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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_______________to____________
Commission file number 000-26572
NHP INCORPORATED
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 52-1445137
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State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
1225 Eye Street, N.W., Washington, D.C. 20005-3945
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Address of principal executive offices Zip Code
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Registrant's telephone number, including area code (202) 347-6247
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- -------------------
Common Stock, $0.01 Par Value Nasdaq
</TABLE>
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
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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 of this Form 10-K.
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The aggregate market value of the voting stock held by nonaffiliates of
the registrant was $93,352,051 at March 15, 1996, calculated in accordance with
the Securities and Exchange Commission rules as to beneficial ownership.
12,264,675 shares of the registrant's common stock were outstanding at
March 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE: None
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NHP INCORPORATED
FORM 10-K
TABLE OF CONTENTS
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Page
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PART I
Item 1. Business .................................................................................... 2
Item 2. Facilities .................................................................................. 17
Item 3. Legal Proceedings ........................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders ......................................... 17
PART II
Item 5. Market for the Company's Common Equity and Related Shareholder Matters ...................... 18
Item 6. Selected Financial Data ..................................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ....... 20
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements ............................................................... 31
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure ......... 54
PART III
Item 10. Directors and Executive Officers of the Registrant .......................................... 55
Item 11. Executive Compensation ...................................................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and Management .............................. 60
Item 13. Certain Relationships and Related Party Transactions ........................................ 62
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K ........................... 66
SIGNATURES .............................................................................................. 67
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INTRODUCTION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this Report and other Company filings (collectively "SEC
Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, related to subject matter such as national
and local economic conditions, the effect of governmental regulation on the
Company, the competitive environment in which the Company operates, the
availability of working capital, dispositions of properties managed by the
Company and the availability of acquisition opportunities. Such forward-looking
information involves risks and uncertainties that could significantly affect
expected results. These risks and uncertainties are addressed in this and other
SEC Filings.
PART I
ITEM 1. BUSINESS
OVERVIEW
NHP Incorporated (the "Company") provides a full range of property
management and related services to owners of conventional and affordable
multifamily properties located throughout the United States. According to 1995
year-end data published by the National Multi Housing Council and April 1994
data published by the United States Department of Housing and Urban Development
(HUD), the Company is the nation's second largest property manager of
multifamily properties and the largest manager of affordable properties based
on the number of units managed. As of December 31, 1995, the Company had a
total portfolio of 711 properties (comprising 133,667 units) in 38 states, the
District of Columbia and Puerto Rico. Although the Company does not own
interests in the properties it manages, it has a stable source of property
management revenue from properties for which selection of the management agent
is controlled by affiliates of the Company ("Affiliated Properties"). The
Company has increased the portfolio of properties to which it provides property
management services by 68,589 units on a net basis, or 105.4% in the last three
years and by 22,161 units or 19.9% in 1995 alone. The Company has provided a
full range of services and expertise to owners and managers of multifamily
residential real estate for over 20 years.
The Company has recently entered into an agreement to acquire
Washington Mortgage Financial Group. Upon completion of this acquisition, the
Company will become engaged in the business of originating and servicing
mortgage loans on multifamily properties. See "Other Services - Multifamily
Residential Mortgage Banking Services."
On August 18, 1995, the Company completed an initial public offering
("IPO") of 4.3 million shares of its common stock raising net proceeds of
approximately $52.0 million. Prior to that date the Company had been owned
solely by various private investors. Concurrently with the closing of the IPO,
the Company sold those of its subsidiaries which held all of the Company's
direct and indirect interest in property-owning partnerships, along with its
captive insurance subsidiary and certain other related assets (collectively
referred to as the "Real Estate Companies") to the two controlling shareholders
of the Company, Demeter Holdings Corporation ("Demeter") and Capricorn
Investors, L.P. ("Capricorn"), and J. Roderick Heller, III, the Chairman,
President and Chief Executive Officer of the Company ("Mr. Heller").
Accordingly, operating results and cash flows attributable to the Real Estate
Companies have been presented as discontinued operations in the accompanying
financial statements in conformity with generally accepted accounting
principles.
BACKGROUND
The NHP group of companies was formed in 1970 with the organization of
the National Corporation for Housing Partnerships ("NCHP") and The National
Housing Partnership (the "Partnership"). Both NCHP and the Partnership were
organized as private, for-profit entities pursuant to Title IX of the Housing
and Urban Development Act of 1968 and charged by Congress to promote private
investment in the production of low and moderate income housing . During their
first 15 years of operation, NCHP and the Partnership developed and syndicated
a portfolio of over 300 affordable housing projects, raising over $700 million
in equity from private investors.
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In connection with their development and ownership of low and moderate
income housing, NCHP and the Partnership developed systems for providing
property management and related services to such properties. Beginning in the
early 1980s, NCHP and the Partnership capitalized on the experience gained in
the affordable housing market by expanding into the development of, investment
in and provision of services to conventional multifamily properties. The
Company was incorporated in Delaware in 1986 as a holding corporation for NCHP,
the Partnership and other subsidiaries, in part to provide greater flexibility
to invest in and provide services to conventional properties. The Company has
ceased its development activities and has to a large extent divested itself of
businesses unrelated to managing multifamily residential properties.
Subsequent to the sale of the Real Estate Companies, the Company does
not hold, and does not intend to hold hereafter, any ownership interests in
real estate ventures. Pursuant to certain agreements (the "Intercompany
Agreements") with the Real Estate Companies, the Company will be selected as
the management agent for the properties owned by the Real Estate Companies for
a period of at least twenty-five years, subject to certain conditions (see
"Intercompany Agreements with the Real Estate Companies"). The Company will
also seek to find joint venture parties to hold real property interests
where the Real Estate Companies choose not to acquire the interest. If the Real
Estate Companies are unwilling or unable to acquire real property interests in
such transactions and the Company cannot immediately locate another party to
acquire such interests, the Company may purchase such interests and hold them,
but only until such time as it can locate another party to acquire the
interests on acceptable terms, or it may finance the Real Estate Companies'
acquisition of the interests (see "Acquisition Program - Potential
Acquisitions").
PROPERTIES SERVED
The following table sets forth certain information regarding the
portfolio of properties managed by the Company as of the dates shown.
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PROPERTIES MANAGED
As of December 31,
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Affordable Properties
Affiliated owners 419 406 399 338 327
Unaffiliated owners 29 28 16 15 16
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Total 448 434 415 353 343
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Conventional Properties
Affiliated owners 200 152 145 46 58
Unaffiliated owners 63 28 12 6 3
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Total 263 180 157 52 61
--------- ---------- ----------- --------- ----------
Total 711 614 572 405 404
========= ========== =========== ========= ==========
Percent Affiliated 87.1% 90.9% 95.1% 94.8% 95.3%
</TABLE>
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UNITS MANAGED
As of December 31,
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1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Affordable Units
Affiliated owners 51,998 49,815 49,436 43,173 42,123
Unaffiliated owners 5,202 4,714 1,582 1,586 2,105
-------- ------- -------- ------- --------
Total 57,200 54,529 51,018 44,759 44,228
======== ======= ======== ======= ========
Conventional Units
Affiliated owners 61,921 50,002 46,631 18,609 19,271
Unaffiliated owners 14,546 6,975 3,700 1,710 597
-------- ------- -------- ------- --------
Total 76,467 56,977 50,331 20,319 19,868
-------- ------- -------- ------- --------
Total 133,667 111,506 101,349 65,078 64,096
======== ======= ======== ======= ========
Percent Affiliated 85.2% 89.5% 94.8% 94.9% 95.8%
</TABLE>
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As of December 31, 1995, the Company provided property management
services to 133,667 units in 711 properties located in 38 states, the District
of Columbia and Puerto Rico. As of December 31, 1995, affiliated properties
constituted 113,919 units (85.2% of all units) in 619 properties, and
unaffiliated properties constituted 19,748 units (14.8% of all units) in 92
properties. The Company's management portfolio includes 448 affordable
properties and 263 conventional properties containing 57,200 affordable units
and 76,467 conventional units.
The properties served by the Company are located in urban, suburban and
rural areas throughout various regions of the United States other than the
Northwest region. This reduces the impact of local economic cycles on the
overall operations of the Company. The following table shows the distribution of
properties managed by the Company by region as of December 31, 1995.
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Properties(1) Units(1)
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Affordable Conventional Total Affordable Conventional Total
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<S> <C> <C> <C> <C> <C> <C>
Northeast 107 39 146 18,010 11,921 29,931
Mid-Atlantic 90 49 139 10,986 16,559 27,545
South Atlantic 57 52 109 6,323 11,751 18,074
Great Lakes 61 57 118 7,514 16,209 23,723
Midwest 38 12 50 3,603 2,436 6,039
Southwest 59 35 94 6,935 12,261 19,196
West 36 19 55 3,829 5,330 9,159
--- --- --- ------ ------ -------
Total 448 263 711 57,200 76,467 133,667
=== === === ====== ====== =======
Percentage of Total 63% 37% 43% 57%
</TABLE>
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(1) Some affordable properties contain a limited number of conventional
units and some conventional properties contain a limited number of
affordable units.
The Company provides property management services primarily to larger
residential properties where it can realize greater economies of scale. During
1995, the average number of units per property in the Company's portfolio of
conventional and affordable properties was approximately 253 and 150 units,
respectively. The properties served by the Company are diverse in nature,
including low-rise, garden style apartments in suburban communities and
high-rise towers in urban and suburban communities, and have low, middle and
high income residents.
ACQUISITION PROGRAM
From January 1, 1991 through December 31, 1995, the Company increased
the number of units to which it provides services by approximately 129% through
the acquisition of property through the Real Estate Companies and asset
management rights to approximately 87,800 units. Of these units, management
rights to approximately 5,700 units have been lost as a result of foreclosures
and other transfers anticipated by the Company at the time the units were
acquired. However, as of December 31, 1995, the Company continued to act as
property manager with respect to approximately 82,100 of these units. There can
be no assurance that the Company will not lose asset or property management
rights to additional units as a result of a sale or other loss of control of
the properties by the Real Estate Companies.
The Company achieved this growth primarily through the acquisition of
interests in projects through the Real Estate Companies that increased the
Company's management portfolio and through the Company's appointment as
property management agent for properties in which the Real Estate Companies
already held ownership interests. The following table sets forth information
regarding acquisitions of property management rights made by the Company from
January 1, 1991 through December 31, 1995. Additional information regarding
individual acquisitions occurring since January 1, 1995, is set forth below the
table.
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<TABLE>
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Number of Units
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Year Portfolio Acquired Affiliated(1) Unaffiliated Total
---- ------------------ ------------ ------------ -----
<S> <C> <C> <C> <C>
1995 Guilford 2,995 - 2,995
1995 Southport 1,857 - 1,857
1995 Rescorp 2,150 428 2,578
1995 Mattapony 647 - 647
1995 Berman - 566 566
1995 Hall 8,028 - 8,028
1995 MLG II - 6,080 6,080
1994 MLG I - 5,076 5,076
1994 Congress 3,887 414 4,301
1994 AHD Program Units - 841 841
1993 Oxford 37,695 1,611 39,306
1992 RTC I and II 4,542 - 4,542
1991 Franklin Realty Group 7,155 - 7,155
1991-Present NHP Properties 3,851 - 3,851
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Total 72,970 14,853 87,823
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(1) Includes units owned by entities that became affiliated as a result of
the acquisition transaction.
Guilford Acquisition
The Real Estate Companies completed the Guilford Acquisition in January
1996, by which the Real Estate Companies acquired, for approximately $4.8
million, the general partnership interests and certain limited partnership
interests in partnerships that own 14 properties containing 2,995 units. In
conjunction with this acquisition by the Real Estate Companies, the Company
paid the Real Estate Companies $2.6 million to enter into property management
contracts with each property for a period of four to five years, commencing in
December 1995.
Southport Acquisition
In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing 2,140 units. The
Company began managing 12 of these properties containing 1,857 units in
November 1995 and will begin managing the remaining two properties containing
283 units upon the receipt of the necessary consents. The Company will acquire
the right to manage all 14 of the Southport properties from the Real Estate
Companies for $4.0 million. The Company manages the Southport properties
pursuant to long-term contracts terminable only for cause, and has a right of
first refusal with respect to the sale of any of these properties or the Real
Estate Companies' general partnership interests in partnerships owning these
properties.
Rescorp Acquisition
On October 31, 1995, the Company acquired from Rescorp Realty, Inc. and
transferred to the Real Estate Companies the stock of entities owning the
general partnership interests in 11 properties. The Company manages these
properties pursuant to long-term contracts terminable only for cause, and has a
right of first refusal with respect to the sale of any of these properties or
the Real Estate Companies' general partnership interests in partnerships owning
these properties. The Company also entered into short-term property management
contract with respect to four other properties, which are owned by unaffiliated
owners. The 15 properties have an aggregate of 2,578 units. The Company paid
Rescorp approximately $2.4 million in connection with the acquisition, and
transferred the general partnership interests to the Real Estate Companies in
exchange for the Real Estate Companies assuming the cost and responsibilities
of the general partner.
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Mattapony Acquisition
On August 3, 1995, the Real Estate Companies acquired for approximately
$300,000 the general partner interests in a partnership that owns a 647-unit
conventional property. The Company simultaneously acquired for $348,000, the
rights to manage the property as the management agent pursuant to a 25-year
management contract.
Berman Acquisition
In June 1995, the Company acquired for $725,000 the management rights
for a term of 20 years with respect to two conventional properties containing
566 rental retirement units.
Hall Acquisition
The Company and the Real Estate Companies substantially completed a
major acquisition of general partner interests and property management rights,
the Hall Acquisition, in February 1995. In the Hall Acquisition, the Company
and the Real Estate Companies acquired, for approximately $12.5 million (of
which $4.0 million has been allocated to management rights), a 50% common
equity interest in a joint venture which, in turn, owns an interest in a
portfolio of 32 apartment properties containing 8,028 units (the Hall
Properties). Each property is owned by a limited partnership, the managing
general partner of which is an affiliate of the Real Estate Companies. As
managing general partner, each of these affiliates has entered into a
management contract with the Company having a term coinciding with the term of
the current financing of the properties, or approximately 5.75 years. Upon the
refinancing of a property, an affiliate of the Real Estate Companies, as
managing general partner, will have control of the selection of the property
manager. However, the current contracts may be terminated sooner if there is a
sale of the property or a default under the financing documents. The limited
partners have the power to remove the affiliate of the Real Estate Companies as
managing general partner without cause, which may result in the removal of the
Company as property manager. If the Company is removed as property manager
without cause, the Company is entitled to receive termination compensation
equal to 2% of the property's revenue for the remainder of the term of the
associated management contract.
MLG Portfolios
In December 1994 and January 1995, the Company was selected by General
Electric Credit Corporation and Bankers Trust Company to be the court-appointed
property manager for 38 multifamily properties containing 11,156 units of the
MLG portfolios. The properties were placed into receivership prior to the
Company's appointment because of significant financial difficulties encountered
by the properties, and the Company was appointed manager to stabilize the
properties and return them to sound operational condition. The Company has
received an annual management fee of 4% of gross revenue and an annual
receiver's fee of 1% of gross revenue. The Company does not have any ownership
interest in the MLG portfolios, and has been appointed to serve as property
manager at the discretion of the court supervising the receivership. Once the
properties emerge from receivership, it is likely that they will be sold and
there can be no assurance that the Real Estate Companies will be the purchaser
or that these properties will otherwise continue to be managed by the Company
following termination of the receivership.
