrower
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified Matters
incurred by the Indemnitees.
12.3 Change in Accounting Principles. Except as otherwise provided
herein, if any changes in accounting principles from those used in the
preparation of the most recent financial statements delivered to Agent pursuant
to the terms hereof are hereinafter required or permitted by the rules,
regulations, pronouncements and opinions of the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) and are adopted by the REIT or
Borrower with the agreement of its independent certified public accountants and
such changes result in a change in the method of calculation of any of the
financial covenants, standards or terms found herein, the parties hereto agree
to enter into negotiations in order to amend such provisions so as to equitably
reflect such changes with the desired result that the criteria for evaluating
the financial condition of Borrower shall be the same after such changes as if
such changes had not been made; provided, however, that no change in GAAP that
would affect the method of calculation of any of the financial covenants,
standards or terms shall be given effect in such calculations until such
provisions are amended, in a manner satisfactory to Agent and Requisite Lenders,
to so reflect such change in accounting principles.
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12.4 Amendments and Waivers. (a) No amendment or modification of any
provision of this Agreement shall be effective without the written agreement of
Requisite Lenders (after notice to all Lenders) and Borrower (except for
amendments to Section 11.4(a), which do not require the consent of Borrower),
and (b) no termination or waiver of any provision of this Agreement, or consent
to any departure by Borrower therefrom (except as expressly provided in Section
11.11(a) with respect to waivers of late fees), shall in any event be effective
without the written concurrence of Requisite Lenders (after notice to all
Lenders), which Requisite Lenders shall have the right to grant or withhold at
their sole discretion, except that the following amendments, modifications or
waivers shall require the consent of all Lenders:
(i) increasing the Commitments or any Lender's Commitment;
(ii) changing the principal amount or final maturity of the
Loans including pursuant to Section 2.1(d);
(iii) reducing the interest rates applicable to the Loans;
(iv) reducing the rates on which fees payable pursuant
hereto are determined;
(v) forgiving or delaying any amount payable or receivable
under Article II (other than late fees in accordance with Section 11.11(a));
(vi) changing the definition of "Requisite Lenders", "Loan
Availability", "Pro Rata Shares" or "Unencumbered Pool Value";
(vii) changing any provision contained in Section 9.2 or
Section 9.6;
(viii) removal of Agent pursuant to Section 11.9;
(ix) changing any provision contained in this Section 12.4;
(x) releasing any obligor under any Loan Document; or
(xi) consent to assignment by Borrower of all of its duties
and Obligations hereunder pursuant to Section 12.14.
No amendment, modification, termination or waiver of any provision of Article XI
or any other provision referring to Agent shall be effective without the written
concurrence of Agent, but only if such amendment, modification, termination or
waiver alters the obligations or rights of Agent. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on Borrower in any case shall entitle
Borrower to any other further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 12.4 shall be binding on each assignee,
transferee or recipient of Agent's or any Lender's Commitment under this
Agreement or the Loans at the time outstanding.
12.5 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of an Event of Default or Unmatured Event of Default if such
action is taken or condition exists, and if a particular action or condition is
expressly permitted under any covenant, unless expressly limited to such
covenant, the fact that it would not be permitted under the general provisions
of another covenant shall not constitute an Event of Default or Unmatured Event
of Default if such action is taken or condition exists.
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12.6 Notices and Delivery. Unless otherwise specifically provided
herein, any consent, notice or other communication herein required or permitted
to be given shall be in writing and may be personally served, telecopied or sent
by courier service or United States mail and shall be deemed to have been given
when delivered in person or by courier service, upon receipt of a telecopy (or
on the next Business Day if such telecopy is received on a non-Business Day or
after 5:00 p.m. on a Business Day) or four (4) Business Days after deposit in
the United States mail (registered or certified, with postage prepaid and
properly addressed). Notices to Agent pursuant to Article II shall not be
effective until received by Agent. For the purposes hereof, the addresses of the
parties hereto (until notice of a change thereof is delivered as provided in
this Section 12.6) shall be as set forth below each party's name on the
signature pages hereof, or, as to each party, at such other address as may be
designated by such party in a written notice to all of the other parties. All
deliveries to be made to Agent for distribution to the Lenders shall be made to
Agent at the addresses specified for notice on the signature page hereto and in
addition, a sufficient number of copies of each such delivery shall be delivered
to Agent for delivery to each Lender at the address specified for deliveries on
the signature page hereto or such other address as may be designated by Agent in
a written notice.
12.7 Survival of Warranties, Indemnities and Agreements. All
agreements, representations, warranties and indemnities made or given herein
shall survive the execution and delivery of this Agreement and the other Loan
Documents and the making and repayment of the Loans hereunder and such
indemnities shall survive termination hereof.