Potential Acquisitions
In general, in future acquisitions, the Company expects the Real Estate
Companies to acquire and hold interests in real property and cause the Company
to be selected as manager pursuant to the Intercompany Agreements. The Company
will also seek to find joint venture parties to hold the real property
interests where the Real Estate Companies choose not to acquire the interests.
If the Real Estate Companies are unwilling or unable to acquire real property
interests in such transactions and the Company cannot immediately locate
another party to acquire such interests, the Company may purchase such
interests and hold them, but only until such time as it can locate another
party to acquire the interests on acceptable terms.
On February 14, 1996, the Real Estate Companies agreed to acquire 13
multifamily properties containing 3,145 apartment units from affiliates of
Great Atlantic Management, Inc. At closing, the Company is expected to
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acquire from the Real Estate Companies for approximately $1.6 million the right
to manage the units on a long-term basis with the exact terms to be determined.
In addition, the Company may provide the Real Estate Companies up to $16 million
in secured financing for acquisition of the properties until such time as a
third-party investor acquires an equity interest in the properties. Such
borrowing would bear interest at 10% per year. The Company's Credit Facility
limits the amount of loans or other advances the Company may make to the Real
Estate Companies in connection with the Real Estate Companies' acquisition of
real estate assets to $10.0 million, but this limitation has been waived for a
period of six months ending August 8, 1996 to permit the advance to the Real
Estate Companies in connection with this acquisition.
PROPERTY MANAGEMENT SERVICES
Services Provided
The Company's day-to-day property management services include
marketing, leasing, rent processing and collection, purchasing, accounts
payable, administration (including mortgages, taxes and insurance), payroll
services, financial reporting, on-site computer systems support and all
accounting functions. In addition, the Company provides longer term management
services necessary to maintain the quality and performance of properties,
including major repair and replacement planning, regulatory compliance and
budgeting. In addition to providing conventional property management services,
the Company, as the nation's largest manager of affordable properties, has
developed extensive expertise and familiarity with the affordable housing
regulatory process at all levels of government. One of the principal property
management services provided by the Company to owners of affordable properties
is interacting with HUD, the RTC and/or state regulatory agencies and
monitoring the properties' day-to-day compliance with federal and state
regulations. See "Regulation of Affordable Housing."
Operations
The Company, through its property management services, seeks to
maximize the financial performance for managed properties and maintain
properties to the owners' standards. To this end, the Company follows a
decentralized approach to the provision of the services that it believes
require on-site, individualized attention, permitting operating decisions to be
made by those most familiar with the properties and local market conditions.
On-site services include marketing, leasing, maintenance, purchasing,
regulatory compliance and budgeting. To help ensure quality control, the
Company provides extensive training of local personnel through its four-person
training staff based in Indianapolis, Indiana and its regional marketing
coordinator and staff of six regional engineering and technical services
professionals who oversee the planning and execution of the portfolio's capital
improvement program.
The Company has also developed a proprietary system known as Precision
Management(R) to evaluate and manage the delivery of services. The Precision
Management(R) system measures twelve key performance indicators, including
gross and net operating income of the property, net cash flow, occupancy,
average rent, turnover and collections. Reports on each of these indicators are
generated monthly for each property, allowing senior management to quickly
identify properties that are deviating from expected performance, and promptly
target resources to such properties in order to solve problems. The Precision
Management(R) system clearly identifies the key areas of responsibility in
marketing, leasing and budgeting for properties and motivates the Company's
employees through an incentive compensation system based on property-specific
operating and profitability targets.
The Company emphasizes hiring and retaining personnel who have the
requisite education, training and experience to render high quality service. In
addition, the Company supports continuing education of all of its employees
through annual training and industry-sponsored seminars. Approximately 90% of
the Company's property managers have earned one or more professional
designations such as Registered Apartment Manager, Accredited Resident Manager,
or Certified Apartment Manager. In addition, a number of individuals within the
Company are qualified Registered Apartment Manager instructors. The Company
believes that its size enables it to offer attractive career paths that are not
generally available in the industry.
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High volume services that do not require individual attention are
centralized because standardization in these areas is essential to achieving
high quality and control at low cost. Centralized services include human
resources, payroll processing, accounting and reporting, cash management and
computer systems support. These services are provided from the Company's
operational headquarters in Reston, Virginia and Indianapolis, Indiana.
Provision of services by the Company is facilitated by its computer
system, which handles an average of over 15,000 transactions daily. The Company
also has an integrated property management information system, which provides
on-line information to the Company's senior management and staff, as well as
third-party clients. The Company is in the process of replacing its current
mainframe system with a client server system utilizing a nationwide wide
area/local area integrated network called "NHPNET." The client server system
will include enhanced property management, accounting and payroll applications.
The new system will also make it possible to easily connect new property and
office locations to NHPNET, giving the Company flexible expansion capacity to
support its acquisition strategy. Conversion to the new system is scheduled to
begin in May 1996 with a phased implementation through mid-1997.
Contracts and Compensation
Property management services are provided by the Company pursuant to
contracts with the individual entity owning each property. Pursuant to the
Intercompany Agreements, the Real Estate Companies are required to cause the
Company to be appointed as the management agent for properties it controls
throughout the twenty-five year term of the Intercompany Agreements and any
extensions thereof, subject to certain exceptions. See "Intercompany Agreements
with the Real Estate Companies." Although contracts with properties that
receive HUD or state assistance are terminable for cause at the direction of
those agencies, the Company has been successful in retaining its management
contracts for long periods, generally 15 years or more. Contracts with those
Affiliated Properties that are controlled by Oxford are generally for a period
of one year, but, pursuant to voting rights held by the Company and the Real
Estate Companies, those contracts cannot be terminated without the Company's
consent other than for cause or upon sale. Contracts related to the Hall
properties are for an initial term of 5.75 years; upon the properties'
refinancing the Real Estate Companies will retain control over the selection of
the management agent. See "Acquisition Program." Contracts for unaffiliated
properties are for varying terms, generally one year.
The Company earns revenues for providing management services through
fees that are generally calculated as a percentage of the property's monthly
collected income. Fees generally range from 3% to 7% of collected rents, plus
reimbursement for the cost of on-site personnel. Property management fees are
thus influenced by both rent and occupancy levels. In the case of negotiated
transactions, the property management fee percentage is influenced by
prevailing market conditions but also may be affected by pre-existing
agreements.
Management fees for HUD-assisted affordable properties are regulated
under HUD guidelines and are generally expressed in dollars per unit per month
rather than as a percentage of rent collected. Periodically, each HUD field
office conducts a study of management fees charged to certain HUD-assisted
properties by property management firms that have arm's-length business
relationships with the owners of the properties. The results of those studies
are used to set allowable fees for properties where the management agent and
owner have an identity of interest, or where HUD has some other statutory or
regulatory basis for controlling the management fee.
In addition to property management fees and reimbursements for on-site
personnel, the Company may receive additional amounts for ancillary services.
The Company receives a cash management fee for maintaining a HUD-approved cash
management system that permits each property under management to receive
investment earnings for all operating cash, from the day of deposit until the
day of disbursement. The Company also is paid computer charges and central
accounting charges, which are intended to reimburse the Company for its direct
costs for providing these services to most affordable properties in its
portfolio as well as to several of its conventional properties. In addition,
the Company receives capital improvement fees for planning and supporting major
capital improvements to certain of its properties. Such fees paid with respect
to properties receiving HUD assistance are subject to HUD audit and adjustment.
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OTHER SERVICES
In addition to traditional property management services, the Company
provides additional services to properties it manages, other properties and
property residents. These services include administrative and reporting
services, bulk buying services, risk management and insurance administration,
management consulting services, real estate investment banking services, and
asset management. The Company is also actively developing additional types of
services.
Multifamily Residential Mortgage Banking Services
On March 20, 1996, the Company and Commonwealth Overseas Trading
Company Limited ("Commonwealth") entered into a Stock Purchase Agreement
providing for the purchase from Commonwealth of all of the issued and
outstanding common stock of WMF Holdings Ltd. for $21 million, in the form of
$16.8 million in cash and 210,000 shares of the Company's common stock. WMF
Holdings Ltd. is the owner of Washington Mortgage Financial Group, Ltd.
("Washington Mortgage Financial"), located in Fairfax County, Virginia, one of
the nation's leading multifamily mortgage originators and servicers. Washington
Mortgage Financial had mortgage servicing contracts aggregating approximately
$4.5 billion as of February 29, 1996 and originated approximately $805 million
in multifamily and other commercial mortgages in 1995. Included in Washington
Mortgage Financial is WMF/Huntoon, Paige Associates Limited, a leading FHA
mortgage originator and servicer located in Edison, New Jersey. The transaction
is expected to be completed in early April 1996.
Administrative and Reporting Services
The Company receives administrative and reporting fees (A&R Fees) for
providing reports, financial statements and tax information to approximately
11,000 investors in the 500 syndicated partnerships for which the Real Estate
Companies have been managing general partner. A&R Fees are payable pursuant to
agreements entered into with investors at the time of formation of partnerships
or syndication of interests in the partnerships. These agreements generally
provide for the payment of A&R Fees annually from the investors' share of cash
flow of the partnership, subject to federal and state regulatory restrictions
on distribution of cash flow from affordable properties, after the repayment of
any loans (including general partner loans) and related interest, funding any
reserves and, generally, after a fixed percentage of the distributable cash is
first paid to investors. To the extent a partnership has insufficient
distributable cash to pay the required A&R Fees, the A&R Fees accumulate
without interest and can be paid out of future annual distributable cash or out
of sale or refinancing proceeds. The Company expects administrative and
reporting fees to decline in the future because these fees are not received
with respect to newly-acquired management contracts and as properties which
have A&R Fees are lost due to sale or other reasons.
Buyers Access(R) Program
The Company purchases many supplies required for operating properties
on a centralized basis, and thus is able to take advantage of bulk discounts.
In 1986, the Company developed the Buyers Access(R) program to offer its
expertise and the advantages of group purchasing to third parties. The program
has grown over the past several years, from 1,511 properties representing
238,308 units as of December 31, 1991 to 3,041 properties representing 485,616
units as of December 31, 1995. Only 22% of these properties (25% of units) are
owned by affiliates of the Company. Based on the combined purchasing power of
its members, the program is able to negotiate contracts with vendors providing
for 20% to 30% savings on products frequently purchased by apartment managers,
such as appliances, carpets, paints and other maintenance supplies. In 1995,
over $59 million of products were purchased through the program. The Company
does not itself purchase any of the products ordered through the program and
does not bear any warranty exposure or credit risk. The Company may also serve
as a purchasing agent for its member units, providing catalogs of products
offered, establishing credit accounts with vendors and preparing monthly
management reports and computerized cost comparison analyses. The Company had
contracts with 31 principal vendors as of December 31, 1995.
The Company charges members in the Buyers Access(R) program an annual
membership fee on a per-unit basis, with a minimum charge per property. The
Company generated revenues of approximately $2.6 million, $2.1 million and $1.5
million from this program in 1995, 1994 and 1993, respectively.
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Risk Management and Insurance Administration
For over fifteen years, the Company has administered "master" insurance
coverage programs primarily for Affiliated Properties. After the sale of the
Real Estate Companies, the Company has continued to administer this program but
no longer provides brokerage services. The Company negotiates the terms of
master policies annually with the insurance carrier(s), allocates the master
policy premiums among all covered properties, oversees levels of insurance for
all covered properties, reports claims to the carrier(s), and processes such
claims through the adjustment and settlement process, acting as an intermediary
between the affected property and the insurance carrier. In addition, the
Company provides risk management services to covered properties, including
conducting educational seminars for property management personnel, reviewing
service contracts, disseminating a variety of risk awareness materials and
providing loss prevention analysis for selected properties each year.
As of December 31, 1995, the Company provided insurance administration
and risk management services to 82,305 units, including 3,097 units in
unaffiliated properties. The master policies (representing a total insurable
value of approximately $3.5 billion) have made insurance coverage possible for
some otherwise difficult to insure properties and led to considerable savings
on an aggregate basis in premium costs, while providing dependable and
high-quality coverage. The Company's fees ($3.00 per $10,000 of total insurable
value) for its risk management and insurance administration services (which, in
the case of affordable properties, are approved by HUD and disclosed in each
property's annual audit) are included in each property's premium and are paid
to the Company. These fees have resulted in approximately $1 million in
revenues to the Company in each of 1995, 1994 and 1993.
Property Management Consulting Services
The Company provides management consulting services to approximately 43
third-party managers of approximately 98 affiliated properties, who manage an
aggregate of 11,913 units. The Company generally assists the third-party
managers in dealing with HUD and/or state regulatory agencies and monitoring
the properties' day-to-day compliance with comprehensive HUD and state
regulations, in preparing property budgets, in preparing or reviewing financial
and occupancy reports and resident income certifications and in major repair
and replacement planning and implementation. Fees for these management
consulting services are paid by the third-party manager, not by the property
owner. Fees are generally calculated as a percentage of the third-party
managers' management fee and are received during the term of the third-party
managers' contract. The Company generated revenues of approximately $0.6, $0.6
and $0.9 million from these services in 1995, 1994 and 1993, respectively.
These revenues are included in "Property management services" on the Company's
financial statements.
Real Estate Investment Banking Services
Since 1989, the Company has provided real estate investment banking
services in connection with the structuring of nine transactions under the Low
Income Housing Tax Credit Program ("LIHTC") involving combined equity
investments of over $7.2 million, and sponsoring the acquisition of 21
properties involving a combined equity investment of $13 million in two
transactions under the Affordable Housing Disposition Program of the Financial
Institutions Reform, Recovery and Enforcement Act. The Company also provided
assistance to unaffiliated third parties in the acquisition of debt and real
estate sold under the RTC's disposition program. Since 1993, the Company has
provided origination and asset management services to institutional investors in
connection with their equity investments in LIHTC transactions. In 1995, 1994
and 1993, the Company earned fees of approximately $1.2 million, $1.3 million
and $0.2 million, respectively, in connection with 19 such transactions. The
Company has entered into service agreements with the investment subsidiary of a
financial institution, an insurance company and a corporate equity fund
regarding their participation in LIHTC investments. After the sale of the Real
Estate Companies, the Company has continued to provide these and similar
services to third parties, and to the Real Estate Companies pursuant to the
Intercompany Agreements.
Asset Management Services
The Company provides asset management services with respect to both
Affiliated Properties and unaffiliated properties. Asset management services
include strategic planning for marketing, operations and capital improvements,
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reviewing annual operating budgets, and establishing individual objectives for
each asset. The Company also prepares plans for refinancing, mortgage workouts,
and the disposition of properties and is responsible for the implementation of
the plans. In addition to the direct revenue provided from asset management
services, these services support revenue from property management and other
services by facilitating acquisitions of Affiliated Properties and stabilizing
or maintaining the financial position of properties once acquired, allowing
them to become or continue as sources of fee income. These services are
provided to the Real Estate Companies on a cost-reimbursement basis.
On February 29, 1996, the Company entered into a three-year contract
with CRI, Inc., a Rockville, Maryland-based real estate investment firm, to
provide asset management, refinancing and disposition services for 286
affordable multifamily communities containing over 35,000 apartment units,
which are owned by 129 of CRI's public and private real estate partnerships.
The transaction increased the Company's total asset management portfolio by
over 50% to approximately 840 multifamily properties. The Company will seek to
provide asset management services to additional unaffiliated entities on a fee
basis, but there can be no assurance such third-party business will develop
further.
New Services
In addition to multifamily residential mortgage banking services, the
Company is exploring other services for owners, properties and their residents
that are consistent with the Company's nationwide scope of operations. These
other services may include, for example, delivery of cable television and
long-distance telephone services. The Company believes that its role as property
manager will facilitate marketing and delivery of such services to residents and
owners of properties. However, the Company has not yet developed any such
services, and there can be no assurance that such services will in fact be
developed.
INTERCOMPANY AGREEMENTS WITH THE REAL ESTATE COMPANIES
In connection with the sale of the Real Estate Companies on August 18,
1995 (the Effective Date), the Company and the Real Estate Companies entered
into the Intercompany Agreements, which govern their relationship on a
going-forward basis. Significant aspects of the Intercompany Agreements include
provisions whereby (i) the Company will be selected to provide property
management and related services for properties in which the Real Estate
Companies have a controlling interest, subject to certain conditions, for an
initial period of 25 years; (ii) upon the disposal by the Real Estate Companies
of properties or interests in properties which the Company managed on August
18, 1995, the Real Estate Companies will make a payment of up to 200%, subject
to certain conditions, of the annual fees the Company receives with respect to
the property; (iii) the Company will provide to the Real Estate Companies, at
cost, certain administrative services and advice regarding acquisition,
financing, asset restructuring, disposition and similar activities relating to
investment in multifamily properties, terminable on 30-days' notice by either
party; (iv) the Real Estate Companies and their equity holders have granted the
Company a right of first refusal with respect to any transactions resulting in
a change of control of the Real Estate Companies, as defined; (v) the Real
Estate Companies have indemnified the Company against any loss directly or
indirectly caused by, relating to, based upon, arising out of, or incurred in
connection with the Company's ownership (as opposed to management) of
properties prior to, on and after August 18, 1995; (vi) the Real Estate
Companies will limit the Company's liability, by an agreed-upon formula, for
taxes arising from the sale of the Real Estate Companies. The Intercompany
Agreements may only be amended with the approval of the Real Estate Companies
and the Company. A majority of the members of the Board of Directors of the
Company having no interest in the Real Estate Companies must approve such
amendments if they involve a conflict of interest with directors having an
interest in the Real Estate Companies. In addition, the Board of Directors has
created a Conflicts Committee, consisting of directors who have no direct or
indirect financial interest in and are not affiliated with entities having an
interest in the Real Estate Companies, which monitors dealings between the
Company and the Real Estate Companies which may present a conflict of interest.
REGULATION OF AFFORDABLE HOUSING
Approximately 63% of the properties and 43% of the units managed by the
Company as of December 31, 1995 are affordable properties and units,
respectively. Assistance programs for HUD-assisted affordable properties have
the effect of insulating these properties from many of the competitive
pressures of the marketplace (helping to keep occupancy levels high and
management fees steady) and encouraging long-term ownership of the properties.
At
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the same time, these programs impose extensive regulatory requirements that
govern, to a large extent, the operation of the underlying properties. A
summary of some of the ways in which these regulations affect the Company
follows.
HUD Assistance Programs
A substantial portion of the portfolio of Affiliated Properties was
built or acquired with the assistance of HUD-administered programs that provide
mortgage insurance, favorable financing terms, or rental assistance payments to
the owner. As a condition to the receipt of assistance under each of these
programs, the partnerships that own the assisted properties have entered into
regulatory agreements with HUD in which such partnerships agree to rent units
to residents whose incomes do not exceed certain limits, to limit the rent that
can be charged to such residents, to limit the uses of the property's operating
cash and generally to own and operate the property in accordance with HUD's
standards. Many of these restrictions also apply to state-assisted properties.
As property management agent, the Company has primary responsibility for
monitoring and carrying out the day-to-day compliance with these various HUD
requirements. In addition, as a condition of participation in its various
assistance programs, HUD has approval rights over both the identity of the
management agent and the fees charged and operating costs incurred by the
management agent. In certain instances, HUD has the authority to cancel an
existing management contract.
In addition to the initial financing assistance, HUD provides
assistance to certain of the affordable Affiliated Properties through various
rental assistance payments programs, mortgage insurance programs for second
mortgage loans and direct loans for property improvements. While the HUD
assistance programs generally create a stable operating environment, there can
be no assurance that the operation of the properties within the HUD regulatory
context will be without risk. As a condition to receiving assistance from HUD
for a property, rents on that property must be limited to an amount approved by
HUD. Many of the affordable Affiliated Properties require timely and adequate
annual rent increases to ensure that property revenues will continue to be
sufficient to offset increases in operating expenses the property may
experience. The method of calculating rent increases may not be sufficiently
responsive to the needs of a property, rent increases may not be granted at the
levels requested, or, in the case in which the HUD assistance is in the form of
a rental payment subsidy, HUD may be unable to award housing assistance
payments to additional dwelling units in the property. As a result, the
property may experience a revenue shortfall or a reduction in its surplus cash.
Under Section 8 of the National Housing Act of 1937 ("Section 8"), HUD
provides rental assistance payments to owners who agree to make rental units
available to tenants whose incomes do not exceed specified guidelines. Section
8 assistance can either be project-based (i.e., the assistance is attached to
the property) or be in the form of Section 8 certificates or vouchers that are
awarded to (and are portable by) specific individual tenants. Under both
programs, tenants pay to the owner 30% of their adjusted monthly income as rent
and HUD pays the difference between the tenant's payment and the HUD-approved
rent for that unit. If an eligible tenant's income rises, but still remains
below the maximum allowed income, the tenant's contribution increases and HUD's
rental assistance payment decreases. In general, affordable Affiliated
Properties that receive Section 8 assistance also have government-insured
mortgages.
Under the project-based Section 8 program, HUD provides long-term
rental assistance payments to owners pursuant to a Housing Assistance Payments
Contract ("HAP Contract"). The HAP Contract can cover all or only a portion of
a property's units, and the HAP Contract is awarded to the property and is not
dependent upon either the operation of the property by any particular owner or
the occupancy of the covered units by any particular tenant. Instead, the HAP
Contract remains in place so long as the property is operated as required and
so long as the tenants in occupancy fall within the applicable income
guidelines. The HAP Contracts are typically for an initial term of 20 years
with four 5-year renewals, for a total possible term of 40 years, or in the
case of more recent HAP Contracts, for an initial term of 5 years with three
5-year renewals, for a total possible term of 20 years. Affordable Affiliated
Properties have both types of HAP Contracts. In many cases, the property's HAP
Contract is for a period shorter than the term of the property's mortgage loan.
Under the Section 8 voucher and certificate program, HUD awards
assistance to a particular individual or family whose income meets the
applicable income guideline, and that individual or family is then free to live
in any apartment whose rent is at or below the approved maximum rent for that
area.
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HUD-insured projects at risk of default are eligible to apply for
additional Section 8 assistance known as Loan Management Set Aside ("LMSA").
Under this program, projects receive rental subsidy for additional units. In
recent years, there has not been sufficient LMSA Section 8 funding available to
meet the needs of all eligible projects.
Proposed HUD Reorganization and Restructuring of HUD Programs
Various proposals are currently pending before Congress proposing a
reorganization of HUD and a restructuring of certain of its housing assistance
programs. These proposals generally seek to lower subsidized rents to market
levels and to lower required debt service costs as needed to ensure financial
viability at the reduced rents, but vary greatly as to how that result is to be
achieved. The Clinton Administration, in its fiscal 1996 budget proposal, put
forward the "HUD reinvention plan" that focused on three central concepts: (1)
consolidation of HUD's sixty programs into three by 1998, (2) a phase-out of
project-based Section 8 rental assistance and conversion to a tenant-based rent
voucher system, and (3) a restructuring of HUD-insured mortgage debt (commonly
referred to as "mark to market").
The HUD reorganization plan, if enacted by Congress, would change HUD's
role in affordable housing to one that would support, rather than control, the
administration of housing programs and the day-to-day management of properties.
The Company anticipates that this change in HUD's mandate, in conjunction with
other proposed reforms, would significantly reduce the regulatory burdens
associated with the management of HUD-assisted properties.
The proposed phase-out of project-based subsidies would take place on a
property-by-property basis upon expiration of a property's HAP Contract, with a
conversion to a tenant-based subsidy. Under a tenant-based system, rent
vouchers would be issued to qualified participants who then could elect to
reside at a property of their choice, provided the tenant has the financial
ability to pay the difference between the selected property's monthly rent and
the value of the voucher, which would be established based on HUD's regulated
fair market rent for that geographic area.
Under one form of the mark-to-market program, HUD would, when a
property's HAP Contract expires, re-underwrite the property's mortgage debt
based on its expected cash flow before debt service, when operated as
market-rate housing. The debt would be divided into a performing first mortgage
loan with required debt service and a second mortgage loan with no required
payments. Tenant-based subsidy, as described above, would replace the expired
project-based assistance.
The Administration's reinvention plan is still pending before Congress,
and it is too early in the legislative process to predict which, if any, of
these fundamental changes to national housing policy will receive Congressional
approval. While the Company does not believe that the proposed conversion to
tenant-based assistance or other proposed changes would result in a significant
number of tenants relocating from properties managed by the Company, there can
be no assurance that the proposed changes would not significantly affect the
Company's management portfolio. Furthermore, there can be no assurance that
changes in federal subsidies will not be more restrictive than those currently
proposed or that other changes in policy will not occur. Any such changes could
have an adverse effect on the Company's property management revenues.
2530 Previous Participation Review
Under its regulations, HUD reserves the right to approve the owner and
the management agent of HUD-assisted projects, as well as their "principals"
(e.g., general partners, limited partners with more than a 25% interest,
shareholders with more than a 10% share, officers and directors) in connection
with the acquisition of a property or the award of a management contract,
respectively. This approval process is commonly referred to as "2530
Clearance." 2530 Clearance also is technically required, but is typically given
automatically, in connection with applications for additional HUD loans or
assistance such as awards of LMSA units. 2530 Clearance is not required for
annual rent increases, rent subsidy contract renewals or withdrawals from
property reserves. Under the 2530 Clearance process, the prospective owner, the
management agent, and their principals must disclose on HUD Form 2530 (the
"2530 Form") their performance history for the previous 10-year period in all
projects receiving any form of assistance from HUD, the Farmers Home
Administration or state housing finance agencies. Any future holder of over 10%
of the
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common stock of the Company will be listed on the Company's 2530 Form and
subject to review in the 2530 Clearance process.
The 2530 Clearance process is conducted by HUD field offices that
review the Company's and its affiliates' performance records at all HUD, state
housing agency-assisted and Farmers Home Administration properties. If the 2530
Form discloses any below average or unsatisfactory management reviews,
unsatisfactory physical inspections, open and unresolved audit findings,
mortgage or regulatory defaults, foreclosures or other adverse matters
applicable to an owner or manager, or their principals or affiliates, the HUD
Field or Regional Office with jurisdiction over the applicable project has the
authority to enter a "flag" into the computerized 2530 Clearance system, which
alerts all other Field and Regional Offices and HUD Headquarters in Washington,
D.C. to the existence of the flagged matter. The decision whether to grant 2530
Clearance is then subject to review by HUD's Multifamily Participation Review
Committee in Washington, D.C. (the "2530 Committee"). In May 1992, the
Assistant Secretary for Housing-Federal Housing Commissioner issued a directive
to all offices that for the first time provided owners and property managers
the opportunity to participate in the review of a preliminary decision to raise
a flag prior to its issuance and that restricted the number of field officers
who could enter a flag into the system.
As of December 31, 1995, the Company has outstanding 25 below average
or unsatisfactory management reviews, 15 of which were based solely on
unsatisfactory physical inspections or mortgage defaults, the causes of which
are in the control of the owner of the properties. The Company and its
affiliates are seeking to resolve these matters and have made progress in
mitigating the underlying problems, which progress, to date, is believed to be
acceptable to HUD. This is evidenced by HUD's approval during 1994 of 104
additional 2530 filings by the Company and its most recent approvals of the
Company as management agent in April and December 1995. The Company believes
that it enjoys a good working relationship with HUD and that the 2530 Committee
will continue to apply the 2530 Clearance process to large management
portfolios such as the Company's and large ownership portfolios such as the
Real Estate Companies' with discretion and flexibility. The Company believes
that neither the below average or unsatisfactory management reviews nor the two
currently outstanding flags (both of which relate to mortgage defaults) have
had or will have a material impact on the Company's results of operations or
liquidity.
Although 2530 Clearance is applicable only to the specific action for
which approval is sought, the denial of 2530 Clearance could have a serious
effect on the ability of the Company to expand its management, and the Real
Estate Companies to expand their ownership, of HUD-assisted properties until
such time as 2530 Clearance was reinstated.
Suspension or Debarment
Under its regulations, HUD has the authority to take more serious
action against an owner or manager, such as suspension or denial of
participation in HUD programs within a geographic region or complete denial of
participation, where such person or entity has committed criminal acts or
evidenced a pattern of consistently violating its contractual and regulatory
responsibilities to HUD.
Transfers of Physical Assets ("TPA")
Both HUD regulations and the regulatory agreement applicable to each
HUD-assisted property prohibit an owner from conveying such property or
conveying a 25% or greater partnership interest in the entity owning such
property, or any percentage general partner interest, without the prior
approval of HUD. The process by which HUD consent is received is known as
Transfer of Physical Assets ("TPA"). It is a set of administrative and legal
procedures prescribed by HUD pursuant to which HUD reviews the terms of a
proposed change in control of the ownership of a HUD-assisted multifamily
project. As part of this review the prospective purchaser must also receive
2530 Clearance.
HUD's control of the transfer process affords it the opportunity to
review all aspects of the proposed transfer, including the identity of
transferees, the physical and financial soundness of the project and the
proposed management agent, and provides HUD with an ability to require
prospective owners to correct deficiencies as a condition of approval. If the
Real Estate Companies were unable to obtain TPA approval with respect to an
acquisition of affordable properties, the Company's growth strategy might be
adversely affected.
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DEPENDENCE ON THE REAL ESTATE COMPANIES FOR PROPERTY MANAGEMENT REVENUES
The Company is, and will continue to be, substantially dependent on
revenue from the provision of services to properties controlled by the Real
Estate Companies. Approximately 65% of the Company's property management
revenue for the year ended December 31, 1995 was derived from fees for services
to properties controlled by the Real Estate Companies. Pursuant to the
Intercompany Agreements, the Real Estate Companies will be required for a
period of at least 25 years (subject to certain conditions) to cause the
Company to be selected to provide services to each of the properties the Real
Estate Companies control (and any property they may control in the future). The
Real Estate Companies are required to make penalty payments to the Company
equal to up to two years of management revenues if management rights are
terminated with respect to properties managed on the effective date of the sale
of the Real Estate Companies as a result of certain dispositions of properties.