12.8 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure
or delay on the part of Agent or any Lender in the exercise of any power, right
or privilege under any of the Loan Documents shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under the Loan Documents are
cumulative to and not exclusive of any rights or remedies otherwise available.
12.9 Payments Set Aside. To the extent that Borrower makes a payment
or payments to Agent or the Lenders or Agent or the Lenders exercise their
rights of setoff, and such payment or payments or the proceeds of such setoff or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery, the Obligation or part
thereof originally intended to be satisfied, and rights and remedies therefor,
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
12.10 Severability. In case any provision in or obligation under this
Agreement or the other Loan Documents shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby, provided,
however, that if the rates of interest or any other amount payable hereunder, or
the collectibility thereof, are declared to be or become invalid, illegal or
unenforceable, Lenders' obligations to make Loans shall not be enforceable.
12.11 Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
12.12 Governing Law. This Agreement shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of California.
12.13 Limitation of Liability. To the extent permitted by applicable
law, no claim may be made by Borrower, any Lender or any other Person against
Agent or any Lender, or the affiliates, directors, officers, employees,
attorneys or agents of any of them, for any special, indirect, consequential or
punitive damages in respect of any claim for breach of contract or any other
theory of liability arising out of or related to the transactions contemplated
by this Agreement, or any act, omission or event occurring in connection
therewith; and Borrower and each Lender hereby waive, release and agree not to
sue upon any claim for any such damages, whether or not
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accrued and whether or not known or suspected to exist in its favor, provided
that if a Lender refuses to fund a Loan and a court of competent jurisdiction
finds that such refusal was without justification and in bad faith, such Lender
may be liable to Borrower for Borrower's reasonable and foreseeable damages
resulting from such refusal to fund.
12.14 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding upon the parties hereto and their respective
successors and assigns and shall inure to the benefit of the parties hereto and
the successors and permitted assigns of Agent and Lenders. The terms and
provisions of this Agreement shall inure to the benefit of any assignee or
transferee of the Loans and the Commitments of Lenders under this Agreement, and
in the event of such transfer or assignment, the rights and privileges herein
conferred upon Agent and Lenders shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
Borrower's rights or any interest therein hereunder, and Borrower's duties and
Obligations hereunder, shall not be assigned without the consent of all Lenders.
12.15 Consent to Jurisdiction and Service of Process; Waiver of Jury
Trial. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST BORROWER WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE AND ALL JUDICIAL PROCEEDINGS BROUGHT
BY BORROWER WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION HAVING SITUS
WITHIN THE BOUNDARIES OF THE FEDERAL COURT DISTRICT OF THE NORTHERN DISTRICT OF
CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER ACCEPTS,
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY
ANY FINAL JUDGMENT RENDERED THEREBY FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS
AVAILABLE. BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS NOTICE ADDRESS
SPECIFIED ON THE SIGNATURE PAGES HEREOF. BORROWER, AGENT AND LENDERS IRREVOCABLY
WAIVE (A) TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, AND (B) ANY OBJECTION (INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS
OF ANY OTHER JURISDICTION.
12.16 Counterparts; Effectiveness; Inconsistencies. This Agreement and
any amendments, waivers, consents or supplements may be executed in
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such together shall constitute but one and the same
instrument. This Agreement shall become effective when (i) Borrower, the initial
Lenders and Agent have duly executed and delivered signature pages of this
Agreement to each other (delivery by Borrower to Lenders and by any Lender to
Borrower and any other Lender being deemed to have been made by delivery to
Agent) and (ii) Agent has received the fees referred to in Section 4.1(j). Agent
shall send written confirmation of the Closing Date to Borrower and each other
Lender promptly following the occurrence thereof. This Agreement and each of the
other Loan Documents shall be construed to the extent reasonable to be
consistent one with the other, but to the extent that the terms and conditions
of this Agreement are actually and directly inconsistent with the terms and
conditions of any other Loan Document, this Agreement shall govern.
12.17 Construction. The parties acknowledge that each party and its
counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or exhibits hereto.
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12.18 Entire Agreement. This Agreement, taken together with all of the
other Loan Documents and all certificates and other documents delivered by
Borrower to Agent, embodies the entire agreement and supersede all prior
agreements, written and oral, relating to the subject matter hereof.
12.19 Assignments and Participations.
(a) As of the Closing Date, Wells Fargo will be the sole Lender.