See "Intercompany Agreements with the Real Estate Companies." The Real Estate
Companies' obligations under the Intercompany Agreements are subject to their
fiduciary duties as general partner of the partnerships that own the
properties. The obligation of the Real Estate Companies to cause the selection
and to retain the Company is also subject to certain conditions provided for in
the Intercompany Agreements (see "Intercompany Agreements with the Real Estate
Companies"), and there can therefore be no assurance that contracts to provide
services to the properties controlled by the Real Estate Companies will be
granted or, if granted, will not be terminated. There can also be no assurance
that penalty payments will adequately compensate the Company for the loss of
related revenues. The Company will, in any event, be substantially dependent on
the Real Estate Companies' ability and desire to retain ownership and control
of their portfolios of properties. Moreover, the Company's strategy for
expanding the number of properties under management through transactions
involving the purchase of interests in real estate may be dependent in part on
the desire and the ability of the Real Estate Companies to acquire additional
properties or general partner interests. There can be no assurance that the
Real Estate Companies will have sufficient resources available to acquire
additional properties or general partner interests.
The Company's continuing revenue from the provision of services to
properties controlled by the Real Estate Companies is dependent upon, among
other things, the financial stability of the Real Estate Companies and their
affiliates and their ability to retain control of the selection of the property
manager for such properties. The Real Estate Companies' sources of revenue are
fees and partner distributions received in connection with the sale or
refinancing of properties in the ordinary course of business, repayment of
principal and interest on general partner loans to property-owning
partnerships, payment of administrative and reporting fees accrued prior to the
sale of the Real Estate Companies to the extent available after payment of fees
to the Company, and annual distributions of available cash from property-owning
partnerships. If the Real Estate Companies were unable to satisfy their
obligations out of funds generated by current operations and sales or
refinancings of properties in the ordinary course of business, they might be
required to dispose of additional assets, including interests in properties
managed by the Company. If this were to happen, the Company could lose revenues
from such properties. There can be no assurance that the Real Estate Companies
will be able to meet their financial obligations.
Selection of the management agent for certain of the Affiliated
Properties (including the Oxford properties) is controlled by the Company or
the Real Estate Companies pursuant to contractual arrangements, but the
properties are owned by partnerships that are not controlled by the Real Estate
Companies. The Company's continuing receipt of revenue from the provision of
services to such Affiliated Properties may depend on the financial stability of
other parties who have controlling interests in such properties or such other
parties' decision to sell certain Affiliated Properties. If a party with a
controlling interest in a property lacks the necessary financial resources to
retain its interest in the property or otherwise determines to sell the
property, the Company may not be able to prevent a transfer of such party's
interests and, therefore, the loss of management rights with respect to the
property. Furthermore, the termination penalty payable by the Real Estate
Companies upon the disposition of other properties does not apply to the Oxford
properties. There can be no assurance that payments pursuant to an escrow
arrangement established as part of the Oxford Acquisition would be available
or, if available, sufficient to cover the loss of revenue to the Company from
dispositions of any Oxford properties.
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ENVIRONMENTAL REGULATION
Although the Company does not own interests in any real property after
the sale of the Real Estate Companies, environmental laws impose liability on
the operator of a property as well as its owner. In light of the Company's role
as a manager of properties, it could be held liable as an operator for the
costs of investigation, removal or remediation of certain hazardous or toxic
substances, if any, at a property, and such liability may be imposed without
regard to whether the Company knew of, or was responsible for, the presence of
such hazardous or toxic substances. A manager of a property may also be liable
under common law to third parties for damages and injuries resulting from
environmental contamination at or emanating from or at the site, including the
presence of asbestos-containing materials and lead-based paint.
The Company generally has not undertaken any review, on a
property-by-property basis, of the presence or extent of asbestos-containing
materials, lead-based paint or any other environmental risks at the properties
it manages. Although the Company is not aware of any conditions at any of the
properties it manages that would have a material adverse effect on the Company,
many of the properties it manages were constructed at times when
asbestos-containing materials and lead-based paint were in use. There can be no
assurance that conditions requiring significant expense with respect to such
properties do not exist or may not arise in the future.
Prior to its ban by the Consumer Products Safety Commission in 1978,
lead was often used in oil-based paints, particularly high-grade gloss paints
that were used on interior trim, exterior walls, window frames and railings of
both single-family homes and multifamily apartment buildings. Although paint
manufacturers significantly reduced the lead content of paint, particularly
after 1950, lead-based paint is present in a significant percentage of the
country's housing stock. HUD regulations currently require owners of properties
constructed or rehabilitated prior to 1978 and receiving rental assistance from
HUD's Section 8 program to inspect regularly for defective paint surfaces and
to abate lead-based paint by covering or removal. In addition, the Residential
Lead-Based Paint Hazard Reduction Act of 1992 requires owners of
federally-associated housing built prior to 1960 to conduct an initial risk
assessment for lead-based paint by January 1, 1996, and owners of housing built
between 1960 and 1978 to conduct an initial risk assessment by January 1, 2002.
HUD has yet to issue regulations to implement these risk assessment provisions.
If the expense of removal of lead-based paint, or related liability, resulted
in the Real Estate Companies needing to dispose of, or decline to acquire,
properties, the Company could experience a reduction in actual or expected
management fee revenues.
The Company has obtained indemnification from the Real Estate Companies
with respect to any environmental liabilities arising at Affiliated Properties
(other than liability resulting from the direct introduction of toxic
substances into a property by the Company after the sale of the Real Estate
Companies). There can be no assurance that the Real Estate Companies will be
able to meet their indemnification obligations or that a determination of
liability would not otherwise have a material adverse effect on the Company.
See "Intercompany Agreements with the Real Estate Companies." Furthermore, the
Real Estate Companies could be subject to additional liability under the
environmental laws by virtue of their control of properties. Any such liability
could have a material adverse effect on the Real Estate Companies, which could
result in the disposition of Affiliated Properties and the loss of management
rights by the Company with respect to those properties.
COMPETITION
The property management industry is highly competitive and fragmented.
Increasing competition in recent years has resulted in decreased property
management fees and margins in the conventional segment of the market. The
Company's competitors include firms with greater financial resources than the
Company. The Company also competes with a large number of regional and local
organizations which manage a relatively small number of properties.
The Company competes for the right to manage properties controlled by
third parties primarily on the basis of experience, quality of service, cost
and the ability to deliver favorable operating results. The Company in
combination with the Real Estate Companies and other joint venture partners
expects to compete for acquisitions of controlling interests in properties
primarily on the basis of the acquisition price and to a lesser extent on the
basis of experience, quality of service, cost and the ability to deliver
favorable operating results. The Company believes it has a reputation for
providing favorable operating results and quality service, which, together with
the quality of its employees, its
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national field organization, and its management information and reporting
system, enable it to compete effectively for additional management contracts.
Because of the Company's emphasis on controlling costs and improving the
efficiency of its property management operations, it believes that it is able
to offer quality service at competitive rates. While the Company believes that
it will continue to compete effectively in the property management industry,
there can be no assurance that it will do so or that the Company will not
encounter further increased competition in the future which could limit the
Company's ability to maintain or increase its market share.
EMPLOYEES
The Company employs approximately 5,300 people, approximately 4,800 of
whom are on-site employees at Company-managed properties. Fewer than 5% of the
Company's employees are members of unions. Costs associated with on-site
employees are paid by the Company but are reimbursed out of property operations
(by the property owner) pursuant to the terms of each property management
contract. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview."
ITEM 2. FACILITIES
The Company's headquarters are located in Washington, D.C. where the
Company currently occupies approximately 19,000 square feet which is rented
from the Real Estate Companies on a month-to-month basis. Additional corporate
offices are located in Reston, Virginia, where the Company currently occupies
43,000 square feet under a lease expiring in 1998, and Indianapolis, Indiana,
where the Company currently occupies 38,000 square feet under a lease expiring
in July 1996. In March 1996, the Company entered into a six-year lease
agreement for 50,600 square feet of office space in connection with the
relocation of its Indianapolis offices under a lease expiring in July 2002. In
addition, in December 1995, the Company entered into a six-year lease agreement
for approximately 65,000 square feet of office space in Vienna, Virginia. The
Company will relocate its Washington, D.C. and Reston, Virginia offices to the
new Vienna location during the second quarter of 1996. In March 1996, the
Company executed a binding letter of intent for a sublease agreement for all of
its Reston facilities which extends through the remaining term of its lease at
a rental rate not less than the Company's obligation under its prime lease.
In addition to its offices in Washington, D.C., Reston, Virginia, and
Indianapolis, Indiana, the Company's operations are administered from regional
offices in Rockville, Maryland, Yardley, Pennsylvania, Irving, Texas, and
Charlotte, North Carolina. The Company also has 17 district offices located
throughout the country. The Company's Buyers Access program also has regional
offices in Salt Lake City, Utah and Maitland, Florida. Under various leasehold
arrangements with terms ranging from month-to-month to three years, the Company
occupies approximately 33,000 square feet for these regional and district
operations. District offices are often located within properties under
management, for which the Company pays fair market rent to the property.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal actions arising primarily in
the ordinary course of its property management business. Management of the
Company does not believe that there is any litigation pending against the
Company which, if determined adversely to the Company, would have a material
adverse effect on the Company or its financial position, cash flows or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1995.
17
<PAGE> 19
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
NHP Incorporated common stock trades on The Nasdaq Stock Market under
the symbol NHPI.
The high and low market price of NHP Incorporated common stock and the
cash dividends declared for each quarterly period with the two most recent
fiscal years is included in Note 15 of Item 8, Financial Statements and
Supplementary Data, appearing on page 53. The Company has never paid
dividends and does not intend to pay dividends in the foreseeable future. Any
payment of future dividends and the amounts thereof will be dependent upon the
Company's earnings, financial and other requirements, including contractual
obligations.
There were 66 common shareholders of record of NHP Incorporated common
stock at December 31, 1995. In addition, the Company estimates that there were
approximately 315 beneficial shareholders at December 31, 1995.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data of
the Company as of and for each of the years in the five-year period ended
December 31, 1995. The selected financial data of the Company was derived from
the Company's audited consolidated financial statements. The selected financial
and operating data should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements contained herein as Item 7 and Item 8,
respectively.
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PROPERTIES AND UNITS MANAGED)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Total revenues (a) $ 174,674 $ 147,296 $ 95,900 $ 91,559 $ 86,913
Operating income 19,307 14,741 (b) 12,469 11,964 9,476
Income from continuing operations
before income taxes 13,811 9,005 8,528 8,276 5,413
Income from continuing operations 31,613(c) 9,005 8,528 8,276 5,413
Income per common share from continuing
operations $ 3.27(c) $ 1.11 $ 1.04 $ 1.00 $ .75
FINANCIAL POSITION:
Total assets $ 84,770 $ 57,668 $ 46,353 $ 15,095 $ 14,511
Notes payable, including current portion 23,690 70,133 72,429 44,523 42,714
Shareholders' equity (deficit) (d) 39,154 (47,554) (63,584) (61,709) (63,925)
OTHER INFORMATION:
EBITDA (e) $ 23,110 $ 17,265 $ 13,848 $ 13,249 $ 10,908
Cash dividends per share - - - - -
Weighted average shares outstanding 9,645 8,095 8,209 8,291 7,258
Properties managed:
Affiliated 619 558 544 384 385
Unaffiliated 92 56 28 21 19
--------- --------- --------- --------- ---------
Total 711 614 572 405 404
========= ========= ========= ========= =========
Units managed:
Affiliated 113,919 99,817 96,067 61,782 61,394
Unaffiliated 19,748 11,689 5,282 3,296 2,702
--------- --------- ---------- ---------- ----------
Total 133,667 111,506 101,349 65,078 64,096
========= ========= ========== ========== ==========
</TABLE>
18
<PAGE> 20
- ------------
(a) Adjusted revenues, which exclude On-Site personnel, general and
administrative cost reimbursement, were $57,425, $49,138, $35,677,
$33,059, and $31,827 for the years ended December 31, 1995, 1994, 1993,
1992 and 1991, respectively.
(b) Includes a $1.8 million ($.22 per share) write-off in 1994 of the costs
of transferring operations to a new computer system that was not
completed in a timely manner.
(c) Includes a credit of $23.3 million ($2.42 per share) in 1995 related to
a change in the valuation allowance on the Company's net deferred tax
asset.
(d) The deficit in shareholders' equity prior to 1995 is the result of
losses recorded from the Company's discontinued operations.
(e) EBITDA consists of income from continuing operations before interest,
income taxes, depreciation and amortization. EBITDA is included because
it is widely used in the industry as a measure of a company's operating
performance, but should not be construed as an alternative either (i)
to income from continuing operations (determined in accordance with
generally accepted accounting principles) as a measure of profitability
or (ii) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles). EBITDA does
not take into account the Company's debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts
that may be available for discretionary uses.
19
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
On August 18, 1995, NHP Incorporated (the "Company") completed an
initial public offering (the "IPO") of 4.3 million shares of its common stock
for net proceeds of approximately $52.0 million. Prior to that date the Company
had been owned by various private investors. Concurrently with the closing of
the IPO, the Company sold those of its subsidiaries which held all of the
Company's direct and indirect interest in property-owning partnerships, along
with its captive insurance subsidiary and certain other related assets
(collectively referred to as the "Real Estate Companies") to the two
controlling shareholders of the Company, Demeter Holdings Corporation
("Demeter") and Capricorn Investors, L.P. ("Capricorn"), and J. Roderick
Heller, III, the Chairman, President and Chief Executive Officer of the Company
("Mr. Heller"). Accordingly, operating results and cash flows attributable to
the Real Estate Companies have been presented as discontinued operations in the
accompanying financial statements in conformity with generally accepted
accounting principles. For a summary and discussion of the operating results of
discontinued operations and the financial impact from the disposal of
discontinued operations, see Note 2 to the Consolidated Financial Statements.
The following discussion, except where specifically stated otherwise, relates
only to the Company's continuing operations.
Overview
The Company has experienced growth in its revenues and income from
continuing operations before income taxes during each of the three years ended
December 31, 1995. Historically, substantially all of this growth has been the
result of increased property management revenues caused by increases in the
number of units under management. The increase in units under management has
resulted primarily from acquisitions of management rights, most notably the
Oxford Acquisition in December 1993, the Congress Acquisition in December 1994,
and the Hall Acquisition in February 1995. As a result of these and other
acquisitions of management rights, the Company experienced a net gain in the
number of units under property management of 22,161 units during 1995, an
increase of 19.9% over the end of 1994, 10,157 units during 1994, an increase
of 10.0% over the end of 1993, and 36,271 units during 1993, an increase of
55.7% over the end of 1992.
The Company manages 66 affordable affiliated properties (representing
approximately 10,400 units) which have secondary financing expiring in the next
one to six years. Most of these properties currently have a fair market value
less than the amount necessary to repay such secondary financing in full. The
Company expects the Real Estate Companies to renegotiate these mortgages where
necessary, but some attrition in the Company's management portfolio is expected
from maturity of these secondary mortgages. These properties generated
approximately $5.3 million in property management revenue in 1995, and the
Company believes that less than 50% of such annual revenue is at risk over the
next seven years due to a possible loss of property management revenues with
respect to such properties. Such a revenue loss would not be material compared
with expected total revenue of the Company and would not have a significant
impact on the Company's financial condition or results of operations.
Approximately 63% of the properties and 43% of the units managed by the
Company as of December 31, 1995 are affordable properties and units. A
substantial portion of the affordable properties were built or acquired by the
owners with the assistance of programs administered by the United States
Department of Housing and Urban Development ("HUD") that provide mortgage
insurance, favorable financing terms, or rental assistance payments to the
owners. As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements including
limiting rents on these properties to amounts approved by HUD. Various
proposals are pending before Congress proposing reorganizaton of HUD and a
restructuring of certain of its housing assistance programs. It is too early in
the legislative process to predict which, if any, changes might be implemented.
Any such changes could have an adverse effect on the Company's property
management revenue.
The Company manages 71 properties for unaffiliated third parties with
property management contracts terminable within one year. Some of the contracts
may be terminated on short notice and others may not be renewed for another
term. In either case, the Company would experience a revenue loss. Although the
Company does not believe that any anticipated revenue loss would have a
significant impact on its financial condition or results of operations,
20
<PAGE> 22
if the contracts that are terminated or not renewed generate favorable margins,
operating income would be adversely affected. These properties generated
approximately $3.7 million in property management revenue in 1995.
On a going-forward basis, to the extent that the Company is successful
in acquiring new management contract rights, the Company will experience
increased expenses associated with the amortization of the acquired rights or
completing other acquisitions (such as the Washington Mortgage acquisition
discussed in Item 1 above) and, if the acquisitions are financed by
additional indebtedness, an increase in interest expense. Accordingly,
acquisitions may result in a decrease in income from continuing operations.
However, the Company intends to pursue acquisitions of property management
rights and other acquisitions that result in an increase in income from
continuing operations before interest, income taxes, depreciation and
amortization ("EBITDA") after all transition costs relating to the acquisition
are absorbed (see "Part I - Business - Acquisition Program"). EBITDA is widely
used in the industry as a measure of a company's operating performance, but
should not be considered as an alternative either (i) to income from continuing
operations (determined in accordance with generally accepted accounting
principles) as a measure of profitability or (ii) to cash flows from operating
activities (determined in accordance with generally accepted accounting
principles). EBITDA does not take into account the Company's debt service
requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary uses.
The Company files a consolidated Federal income tax return and prior to
the third quarter of 1995 had recognized no provision or benefit for income
taxes primarily because of net operating losses generated in prior years by the
discontinued real estate operations. Prior to the sale of the Real Estate
Companies, losses from discontinued operations typically caused the Company to
report no taxable income, making realization of net operating loss
carryforwards ("NOLs") uncertain. As a result, historically, the Company had
established a valuation allowance for the full amount of the NOLs. Subsequent
to the sale of the Real Estate Companies, the Company reduced its valuation
allowance, resulting in the recognition of a net deferred tax asset. For
further discussion see Note 5 to the Company's Consolidated Financial
Statements.
The Real Estate Companies have indemnified the Company against any
environmental liability with respect to any property in which the Real Estate
Companies have had, have or acquire an interest in, unless such liability
results from the direct introduction of toxic substances into a property by the
Company after the consummation of the sale of the Real Estate Companies. The
Company has no known material environmental liabilities that require an accrual
and has obtained the indemnification from the Real Estate Companies in the
event any such liabilities should arise in the future. For further discussion,
see "Part I - Business - Intercompany Agreements with the Real Estate
Companies."
The Company is, and will continue to be, substantially dependent on
revenue from services provided to properties controlled by the Real Estate
Companies. Approximately 65% of the Company's property management revenue in
1995 was derived from fees for services provided to properties controlled by
the Real Estate Companies. For further discussion, see "Part I - Business -
Dependence on the Real Estate Companies for Property Management Revenues."
RESULTS OF OPERATIONS
Table 1 below sets forth the percentage of the Company's total revenue
represented by each operating statement line presented. This table is
presented as supplemental information to enable the reader to better analyze
the Company's change in revenues and expenses during the three years ended
December 31, 1995. The percent of revenue comparison is intended to make the
periods more comparable by removing the absolute effect of growth in revenues
and expenses which results from the Company's acquisition of additional
management contracts. Such a presentation would also reflect economies in the
Company's operating expenses, to the extent they exist.
21
<PAGE> 23
TABLE 1 - SUMMARY FINANCIAL AND OPERATIONAL DATA - REVENUE AND EXPENSES
AS A PERCENTAGE OF TOTAL REVENUE
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Revenue
Property management services 27.7% 27.8% 29.9%
On-Site personnel, general and administrative cost
reimbursement 67.1 66.7 62.8
Administrative and reporting fees 2.4 2.5 4.5
Buyers Access(R) fees 1.5 1.4 1.6
Tax credit investment fees 0.7 0.9 0.2
Insurance advisory fees 0.6 0.7 1.0
----- ------- --------
Total revenue 100.0 100.0 100.0
----- ------- --------
Expenses
Salaries and benefits
On-Site employees 64.7 63.5 55.7
Off-Site employees 12.8 13.0 14.3
Other general and administrative 6.8 7.4 8.4
Costs charged to the Real Estate Companies 2.4 3.1 7.1
Amortization of purchased management contracts 1.8 1.4 0.9
Depreciation and amortization 0.4 0.3 0.5
Other non-recurring expenses - 1.2 -
----- ------- --------
Total expenses 88.9 89.9 86.9
----- ------- --------
Operating income 11.1 10.1 13.1
Interest expense, net (3.2) (3.9) (4.1)
----- ------- --------
Income from continuing operations before income taxes 7.9 6.2 9.0
Income tax benefit 10.2 - -
----- ------- ---------
Income from continuing operations 18.1% 6.2% 9.0%
===== ======= ========
</TABLE>
The Company's expenses include salaries and benefits with respect to
employees working at managed properties, which are fully reimbursed by the
property-owning partnerships, and certain general and administrative costs that
are fully reimbursed by the Real Estate Companies. The reimbursements, recorded
as revenue under "On-Site personnel, general and administrative cost
reimbursement," fully offset the corresponding expenses, with no impact on the
Company's net income. Therefore, reimbursed expenses and related revenue are
not analyzed in any detail below.
Table 2 shows the Company's adjusted revenue and expenses, which
exclude on-site personnel, general and administrative cost reimbursements, and
related expenses. Table 3 sets forth the percentage of the Company's total
revenue excluding on-site personnel and general and administrative cost
reimbursement (adjusted revenue) represented by each operating statement line
presented. See discussion regarding Table 1 above.
22
<PAGE> 24
TABLE 2 - SUMMARY FINANCIAL AND OPERATIONAL DATA - ADJUSTED REVENUE AND
ADJUSTED OPERATING EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Revenue
Property management services $48,336 $40,953 $28,651
Administrative and reporting fees 4,148 3,680 4,338
Buyers Access(R) fees 2,631 2,108 1,521
Tax credit investment fees 1,234 1,307 200
Insurance advisory fees 1,076 1,090 967
------- -------- --------
Adjusted revenue (1) 57,425 49,138 35,677
------- -------- --------
Expenses
Salaries and benefits
Off-Site employees 22,371 19,099 13,706
Other general and administrative 11,899 10,968 8,123
Amortization of purchased management contracts 3,076 2,043 875
Depreciation and amortization 727 481 504
Other non-recurring expenses 45 1,806 -
------- -------- --------
Adjusted operating expenses (2) 38,118 34,397 23,208
------- -------- --------
Operating income 19,307 14,741 12,469
Interest expense, net (5,496) (5,736) (3,941)
------- -------- --------
Income from continuing operations before income taxes 13,811 9,005 8,528
Income tax benefit 17,802 - -
------- ------ --------
Income from continuing operations $31,613 $ 9,005 $ 8,528
======= ======== ========
</TABLE>
TABLE 3 - SUMMARY FINANCIAL AND OPERATIONAL DATA - ADJUSTED OPERATING REVENUE
AND ADJUSTED EXPENSES
AS A PERCENTAGE OF ADJUSTED REVENUE
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Revenue
Property management services 84.2% 83.3% 80.3%
Administrative and reporting fees 7.2 7.5 12.1
Buyers Access(R) fees 4.6 4.3 4.3
Tax credit investment fees 2.1 2.7 0.6
Insurance advisory fees 1.9 2.2 2.7
------ ------- -------
Adjusted revenue (1) 100.0 100.0 100.0
------ ------- -------
Expenses
Salaries and benefits
Off-Site employees 39.0 38.9 38.4
Other general and administrative 20.7 22.2 22.8
Amortization of purchased management contracts 5.4 4.2 2.4
Depreciation and amortization 1.3 1.0 1.4
Other non-recurring expenses - 3.7 -
------ ------- -------
Adjusted operating expenses (2) 66.4 70.0 65.0
------ ------- -------
Operating income 33.6 30.0 35.0
Interest expense, net (9.6) (11.7) (11.0)
------ ------ -------
Income from continuing operations before income taxes 24.0 18.3 24.0
Income tax benefit 31.0 - -
------ ------ -------
Income from continuing operations 55.0% 18.3% 24.0%
====== ====== =======
</TABLE>
- ------------------
(1) Adjusted revenue excludes On-Site personnel, general and administrative
cost reimbursement.
(2) Adjusted operating expenses exclude salaries and benefits for on-site
employees and costs charged to the Real Estate Companies.
23
<PAGE> 25
RESULTS OF OPERATIONS - 1995 COMPARED WITH 1994
In 1995, the Company recorded pre-tax income (before discontinued
operations and extraordinary items) of $13.8 million compared with $9.0 million
for 1994, an improvement of $4.8 million, or 53.4%. Both revenues and expenses
of the Company show increases in 1995 over 1994, primarily as a result of the
acquisition of additional property management contracts in late 1994 and during
1995. The Company's earnings from continuing operations before interest, income
taxes, depreciation and amortization (EBITDA) was $23.1 million for 1995
compared with $17.3 million for 1994, an improvement of $5.8 million, or 33.9%.
EBITDA consists of income from continuing operations before interest, income
taxes, depreciation and amortization. EBITDA is widely used in the industry as
a measure of a company's operating performance, but should not be construed as
an alternative either (i) to income from continuing operations (determined in
accordance with generally accepted accounting principles) as a measure of
profitability or (ii) to cash flows from operating activities (determined in
accordance with generally accepted accounting principles). EBITDA does not take
into account the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available for
discretionary uses.
Net income for 1995 of $29.3 million includes a $17.8 million income
tax benefit. The income tax benefit resulted from the recognition, in the third
quarter, of a $23.3 million net asset primarily consisting of tax NOLs
following the sale of the Real Estate Companies on August 18, 1995, net of the
year-to-date tax provision of $5.5 million. No tax provision was recorded in
1994 due to NOLs generated by the Real Estate Companies in prior years. For
further discussion, see Note 5 to the Consolidated Financial Statements. Net
income for 1994 included a non-recurring charge of $1.8 million related to a
terminated computer technology project. In addition, the Company recorded an
extraordinary after-tax charge of $0.4 million in the third quarter of 1995
related to the early termination of a credit facility.
Revenue
Total revenue of the Company consists of property management services
fees, administrative and reporting fees, Buyers Access(R) fees, tax credit
investment fees, insurance advisory fees and on-site personnel, general and
administrative cost reimbursement. Adjusted revenue equals total revenue less
on-site personnel, general and administrative cost reimbursement. Total revenue
increased $27.4 million, or 18.6%, to $174.7 million in 1995 from $147.3
million in 1994. Adjusted revenue increased $8.3 million, or 16.9%, to $57.4
million in 1995 from $49.1 million in 1994. The reasons for these increases
are set forth below.
Property management services revenue consists primarily of fees earned
on property management contracts. This revenue increased $7.3 million, or
18.0%, to $48.3 million in 1995 from $41.0 million in 1994. As a percentage of
total revenue, property management revenue remained essentially the same. As a
percentage of adjusted revenue, property management revenue increased to 84.2%
from 83.3%. The increase in absolute terms resulted from an increase in the
average number of units managed due primarily to the acquisition of additional
property management rights discussed above.
Administrative and reporting fees consist of fees payable from
property-owning partnerships, which are payable from investor limited partners'
share of distributable cash flow of the partnerships, as compensation for
providing certain administrative services to the property-owning partnerships.
These fees are payable only to the extent cash flow is available, and therefore
the receipt and timing of such fees cannot be assured. The amount of these fees
received is dependent in part on the operating results and cash requirements of
the underlying properties. The Company accrues these fees as services are
rendered and establishes a reserve equal to the amount of accrued fees that are
not assured of being paid. The Company has experienced significant variations
in these fees from one period to another and these variations may occur in the
future. Administrative and reporting fees revenue increased by $0.4 million, or
12.7%, to $4.1 million in 1995 from $3.7 million in 1994. As a percentage of
total revenue, administrative and reporting fees revenue remained essentially
the same. As a percentage of adjusted revenue, administrative and reporting
fees revenue decreased to 7.2% from 7.5%. The Company expects administrative
and reporting fees to continue to decline as a percentage of adjusted revenue
because these fees generally are not received with respect to newly-acquired
management contracts and as the properties which have A&R fees are lost due to
sale or other reasons.
24
<PAGE> 26
Buyers Access(R) fees consist of annual membership fees paid by
property-owning partnerships and rebates paid to the Company by suppliers
participating in the Company's Buyers Access(R) program. This revenue increased
$0.5 million, or 24.8%, to $2.6 million in 1995 from $2.1 million in 1994. As a
percentage of total revenue, Buyers Access(R) fees remained essentially the
same. As a percentage of adjusted revenue, this revenue increased to 4.6% from
4.3%. The increase in absolute terms resulted from an increase in the average
number of units enrolled in the Buyers Access(R) program.
Tax credit investment fees consist of fees earned from providing a
variety of real estate investment banking services. The Company has experienced
significant variations in these fees from one period to another, and these
variations may recur in the future. This revenue decreased $0.1 million, or
5.6%, to $1.2 million in 1995 from $1.3 million in 1994. As a percentage of
total revenue, tax credit investment fees decreased to 0.7% from 0.9%. As a
percentage of adjusted revenue, this revenue decreased to 2.1% from 2.7%. The
decrease in absolute terms and as a percentage of adjusted revenue is the
result of fewer tax credit investment transactions being completed during 1995
as compared to 1994.
Insurance advisory fees revenue consists of fees received by the
Company in connection with administration of insurance programs for managed
properties, and currently amount to approximately $3.00 per $10,000 of
coverage. This revenue was essentially flat year over year at approximately
$1.1 million. As a percentage of total revenue, insurance advisory services
revenue remained essentially the same. As a percentage of adjusted revenue,
this revenue decreased to 1.9% from 2.2%.
Expenses
Total expenses of the Company consist of salaries and benefits for
On-Site and Off-Site employees, other general and administrative expenses,
costs charged to the Real Estate Companies, depreciation and amortization,
amortization of purchased management contracts and other non-recurring
expenses. Adjusted operating expenses equal total expenses less salaries and
benefits for On-Site employees and costs charged to the Real Estate Companies.