After first obtaining the approval of Agent and Borrower (other than upon the
occurrence and during the continuance of any Event of Default), which approval
will not be unreasonably withheld, each Lender may assign to one or more
Eligible Assignees, all or a portion of its rights and obligations under this
Agreement (including without limitation all or a portion of its Commitment and
the Loans owing to it) and other Loan Documents; provided, however, that (i)
each such assignment shall be of a constant, and not a varying, percentage of
the assigning Lender's rights and obligations under this Agreement and other
Loan Documents, and the assignment shall cover the same percentage of such
Lender's Commitment and Loans, (ii) the aggregate amount of the Commitment of
the assigning Lender being assigned pursuant to each such assignment (determined
as of the date of the Assignment and Assumption with respect to such assignment)
shall in no event be less than Ten Million Dollars ($10,000,000) and shall be an
integral multiple of One Million Dollars ($1,000,000), (iii) after giving effect
to such assignment, the aggregate amount of the Commitment retained by the
assigning Lender shall in no event be less than Five Million Dollars
($5,000,000), (iv) at all times prior to its resignation or replacement or an
Event of Default, Agent's Commitment shall be equal to or exceed the Commitment
of each other Lender, (v) the parties to each such assignment shall execute and
deliver to Agent, for its approval and acceptance, an Assignment and Assumption,
and (vi) Agent shall receive from the assignor a processing fee of Three
Thousand Dollars ($3,000). Without restricting the right of Borrower or Agent to
reasonably object to any bank or financial institution becoming an assignee of
an interest of a Lender hereunder, each proposed assignee must be an existing
Lender or a bank or financial institution which (A) has (or, in the case of a
bank which is a subsidiary, such bank's parent has) a rating of its senior
unsecured debt obligations of not less than Baa-2 by Moody's or a comparable
rating by a rating agency acceptable to Agent and (B) has total assets in excess
of Ten Billion Dollars ($10,000,000,000). Unless Agent or Borrower gives written
notice to the assigning Lender that it objects to the proposed assignment
(together with a written explanation of the reasons behind such objection)
within ten (10) Business Days following receipt of the assigning Lender's
written request for approval of the proposed assignment, Agent or Borrower, as
the case may be, shall be deemed to have approved such assignment. Upon such
execution, delivery, approval and acceptance, and upon the effective date
specified in the applicable Assignment and Assumption, (X) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Assumption, have the rights and obligations of a Lender hereunder, and (Y) the
assigning Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Assumption,
relinquish its rights and be released from its obligations under this Agreement.
(b) By executing and delivering an Assignment and Assumption, the
assigning Lender thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Assumption, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
Loan Document or any other instrument or document furnished pursuant hereto;
(ii) such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the REIT or Borrower
or the performance or observance by the REIT or Borrower or of any of their
respective obligations under any Loan Document or any other instrument or
document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Article V or delivered pursuant to Article VI to the
date of such assignment and such other Loan Documents and other documents and
information as it has deemed
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appropriate to make its own credit analysis and decision to enter into such
Assignment and Assumption; (iv) such assignee will, independently and without
reliance upon Agent, such assigning Lender or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (v) such assignee appoints and authorizes Agent to take such action
as Agent on its behalf and to exercise such powers under this Agreement and the
other Loan Documents as are delegated to Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
(c) Agent shall maintain, at its address referred to on the
counterpart signature pages hereof, a copy of each Assignment and Assumption
delivered to and accepted by it and shall record in the Loan Account the names
and addresses of each Lender and the Commitment of, and principal amount of the
Loans owing to, such Lender from time to time. Borrower, Agent and Lenders may
treat each Person whose name is recorded in the Loan Account as a Lender
hereunder for all purposes of this Agreement.
(d) Upon its receipt of an Assignment and Assumption executed by
an assigning Lender and an assignee, Agent shall, if such Assignment and
Assumption has been properly completed and is in substantially the form of
Exhibit A, (i) accept such Assignment and Assumption, (ii) record the
information contained therein in the Loan Account, and (iii) give prompt notice
thereof to Borrower. Upon request, Borrower will execute and deliver to Agent an
appropriate replacement promissory note or replacement promissory notes in favor
of each assignee (and assignor, if such assignor is retaining a portion of its
Commitment and Loans) reflecting such assignee's (and assignor's) Pro Rata
Share(s) of the Facility. Upon execution and delivery of such replacement
promissory notes the original promissory note or notes evidencing all or a
portion of the Commitments and Loans being assigned shall be canceled and
returned to Borrower.
(e) Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement (including without limitation all or a portion of its Commitment
and the Loans owing to it) and other Loan Documents; provided, however, that (i)
such Lender's obligations under this Agreement (including without limitation its
Commitment to Borrower hereunder) shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) Borrower, Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and with regard to any and all
payments to be made under this Agreement, and (iv) the holder of any such
participation shall not be entitled to voting rights under their participation
agreement except for voting rights with respect to (A) increases in the
Facility; (B) extensions of the Maturity Date; (C) decreases in the interest
rates or fees described in this Agreement; and (D) the release of the Guaranty.
No participant shall be entitled to vote on any matter until the Lender with
which such participant is participating in the Facility and the Loans confirms
such participant's status as a participant hereunder.
(f) As of the Closing Date, Wells Fargo will be the sole Lender.
Borrower will use reasonable efforts to cooperate with Agent and Lenders in
connection with the assignment of interests under this Agreement or the sale of
participations herein. Borrower also agrees to amend this agreement to add such
additional provisions, not materially inconsistent with those herein as of the
Closing Date, as Agent may reasonably determine are necessary to facilitate
syndication of the Facility, and to refrain from activity in the loan
syndication market until Agent has completed the syndication of the Facility or
until otherwise agreed in order to assure a clear market for the syndication.
(g) Anything in this Agreement to the contrary notwithstanding,
and without the need to comply with any of the formal or procedural requirements
of this Agreement, including Section 12.19, any Lender may at any time and from
time to time pledge and assign all or any portion of its rights under all or any
of the Loan Documents to a Federal Reserve Bank; provided that no such pledge or
assignment shall
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release such Lender from its obligations thereunder. To facilitate any such
pledge or assignment, Agent shall, at the request of such Lender, enter into a
letter agreement with the Federal Reserve Bank in substantially the form of the
exhibit to Appendix C to the Federal Reserve Bank of New York Operating Circular
No. 12.
(h) Anything in this Agreement to the contrary notwithstanding,
any Lender may assign all or any portion of its rights and obligations under
this Agreement to another branch or Affiliate of such Lender without first
obtaining the approval of Agent and Borrower, provided that (i) at the time of
such assignment such Lender is not a Defaulting Lender, (ii) such Lender gives
Agent and Borrower at least fifteen (15) days' prior written notice of any such
assignment, (iii) the parties to each such assignment execute and deliver to
Agent an Assignment and Assumption, and (iv) Agent receives from the assignor a
processing fee of Three Thousand Dollars ($3,000).
(i) No Lender shall be permitted to assign or sell all or any
portion of its rights and obligations under this Agreement to Borrower or any
Affiliate of Borrower.
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IN WITNESS WHEREOF, this Agreement has been duly executed on the
date set forth above.
BORROWER: GLENBOROUGH PROPERTIES, L.P.,
a California limited partnership
By: GLENBOROUGH REALTY TRUST
INCORPORATED, a Maryland corporation,
its general partner
By:
Andrew Batinovich
President and Chief Operating Officer
ADDRESS FOR NOTICE AND DELIVERY:
Glenborough Properties, L.P.
400 South El Camino Real
San Mateo, California 94402
Attn: Stephen Saul,
EVP-Chief Financial Officer
Tel: (415) 343-9300
Fax: (415) 343-9690
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<PAGE>
AGENT/LENDER: WELLS FARGO BANK, NATIONAL
ASSOCIATION
By
Its
ADDRESS FOR NOTICE AND DELIVERY:
Real Estate Capital Markets Group
555 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attn: Lezlie Beam
Vice President
Tel: (415) 396-8200
Fax: (415) 788-9421
Pro Rata Share: 100%
Loan Commitment: $250,000,000
LIBOR OFFICE:
Address: Real Estate Group
Disbursement Center
2120 East Park Place
Suite 100
El Segundo, CA 90245
Attn: Kim Masukawa
Telephone: (310) 335-9459
Telecopy: (310) 615-1014
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Exhibit 12.1
Glenborough Realty Trust Incorporated
Computation of Ratio of Earnings to Fixed Charges
for the five years ended December 31, 1997
<TABLE>
<CAPTION>
GRT Predecessor Entities, Combined The Company
Twelve Months Ended December 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- ------- -------- ---------
EARNINGS, AS DEFINED
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $ 4,418 $ 1,580 $ 524 $ (1,609) $ 19,368
Extraordinary and non-recurring items (2,274) -- -- 7,423 843
Federal & State income taxes 24 176 357 -- --
Minority Interest 5 43 -- 292 1,119
Fixed Charges 1,301 1,140 2,129 3,913 9,668
-------- -------- ------- --------- ---------
$ 3,474 $ 2,939 $ 3,010 $ 10,019 $ 30,998
-------- -------- ------- --------- ---------
FIXED CHARGES, AS DEFINED $ 1,301 $ 1,140 $ 2,129 $ 3,913 $ 9,668
-------- -------- ------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES 2.67 2.58 1.41 2.56 3.21
-------- -------- ------- --------- ---------
</TABLE>
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Exhibit 21.1
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
Glenborough Properties, L.P.
190
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation of our report dated January 21, 1998
(except with respect to the matters discussed in Note 14, as to which the date
is March 20, 1998) included in this Form 10-K, into the Company's previously
filed Registration Statement File Nos. 333-40959 and 333-27677.
/s/ ARTHUR ANDERSEN LLP
-------------------------
ARTHUR ANDERSEN LLP
San Francisco, California
March 24, 1998
191
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000929454
<NAME> GLENBOROUGH REALTY TRUST INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 5,070
<SECURITIES> 0
<RECEIVABLES> 6,334
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0
0
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</TABLE>