Total expenses increased $22.8 million, or 17.2%, to $155.4 million in 1995
from $132.6 million in 1994. Total expenses as a percentage of total revenue
decreased to 88.9% in 1995 from 89.9% in 1994. Adjusted operating expenses
increased $3.7 million, or 10.8%, to $38.1 million in 1995 from $34.4 million
in 1994. Adjusted operating expenses as a percent of adjusted revenue decreased
to 66.4% from 70.0%. The reasons for these changes are set forth below.
Salaries and benefits - off-site employees consist of personnel
expenses incurred for employees other than employees working at the properties.
These expenses increased $3.3 million, or 17.1%, to $22.4 million in 1995 from
$19.1 million in 1994. As a percentage of total revenue, salary and benefits -
off-site employees decreased slightly to 12.8% from 13.0%. As a percentage of
adjusted revenue, these expenses remained essentially the same. The increase in
absolute terms resulted primarily from the Company's growth and increased
executive incentive compensation during 1995.
Other general and administrative expenses consist of professional fees,
travel, management information systems, occupancy, telephone and equipment
rental, and other expenses. These expenses increased $0.9 million, or 8.5%, to
$11.9 million in 1995 from $11.0 million in 1994. As a percentage of total
revenue, other general and administrative expenses decreased to 6.8% from 7.4%.
As a percentage of adjusted revenue, these expenses decreased to 20.7% from
22.2%. The increase in absolute terms resulted primarily from higher transition
and management expenses related to the expansion of the management portfolio.
Amortization of purchased management contracts consists of the
amortization of the costs of acquisition of property management rights. Costs
are amortized over the shorter of 15 years or the estimated life of the
management contracts which include projected renewals. Amortization periods
range from 5 to 15 years. These expenses increased $1.1 million, or 50.6%, to
$3.1 million in 1995 from $2.0 million in 1994. As a percentage of total
revenue, amortization of purchased management contracts increased to 1.8% from
1.4%. As a percentage of adjusted revenue, these expenses increased to 5.4%
from 4.2%. The increase in absolute terms and as a percentage of total and
adjusted revenues resulted primarily from amortization of management contracts
related to the Congress and Hall Acquisitions.
25
<PAGE> 27
Depreciation and amortization consist primarily of the depreciation of
furniture, equipment (primarily computer equipment) and software, and
amortization of costs of leasehold improvements. These expenses increased $0.2
million, or 51.1%, to $0.7 million in 1995 from $0.5 million in 1994. As a
percentage of total revenue, depreciation and amortization remained essentially
the same. As a percentage of adjusted revenue, these expenses increased to 1.3%
from 1.0%. The increase in absolute terms resulted primarily from the purchase
of new personal computers and increased depreciation on leasehold improvements
at the Company's Indianapolis facility.
Other non-recurring expenses include stock option compensation expense
of $0.5 million due to the extension of the exercise period of stock options
held by one former and five current employees. The extension was approved by
the Company's Board of Directors in February 1995. Additionally, the Company
recorded an expense reduction of $0.4 million, reflecting partial
reimbursements by third parties with respect to the costs of transferring
operations to a new computer system. A $1.8 million charge for the termination
of this systems project was originally recorded in December 1994 as a
non-recurring expense.
Interest Expense, Net
Interest expense, net decreased $0.2 million, or 4.2%, to $5.5 million
in 1995 from $5.7 million in 1994. As a percentage of total revenue, interest
expense, net decreased to 3.2% from 3.9%. As a percentage of adjusted revenue,
interest expense, net decreased to 9.6% from 11.7%. The decreases are due to a
lower level of debt in the second half of 1995 following the application of the
proceeds from the Company's IPO to repay debt.
RESULTS OF OPERATIONS - 1994 COMPARED WITH 1993
Revenues
Total revenue of the Company increased $51.4 million, or 53.6%, to
$147.3 million in 1994 from $95.9 million in 1993. Adjusted revenue increased
$13.4 million, or 37.7%, to $49.1 million from $35.7 million. The reasons for
these increases are set forth below.
Property management services revenue increased $12.3 million, or 42.9%,
to $41.0 million in 1994 from $28.7 million in 1993. As a percentage of total
revenue, property management revenue decreased to 27.8% from 29.9%. As a
percentage of adjusted revenue, this revenue increased to 83.3% from 80.3%. The
increase in absolute terms resulted from an increase in the average number of
units managed during 1994 as a result of the Oxford Acquisition in December
1993, as well as from increases in rents on properties managed by the Company
and other factors. The increase as a percentage of adjusted revenue resulted
from the same reasons, and from a decrease in administrative and reporting fees
during 1994.
Administrative and reporting fees decreased $0.6 million, or 15.2%, to
$3.7 million in 1994 from $4.3 million in 1993. As a percentage of total
revenue, administrative and reporting fees decreased to 2.5% from 4.5%. As a
percentage of adjusted revenue, this revenue decreased to 7.5% from 12.1%. The
decrease in absolute terms resulted from unusually high fees in 1993 caused
primarily by non-recurring government rent subsidy payments to the
property-owning partnerships and the timing of certain cash requirements of the
partnerships, which increased amounts available for payment of these fees in
1993. The decreases as a percentage of total and adjusted revenue resulted from
the same reason and because property management revenue, the major component of
revenue, increased at a faster rate than other revenue types.
Buyers Access(R) fees increased $0.6 million, or 38.6%, to $2.1 million
in 1994 from $1.5 million in 1993. As a percentage of total revenue, Buyers
Access(R) fees decreased to 1.4% from 1.6%. As a percentage of adjusted
revenue, Buyers Access(R) fees remained the same. The increase in absolute
terms resulted from an increase in the average number of units enrolled in the
Buyers Access(R) program during 1994, as well as from an increase in the
average membership fees charged to the property-owning partnerships.
Tax credit investment fees increased $1.1 million to $1.3 million in
1994, from $0.2 million in 1993. As a percentage of total revenue, tax credit
investment fees increased to 0.9% from 0.2%. As a percentage of adjusted
26
<PAGE> 28
revenue, tax credit investment fees increased to 2.7% from 0.6%. The increase
in absolute terms and as a percentage of total and adjusted revenue resulted
from the fact that 1994 was the first full year of tax credit operations.
Insurance advisory fees increased by $0.1 million, or 12.7%, to $1.1
million in 1994 from $1.0 million in 1993. As a percentage of total revenue,
insurance advisory fees decreased to 0.7% from 1.0%. As a percentage of
adjusted revenue, insurance advisory services fees decreased to 2.2% from 2.7%.
Expenses
Total expenses increased $49.2 million, or 58.9%, to $132.6 million in
1994 from $83.4 million in 1993. Total expenses as a percentage of total
revenue increased to 89.9% from 86.9%. Net operating expenses increased $11.2
million, or 48.2%, to $34.4 million from $23.2 million. Adjusted operating
expenses as a percent of adjusted revenue increased to 70.0% for 1994 from
65.0% for 1993. The reasons for these increases are set forth below.
Salaries and benefits - off-site employees increased by $5.4 million,
or 39.3%, to $19.1 million in 1994 from $13.7 million in 1993. As a percentage
of total revenue, salary and benefits - off-site employees decreased to 13.0%
from 14.3%. As a percentage of adjusted revenue, these expenses remained
essentially the same. The increase in absolute terms resulted primarily from
additional personnel cost incurred to manage the Oxford properties, an increase
in the number of employees engaged in implementing the Company's acquisition
strategy, the additional personnel to support the tax credit investment fee
business which began in late 1993, and normal annual salary increases.
Other general and administrative expenses increased $2.9 million, or
35.0%, to $11.0 million in 1994 from $8.1 million in 1993. As a percentage of
total revenue, other general and administrative expenses decreased to 7.4% from
8.4%. As a percentage of adjusted revenue, these expenses decreased to 22.2%
from 22.8%. The increase in absolute terms resulted primarily from additional
administrative cost incurred to manage the Oxford properties and higher legal
expenses incurred in connection with the Company's property management
operations.
Amortization of purchased management contracts increased $1.1 million,
or 133.5%, to $2.0 million in 1994 from $0.9 million in 1993. As a percentage
of total revenue, amortization of purchased management contracts increased to
1.4% from 0.9%. As a percentage of adjusted revenue, these expenses increased
to 4.2% from 2.4%. The increase in absolute terms and as a percentage of total
and adjusted revenue resulted from amortization of purchased management
contracts for the Oxford Acquisition and the fact that the managed portfolio
prior to the Oxford Acquisition had relatively little purchased management cost
to be amortized.
Other non-recurring expenses of $1.8 million in 1994 consisted of a
write-off of costs of transferring operations to a new computer system that was
not completed in a timely manner.
Interest Expense, Net
Interest expense, net, increased $1.8 million, or 45.5%, to $5.7
million in 1994 from $3.9 million in 1993. As a percentage of total revenue,
interest expense, net, decreased to 3.9% from 4.1%. As a percentage of adjusted
revenue, this expense increased to 11.7% from 11.0%. The increase in absolute
terms and as a percentage of adjusted revenue resulted from additional interest
expense incurred on additional borrowings from banks to finance the Oxford
Acquisition as well as from interest expense on additional shareholder loans.
LIQUIDITY AND CAPITAL RESOURCES
Continuing operations, particularly property management operations,
have historically provided a steady, noncyclical source of cash flow to the
Company. Net cash provided by continuing operations for the years ended
December 31, 1995, 1994 and 1993 was $9.7, $11.9 and $12.1 million,
respectively. The decrease in net cash provided by continuing operations in
1995 was due primarily to the increase in payments for income taxes and the
timing of receipts and payments on various working capital items. At December
31, 1995, the Company's liquidity was approximately $58.0 million, which
consists of approximately $6.0 million in cash and $52.0 million of available
borrowings available under the Company's credit facility.
27
<PAGE> 29
For 1995, net cash used in investing activities was $16.0 million,
reflecting primarily cash used in the Congress, Hall and other acquisitions.
Net cash used in investing activities in 1994 of $4.5 million includes
additional payments for the Oxford Acquisition and purchases of fixed assets
consisting primarily of computer equipment and software. Net cash used in
investing activities was $19.7 million in 1993, primarily due to the Oxford
Acquisition.
In 1995, net cash provided by financing activities was $8.8 million,
reflecting proceeds from the Company's IPO in August and borrowings on the
Company's Credit Facility (see discussion below), reduced by the net repayment
of borrowings under the Company's previous credit facility, repayment of notes
to related parties and payment of financing, offering and disposition costs. In
1994, net cash used in financing activities was $4.3 million, reflecting
scheduled payments under the then existing credit facility. Net cash provided
by financing activities of $23.4 million in 1993 results primarily from
financing obtained in connection with the Oxford Acquisition. For further
discussion of the Company's debt, see Note 4 to the Consolidated Financial
Statements.
As previously discussed, on August 18, 1995, the Company completed an
IPO of 4.3 million shares of common stock and received net proceeds of
approximately $52.0 million (the "Closing"). At that time, the Company entered
into a $75 million, three-year unsecured revolving credit facility with a group
of banks (the "Credit Facility"). At the end of two years, the Company may
extend the Credit Facility (as a revolving facility) for a fourth year or
convert it to a two-year term loan. Availability under the Credit Facility is
subject to the Company's compliance with various ratios, operating covenants
and other customary conditions. The Credit Facility also restricts the payment
of dividends by the Company unless the Company's ratio of EBITDA to interest
expense is greater than 3 to 1, calculated on a four quarter average basis.
Interest on the Credit Facility is equal to, at the Company's option, either
The First National Bank of Boston's base rate from time to time or 175 basis
points over the London Interbank Offered Rate ("LIBOR") in effect from time to
time. The Credit Facility also requires the payment of a commitment fee of 37.5
basis points per annum on the unused portion of the Credit Facility. The Credit
Facility generally prohibits any additional borrowings by the Company, except
that up to $10.0 million of additional unsubordinated borrowings from third
parties will be permitted if entered into in connection with the acquisition of
assets which will result in additional management contracts for the Company.
The Credit Facility also permits the Company to make loans or other advances to
the Real Estate Companies up to a total of $10 million in connection with the
Real Estate Companies' acquisition of real estate assets. The Company's
compliance with this latter requirement was waived by the bank group for a
period of six months ending August 8, 1996, to permit up to $16.0 million of
borrowings in connection with the Real Estate Companies' pending acquisition of
a portfolio of 13 properties containing 3,145 units (see "Subsequent Events"
below). As of December 31, 1995 the Company had $23.0 million outstanding under
the Credit Facility leaving $52.0 million of available borrowings.
At Closing, the Company drew $20.0 million on the Credit Facility and
used those funds together with the net proceeds of the IPO as follows: (i)
$54.7 million was used to repay in full the Company's indebtedness under its
previous credit facility, which was simultaneously terminated by the Company;
(ii) $7.0 million was used to repay a note to a former institutional
shareholder of the Company; and (iii) $5.5 million was used to repay
indebtedness to Demeter, Capricorn, and Mr. Heller. The remaining proceeds were
added to the Company's working capital.
In consideration for the sale of the Real Estate Companies, Demeter,
Capricorn and Mr. Heller canceled approximately $9.1 million of indebtedness
owed by the Company to them. For further discussion, see Note 9 to the
Company's Consolidated Financial Statements.
The Company's future capital expenditures are expected to consist
largely of funds required in connection with the acquisition of property
management rights and other acquisitions. The Company intends to finance such
acquisitions primarily out of operating cash flow and bank or other borrowings,
including borrowings under the Credit Facility. The Company may also issue
additional common stock, either for cash to be used in connection with, or as
consideration for, acquisitions. The Company believes that it can repay
indebtedness out of operating cash flow or additional equity offerings.
Capital expenditures also include costs to acquire computer hardware
and software, including software in connection with the Company's move from
mainframe technology to client-server based technology to serve its
28
<PAGE> 30
information systems needs. See Part I - Business - "Property Management
Services - Operations." As of December 31, 1995, the client-server software and
related hardware had been purchased with funds from operating cash flow. The
Company currently has no material commitments for capital expenditures.
As discussed in Note 5 to the Company's Consolidated Financial
Statements, the Company has substantial unused net operating loss carryforwards
("NOLs") for Federal tax purposes. In addition, the Company estimates that,
based on current projections, it has sufficient Federal alternative minimum tax
NOLs to offset the allowable limit of Federal alternative minimum taxable
income at least through 1996. Therefore, the Company expects its cash income
tax rate to be approximately 10% for 1995 and 1996.
If the Internal Revenue Service were to determine that the
consideration received by the Company in the sale of the Real Estate Companies
was less than the fair market value of the assets transferred or that other
valuations of assets made in connection with the sale were inaccurate, the
amount of the net operating loss carryforwards available to the Company could
be reduced, thus increasing the Company's future federal income tax liability.
The ability of the Company to utilize NOLs may also be limited in the future if
an "ownership change" within the meaning of Section 382 of the Internal Revenue
Code of 1986, as amended, were deemed to occur. Such an ownership change may be
deemed to occur if the Company engages in certain transactions involving the
issuance of shares of common stock, including the issuance of a sufficient
number of shares of common stock in connection with an acquisition or
otherwise. If an ownership change were to occur, Section 382 would impose an
annual limit on the ability of the Company to utilize NOLs. The amount of NOLs
is, in any event, subject to uncertainty until such time as they are used to
offset income as their validity is not reviewed by the Internal Revenue Service
until such time as they are utilized.
Discontinued Operations
Net cash used in discontinued operations for the years ended December
31, 1995, 1994 and 1993 was $8.6 million, $0.2 million and $10.5 million,
respectively. The single largest use of cash over these years has been advances
to property-owning partnerships to fund operations and capital improvements of
the underlying properties. A large part of the 1993 fundings were required by
operating guarantees or to avoid calls on letters of credit and guarantees
issued on behalf of property-owning partnerships. The reduction of cash used in
discontinued operations in 1994 compared to 1993 is primarily the result of
proceeds received in 1994 on dispositions of investments in real estate
partnerships.
In 1993, net cash used in discontinued operations was primarily related
to multifamily partnership and single family joint-venture investments targeted
for disposition. In 1994, net cash used was primarily for additional
investments in certain partnerships rather than for partnership fundings as had
been required in prior years, offset by any proceeds from dispositions of
certain properties and partnership interests. In 1995, cash was used primarily
to invest in the general partnership interests acquired in the Hall
Acquisition.
NET INCOME PER SHARE
In February 1995, the Company's Board of Directors declared a 25 for 1
split of the Company's common stock. Accordingly, all share and per share
amounts have been restated to give retroactive recognition to the stock split
for all periods presented.
As previously discussed, on August 18, 1995, the Company completed an
IPO of 4.3 million shares of its common stock for net proceeds of approximately
$52.0 million. Although this transaction had no earnings impact, net income per
share subsequent to the IPO decreased due to the increase in shares
outstanding.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Assets to be Disposed Of," which
requires the adjustment of the carrying value of long-lived assets and certain
identifiable intangibles if their value is determined to be impaired as defined
by the standard. The Company intends to adopt SFAS No. 121 on
29
<PAGE> 31
January 1, 1996. In the opinion of management, the adoption of this statement
will not have a material effect on the Company's financial position or results
of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation," which allows companies to
adopt the fair value method for recognition of stock-based compensation expense
or to continue to use the intrinsic value method as prescribed by Accounting
Principles Board Opinion (APB) No. 25 "Accounting for Stock Issued to
Employees." SFAS 123's fair value method requires companies to record
compensation expense on the date of the grant of stock options based on the
fair value of the options as calculated by option pricing models or current
market prices. For those companies that do not elect to adopt the fair value
method of accounting for stock-based compensation expense, SFAS 123 requires
disclosure of the pro forma impact on net income and earnings per share as if
the Company had accounted for its employee stock options under the fair value
method of that statement. The Company intends to adopt the disclosure
provisions of SFAS 123 for 1996 and will continue to follow APB No. 25 in
accounting for employee stock options. In accordance with APB No. 25, because
the exercise price of the Company's employee stock options equals the market
price on the underlying stock on the date of the grant, no compensation expense
is recognized. Because the Company's adoption of SFAS 123 will require only
additional disclosure, it will not have a material effect on the Company's
financial position or results of operations.
SUBSEQUENT EVENTS
On February 29, 1996, the Company entered into a three-year contract
with CRI, Inc., a Rockville, Maryland-based real estate investment firm, to
provide asset management, refinancing and disposition services for 286
affordable multifamily communities containing over 35,000 apartment units,
which are owned by 129 of CRI's public and private real estate partnerships.
The transaction increased the Company's total asset management portfolio by
over 50% to approximately 840 multifamily properties.
On March 20, 1996, the Company and Commonwealth Overseas Trading
Company Limited ("Commonwealth") entered into a Stock Purchase Agreement
providing for the purchase from Commonwealth of all of the issued and
outstanding common stock of WMF Holdings Ltd. for $21 million, in the form of
$16.8 million in cash and 210,000 shares of the Company's common stock. WMF
Holdings Ltd. is the owner of Washington Mortgage Financial Group, Ltd.
("Washington Mortgage Financial"), located in Fairfax County, Virginia, one of
the nation's leading multifamily mortgage originators and servicers. Washington
Mortgage Financial had mortgage servicing contracts aggregating approximately
$4.5 billion as of February 29, 1996 and originated approximately $805 million
in multifamily and other commercial mortgages in 1995. Included in Washington
Mortgage Financial is WMF/Huntoon, Paige Associates Limited, a leading FHA
mortgage originator and servicer located in Edison, New Jersey. The transaction
is expected to be completed in early April 1996.
On February 14, 1996, the Real Estate Companies agreed to acquire 13
multifamily properties containing 3,145 apartment units from affiliates of
Great Atlantic Management, Inc. At closing, the Company is expected to acquire
from the Real Estate Companies for approximately $1.6 million the right to
manage the units on a long-term basis with the exact terms to be determined. In
addition, the Company may provide the Real Estate Companies up to $16 million
in secured financing for acquisition of the properties until such time as a
third-party investor acquires an equity interest in the properties. Such
borrowing would bear interest at 10% per year. The Company's Credit Facility
limits the amount of loans or other advances the Company may make to the Real
Estate Companies in connection with the Real Estate Companies' acquisition of
real estate assets to $10.0 million, but this limitation has been waived for a
period of six months ending August 8, 1996 to permit the advance to the Real
Estate Companies in connection with this acquisition.
30
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
NHP INCORPORATED
<S> <C>
Statement of Financial Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Reports of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-34
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 . . . . 35
Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 . . . . 37
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
31
<PAGE> 33
STATEMENT OF FINANCIAL RESPONSIBILITY
To the Shareholders of NHP Incorporated:
The management of NHP Incorporated is responsible for the preparation
and integrity of the accompanying consolidated financial statements. The
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis and include amounts based
on estimates and judgments. Other financial information included herein is
consistent with that in the financial statements.
The Company maintains a system of internal accounting controls,
designed and intended to provide reasonable assurance that assets are
safeguarded, that transactions are executed and recorded in accordance with
management's authorization and that accountability for assets is maintained. An
environment that establishes an appropriate level of control consciousness is
maintained and monitored by management and is supported by qualified personnel
and appropriate division of responsibilities.
In addition, the financial statements have been audited by independent
public accountants, whose reports follow. These audits provide an objective,
independent review of management's discharge of its responsibilities as they
relate to the fairness of reported operating results and financial condition.
The independent public accountants obtain and maintain an understanding of the
Company's accounting and financial controls and conduct such tests and related
procedures as they deem necessary to arrive at an opinion on the fairness of
the Company's consolidated financial statements.
The Board of Directors has also created an Audit Committee, which is
composed of three outside directors, and will meet periodically and, when
appropriate, separately with the independent auditors and management to review
the activities of each.
<TABLE>
<S> <C>
Ann Torre Grant Jeffrey J. Ochs
Executive Vice President and Vice President and
Chief Financial Officer Chief Accounting Officer
</TABLE>
32
<PAGE> 34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
NHP Incorporated:
We have audited the accompanying consolidated balance sheets of NHP
Incorporated (formerly NHP, Inc.), a Delaware corporation, and subsidiaries
(the "Company") as of December 31, 1995 and 1994 and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
the years then ended. These consolidated financial statements and the schedule
referred to below 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 did not audit the 1994 financial statements
of certain real estate partnerships whose net assets (deficits) and operating
results are included in "net liabilities of discontinued operations" and
"income (loss) from discontinued real estate operations, net of income taxes,"
respectively, in the accompanying 1994 consolidated financial statements. The
net liabilities of these real estate partnerships represent 7% of total
liabilities, and their net losses ($1,706,000) represent 10% of 1994 net
income. The financial statements of these real estate partnerships were audited
by other auditors whose reports have been furnished to us and our opinion,
insofar as it relates to the amounts (including the 1994 gross revenues, assets
and liabilities disclosed in Note 2) included in the consolidated financial
statements for these real estate partnerships, is based solely on the reports
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of NHP Incorporated and subsidiaries
as of December 31, 1995 and 1994, and the results of their operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II - Allowance for
Doubtful Accounts is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a part of the basic consolidated
financial statements. This schedule, for the years ended December 31, 1995 and
1994, has been subjected to the auditing procedures applied in the audits of
the basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.,
January 26, 1996 (except with respect
to the matters discussed in Note 13, as
to which the date is March 21, 1996)
33
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
NHP Incorporated
Washington, D.C.
We have audited the accompanying consolidated statements of operations, changes
in shareholders' equity (deficit) and cash flows of NHP Incorporated (formerly
NHP, Inc.) and subsidiaries for the year ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of NHP Incorporated and subsidiaries as of December 31, 1993 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Washington, D.C.
July 22, 1994
34
<PAGE> 36
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
----------- ---------------- --------------
<S> <C> <C> <C>
Revenue, substantially all from related parties
Property management services $ 48,336 $ 40,953 $ 28,651
On-Site personnel, general and administrative
cost reimbursement 117,249 98,158 60,223
Administrative and reporting fees 4,148 3,680 4,338
Buyers Access(R) fees 2,631 2,108 1,521
Tax credit investment fees 1,234 1,307 200
Insurance advisory fees 1,076 1,090 967
--------- --------- ------------
Total revenue 174,674 147,296 95,900
--------- --------- ------------
Expenses
Salaries and benefits
On-Site employees 113,100 93,560 53,446
Off-Site employees 22,371 19,099 13,706
Other general and administrative 11,899 10,968 8,123
Costs charged to the Real Estate Companies 4,149 4,598 6,777
Amortization of purchased management contracts 3,076 2,043 875
Depreciation and amortization 727 481 504
Other non-recurring expenses 45 1,806 -
--------- ---------- ------------
Total expenses 155,367 132,555 83,431
Operating income 19,307 14,741 12,469
Interest expense, net (5,496) (5,736) (3,941)
--------- ---------- ------------
Income from continuing operations before income
taxes and extraordinary items 13,811 9,005 8,528
Income tax benefit 17,802 - -
--------- ---------- ---------
Income from continuing operations before
extraordinary items 31,613 9,005 8,528
Income (loss) from discontinued real estate
operations, net of income taxes (1,963) 7,490 (12,965)
--------- ---------- ---------
Income (loss) before extraordinary items 29,650 16,495 (4,437)
Extraordinary items, net of income taxes - (see
Note 12) (400) - 3,847
--------- ---------- ---------
Net income (loss) $ 29,250 $ 16,495 $ (590)
========= ========= =========
Net income (loss) per common share:
Continuing operations before extraordinary items $ 3.27 $ 1.11 $ 1.04
Discontinued operations (.20) .93 (1.58)
Extraordinary items (.04) - .47
--------- --------- ---------
Net income (loss) $ 3.03 $ 2.04 $ (.07)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
35
<PAGE> 37
NHP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
--------------------------------------
ASSETS 1995 1994
------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 5,996 $ 12,090
Receivables, substantially all from related parties, net of allowance
for doubtful accounts of $1,613 and $1,861 in 1995 and 1994,
respectively 12,809 6,288
On-Site cost reimbursement receivable, substantially all from related
parties 2,747 3,376
Other current assets 277 85
Current portion of net deferred tax asset 5,916 -
---------- ----------
Total current assets 27,745 21,839
Purchased management contracts, net of accumulated amortization of
$8,409 and $5,333 in 1995 and 1994, respectively 34,568 30,153
Property and equipment, net of accumulated depreciation of $1,666 and
$969 in 1995 and 1994, respectively 1,995 1,878
Capitalized software, net of accumulated amortization of $114 and $51
in 1995 and 1994, respectively 1,528 128
Deferred costs and other 4,483 3,670
Net deferred tax asset 14,451 -
---------- ----------
$ 84,770 $ 57,668
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current portion of long-term debt, including amounts payable to
related parties of $356 and $351 in 1995 and 1994, respectively $ 412 $ 7,851
Accounts payable 4,545 9,384
Accrued expenses, including amounts associated with related parties
of $3,365 and $3,882 in 1995 and 1994, respectively 9,552 9,604
Accrued On-Site salaries and benefits 2,747 3,376
Deferred revenues 2,199 1,685
---------- ----------
Total current liabilities 19,455 31,900
Notes payable to banks 23,000 43,759
Notes payable - other, including amounts payable to related parties
of $139 and $18,523 in 1995 and 1994, respectively 278 18,523
Other long-term liabilities 2,883 1,224
Net liabilities of discontinued operations - 9,816
---------- ----------
Total liabilities 45,616 105,222
---------- ----------
Commitments and contingencies (Note 10)
Shareholders' equity (deficit)
Common stock, $0.01 par value; 25,000,000 shares authorized;
12,264,675 and 7,986,925 shares issued and outstanding in 1995
and 1994, respectively 123 80
Additional paid-in capital 126,293 68,878
Accumulated deficit (87,262) (116,512)
---------- ----------
Total shareholders' equity (deficit) 39,154 (47,554)
---------- ----------
$ 84,770 $ 57,668
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
36
<PAGE> 38
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1995 1994 1993
----------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 29,250 $ 16,495 $ (590)
Extraordinary items, net of income taxes 400 - (3,847)
Discontinued operations, net of income taxes 1,963 (7,490) 12,965
--------- --------- ----------
Income before extraordinary items and discontinued operations 31,613 9,005 8,528
Depreciation and amortization 3,803 2,524 1,379
Amortization of deferred financing costs 440 399 88
Income taxes (18,744) - -
Write-off of receivables, substantially all from related parties (298) (288) (225)
Increase in receivables, substantially all from related parties (5,595) (2,101) (464)
Increase in deferred costs and other (1,917) (239) (363)
Increase (decrease) in accounts payable and accrued expenses (293) 886 1,149
Increase in deferred revenues 515 76 1,964
Other 176 1,630 -
--------- --------- -----------
Net cash provided by continuing operations 9,700 11,892 12,056
Net cash used in discontinued operations (8,554) (217) (10,468)
--------- ---------- -----------
Net cash provided by operating activities 1,146 11,675 1,588
--------- --------- -----------
Cash Flows From Investing Activities:
Purchase of management contracts (13,809) (2,059) (18,710)
Purchase of fixed assets and software (2,217) (2,484) (985)
--------- ---------- -----------
Net cash used in investing activities (16,026) (4,543) (19,695)
-------- ---------- -----------
Cash Flows From Financing Activities:
Bank borrowings 33,207 133 58,171
Repayments of bank borrowings (61,466) (6,000) (38,568)
Borrowings from related parties 1,119 3,903 9,000
Repayments of notes payable to related parties (10,369) (332) (1,897)
Repurchases of common stock from related parties (375) (808) (1,523)
Proceeds from issuance of common stock, net 51,987 - -
Payment of offering costs (3,746) - -
Proceeds from sale of stock to related parties - 343 238
Payment of financing and disposition costs (1,571) (1,515) (2,005)
--------- --------- -----------
Net cash provided by (used in) financing activities 8,786 (4,276) 23,416
--------- --------- -----------
Increase (decrease) in cash and cash equivalents (6,094) 2,856 5,309
Cash and Cash Equivalents, beginning of period 12,090 9,234 3,925
-------- --------- -----------
Cash and Cash Equivalents, end of period $ 5,996 $ 12,090 $ 9,234
========= ========= ===========
Supplemental Disclosures of Cash Flow Information:
Cash interest payments $ 6,537 $ 4,607 $ 3,788
Cash income tax payments $ 942 $ 49 $ 14
Non-cash item:
Reduction in notes payable to related parties in consideration
for the sale of the Real Estate Companies $ 9,129 - -
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
37
<PAGE> 39
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------- Paid-In Accumulated Treasury
Shares Par Value Capital Deficit Stock Total
------------ ---------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 8,166,300 $ 82 $ 70,626 $(132,417) $ - $ (61,709)
Sale of common stock 22,500 - 238 - - 238
Repurchase of common stock - - - - (1,523) (1,523)
Retirement of treasury stock (157,875) (2) (1,521) - 1,523 -
Net loss - - - (590) - (590)
--------- ---- --------- ----------- -------- --------
Balance, December 31, 1993 8,030,925 80 69,343 (133,007) - (63,584)
Sale of common stock 32,500 - 343 - - 343
Repurchase of common stock - - - - (808) (808)
Retirement of treasury stock (76,500) - (808) - 808 -
Net income - - - 16,495 - 16,495
--------- --- -------- ---------- -------- ---------
Balance, December 31, 1994 7,986,925 80 68,878 (116,512) - (47,554)
Stock option compensation - - 583 - - 583
Repurchase of common stock - - - - (375) (375)
Retirement of treasury stock (31,250) - (375) - 375 -
Issuance of common stock in
public offering, net 4,300,000 43 48,198 - - 48,241
Issuance of common stock to
Directors 9,000 - 127 - - 127
Sale of Real Estate
Companies (Note 2) - - 8,882 - - 8,882
Net income - - - 29,250 - 29,250
---------- ------- --------- ---------- ------- --------
Balance, December 31, 1995 12,264,675 $123 $126,293 $ (87,262) $ - $ 39,154
========== ======= ========= =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
38
<PAGE> 40
NHP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of NHP
Incorporated and its wholly-owned subsidiaries (the "Company"). On August 18,
1995, the Company sold those of its subsidiaries which held all of the
Company's direct and indirect interests in property-owning partnerships, along
with its captive insurance subsidiary and certain other related assets
(collectively referred to as the "Real Estate Companies") to the two
controlling shareholders of the Company, Demeter Holdings Corporation
("Demeter") and Capricorn Investors, L.P. ("Capricorn"), and J. Roderick
Heller, III, the Chairman, President and Chief Executive Officer of the Company
("Mr. Heller"). The consolidated financial statements include the accounts of
the Real Estate Companies through August 18, 1995, presented as discontinued
operations in accordance with generally accepted accounting principles
("GAAP"). The Company will continue to provide services to the Real Estate
Companies and, therefore, intercompany revenues and expenses between the
Company and the Real Estate Companies have not been eliminated from the
Company's revenues and expenses in the consolidated financial statements for
the periods prior to August 18, 1995. All other material intercompany accounts
and transactions have been eliminated in consolidation.
Nature of Business
The Company provides a full range of property management and related
services to owners of multi-family rental housing properties, primarily
properties owned by partnerships in which the Real Estate Companies have an
ownership interest. The properties served by the Company are located in urban,
suburban and rural areas throughout various regions of the United States other
than the Northwest region. This reduces the impact of local economic cycles on
the overall operations of the Company. The Company provides services to both
"conventional" (market rate) and "affordable" properties. Affordable properties
receive some form of Federal and/or state assistance and are generally
restricted to low or moderate income tenants.
Approximately 63% of the properties and 43% of the units managed by the
Company as of December 31, 1995 are affordable properties and units. A
substantial portion of the affordable properties were built or acquired by the
owners with the assistance of programs administered by the United States
Department of Housing and Urban Development ("HUD") that provide mortgage
insurance, favorable financing terms, or rental assistance payments to the
owners. As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements including
limiting rents on these properties to amounts approved by HUD. Various
proposals are pending before Congress proposing reorganizaton of HUD and a
restructuring of certain of its housing assistance programs. It is too early in
the legislative process to predict which, if any, changes might be implemented.
Any such changes which negatively impact the properties revenues or cash flows
could have an adverse effect on the Company's property management revenue.
Dependence on the Real Estate Companies for Property Management Revenues
The Company is, and will continue to be, substantially dependent on
revenue from services provided to properties controlled by the Real Estate
Companies. Approximately 65% of the Company's property management revenue in
1995 was derived from fees for services provided to properties controlled by
the Real Estate Companies. Pursuant to the agreements with the Real Estate
Companies discussed in Note 9, the Real Estate Companies are required for a
period of at least 25 years, subject to certain conditions, to cause the
Company to be selected to provide services to each of the properties the Real
Estate Companies control and properties they may control in the future.
Accounting Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at
39
<PAGE> 41
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue and Expenses
The Company recognizes property management, Buyers Access(R), tax
credit investment and insurance advisory fee revenues as services are rendered
and the revenue is earned. Administrative and reporting fees are earned for
providing administrative services to certain partnerships in which the Real
Estate Companies have ownership interest. These fees are payable only to the
extent distributable cash flow of the partnerships, as defined, is available.
The Company accrues these fees as services are rendered and establishes a
reserve equal to the amount of accrued fees that are not assured of being paid.
Prepayments received on service contracts are deferred and recognized as
revenue when the related services are performed.
Personnel hired to provide operating and management services to the
individual properties which the Company manages are employees of the Company
("On-Site Employees"). All payroll costs, including payroll taxes and benefits,
relating to On-Site Employees are reimbursable to the Company by the individual
properties. These costs, which totaled $113.1, $93.6 and $53.4 million for the
years ended December 31, 1995, 1994 and 1993, respectively, have been reflected
as operating expenses, and the related reimbursements have been included in
operating revenue as part of on-site personnel, general and administrative cost
reimbursements. The Company accrues as a liability amounts charged to the
individual properties for On-Site Employee benefits (health insurance and
401(k) Plan employer contributions) which have not yet been paid to third party
providers of services. All other employees of the Company are classified as
"Off-Site Employees."
The Company also provides asset management, finance, accounting and tax
services to the Real Estate Companies on a cost reimbursable basis. The costs
charged back to the Real Estate Companies have been reflected as operating
expenses and the related reimbursements have been included in operating revenue
as part of on-site personnel, general and administrative cost reimbursements in
the accompanying consolidated financial statements and amounted to $4.1, $4.6
and $6.8 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
Income Taxes
The benefit for income taxes includes Federal and state income taxes
currently payable and those deferred or prepaid because of temporary
differences between financial statement and tax bases of assets and
liabilities. The net deferred tax asset relates primarily to net operating loss
carryforwards ("NOLs") recognized by the Company subsequent to the sale of the
Real Estate Companies. For further discussion see Note 5.
Net Income Per Share
Net income per share is computed using the weighted average number of
common shares and equivalents outstanding during each period. Common share
equivalents are attributable primarily to outstanding stock options. The
weighted average shares and equivalents used in the per share calculations were
9,644,745, 8,094,733 and 8,208,684 for the years ended December 31, 1995, 1994
and 1993, respectively. As there is not a material difference (less than 3%)
between net income per share and fully-diluted net income per share, only net
income per share is presented.
In February 1995, the Company's Board of Directors declared a 25 for 1
split of the Company's common stock. All share and per share amounts have been
restated to reflect the stock split.
On August 18, 1995, the Company completed an initial public offering
("IPO") of 4.3 million shares of common stock and received net proceeds of
approximately $52.0 million. The net proceeds were used in their entirety to
repay certain of the Company's outstanding debt (see Note 4).
40
<PAGE> 42
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Assets to be Disposed Of," which
requires the adjustment of the carrying value of long-lived assets and certain
identifiable intangibles, if their value is determined to be impaired as
defined by the standard. The Company intends to adopt SFAS No. 121 on January
1, 1996. In the opinion of management, the adoption of this statement will not
have a material effect on the Company's financial position or results of
operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation," which allows companies to
adopt the fair value method for recognition of stock-based compensation expense
or to continue to use the intrinsic value method as prescribed by Accounting
Principles Board Opinion (APB) No. 25 "Accounting for Stock Issued to
Employees." SFAS 123's fair value method requires companies to record
compensation expense on the date of the grant of stock options based on the
fair value of the option as calculated by option pricing models or current
market prices. For those companies that do not elect to adopt the fair value
method of accounting for stock-based compensation expense, SFAS 123 requires
disclosure of the pro forma impact on net income and earnings per share as if
the Company had accounted for its employee stock options under the fair value
method of that statement. The Company intends to adopt the disclosure
provisions of SFAS 123 for 1996 and will continue to follow APB No. 25 in
accounting for employee stock options. In accordance with APB No. 25, because
the exercise price of the Company's employee stock options equals the market
price on the underlying stock on the date of the grant, no compensation expense
is recognized. Because the Company's adoption of SFAS 123 will require only
additional disclosure, it will not have a material effect on the Company's
financial position or results of operations.
Cash Equivalents
The Company considers all highly liquid investments with initial
maturities of 90 days or less to be cash equivalents.
Purchased Management Contracts
The cost of acquiring the rights to manage multi-family real estate
properties is capitalized and amortized over the shorter of 15 years or the
estimated life of the management contracts which include projected renewals.
Purchased management contracts are being amortized over terms ranging from 5 to
15 years. The Company periodically reevaluates its assumptions regarding
projected renewals for the purpose of determining the need to adjust the
estimated life of management contracts.
Property, Equipment and Capitalized Software
Property and equipment is carried at cost net of accumulated
depreciation and includes all major renewals and betterments. Maintenance,
repairs and minor replacements are expensed as incurred. Depreciation expense
is computed on the straight-line basis over the estimated useful lives of the
related assets, or the lesser of useful life or lease term for leasehold
improvements. The lives used for calculating depreciation vary from 5 to 7
years.
Computer software purchased from or developed by outside vendors is
capitalized and is carried at cost net of accumulated amortization.
Amortization expense is computed on a straight-line basis over the shorter of
the estimated useful life of the software or five years.
Deferred Financing Costs
Certain costs of obtaining the financing arrangements described in Note
4 have been deferred and are being amortized to interest expense over the
remaining term of the related debt. In 1995, the Company recorded as an
extraordinary item the write off of deferred financing costs related to the
Company's previous credit facility (see
41
<PAGE> 43
Note 12). Deferred financing costs, net of accumulated amortization, were $0.6
and $0.9 million as of December 31, 1995 and 1994, respectively, and are
included in deferred costs and other on the consolidated balance sheet.
Deferred Acquisition Costs
Certain costs related to the investigation, pursuit and negotiation of
potential acquisitions are deferred until the acquisition is consummated or
until the Company determines that it will no longer pursue a particular
acquisition. Deferred costs associated with a completed acquisition are
considered part of the acquisition price and are allocated, along with the costs
incurred at closing, to the asset or assets acquired (usually management
rights). Costs associated with potential acquisitions that are determined to no
longer be viable are expensed in the period of the determination. Deferred
acquisition costs were $2.6 million at December 31, 1995 and are included in
deferred costs and other on the consolidated balance sheet. There were no
deferred acquisition costs at December 31, 1994.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(2) DISCONTINUED REAL ESTATE OPERATIONS
On June 14, 1994, the Company's Board of Directors approved a plan (the
"Plan") to dispose of the Company's real estate operations immediately prior to
an IPO of the Company's common stock, expected to be completed during 1995. On
August 18, 1995, the Company completed its IPO and sold the Real Estate
Companies. In consideration for the sale of the Real Estate Companies, Demeter,
Capricorn and Mr. Heller canceled $9.1 million of indebtedness owed to them by
the Company. The net liabilities of the Real Estate Companies as of the date of
the sale were $4.6 million and transaction costs related to the sale, including
taxes of $2.3 million, were $4.8 million, which resulted in the Company
recording a net gain on the sale of the Real Estate Companies of $8.9 million.
The gain was recorded as a direct adjustment to additional paid-in capital.
The Real Estate Companies' operations consist primarily of the
ownership of general and limited partnership interests (generally 1% to 5%) in
approximately 700 affordable and conventional multi-family housing properties
located in 38 states, the District of Columbia and Puerto Rico. The Real Estate
Companies also own majority interests in several real-estate partnerships
(primarily multi-family housing properties), interests in joint ventures
(primarily land and single family housing developments) and a "captive"
insurance company which are consolidated with the accounts of the Real Estate
Companies for financial reporting purposes.
In addition to managing the majority of the properties for which the
Real Estate Companies act as general partner, the Company provides asset
management, finance, accounting and tax services to the Real Estate Companies
on a cost-reimbursable basis. For further discussion of transactions with the
Real Estate Companies, see Note 9.
The operating results of discontinued operations are summarized below
(in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Gross revenues $ 23,874 $ 35,121 $ 38,666
Net income (loss) before extraordinary items, net of
minority interest and net of an income tax benefit of
$1,309 for 1995 and $0 for 1994 and 1993 $ (1,963) $ 7,490 $(12,965)
Extraordinary items - gains on restructuring of debt
of real estate partnerships (discontinued operations),
net of minority interest and net of income taxes of
$0 for 1993 $ - $ - $ 3,847
</TABLE>
42
<PAGE> 44
The net income (loss) before extraordinary items includes $1.0, $12.0
and $7.8 million for the years ended December 31, 1995, 1994 and 1993,
respectively, of gains resulting from sales and foreclosures of properties
owned by real estate partnerships for which the Real Estate Companies act as
general partner.
The net liabilities of discontinued operations as of December 31, 1994
were as follows (in thousands).
<TABLE>
<S> <C>
Land, buildings and improvements and other fixed assets,
net of accumulated depreciation $ 110,710
Investments in real estate partnerships, including loans and
notes receivable 37,957
Other assets 17,698
---------
166,365
---------
Mortgage notes payable and other debt (primarily
non-recourse) 113,526
Cumulative losses in excess of investments in real estate
partnerships 21,592
Other liabilities 41,235
Minority interests (172)
---------
176,181
---------
Net liabilities $ (9,816)
=========
</TABLE>
(3) ACQUISITIONS
Guilford
The Real Estate Companies completed the Guilford Acquisition in January
1996, by which the Real Estate Companies acquired, for approximately $4.8
million, the general partnership interests and certain limited partnership
interests in partnerships that own 14 properties containing 2,995 units. In
conjunction with this acquisition by the Real Estate Companies, the Company
paid the Real Estate Companies $2.6 million ($1.5 million of which was paid in
December 1995) to enter into property management contracts with each property
for a period of four to five years, commencing in December 1995.
Southport
In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing 2,140 units. The
Company began managing 12 of these properties containing 1,857 units in
November 1995 and will begin managing the remaining two properties containing
283 units upon the receipt of the necessary consents. The Company will acquire
the right to manage all 14 of the Southport properties from the Real Estate
Companies for $4.0 million, approximately $3.2 million of which will be paid in
various quarterly installments through the year 2000. The Company manages the
Southport properties pursuant to long-term contracts terminable only for cause,
and will have a right of first refusal with respect to the sale of any of these
properties or the Real Estate Companies' general partnership interests in
partnerships owning these properties.
Rescorp
On October 31, 1995, the Company acquired from Rescorp Realty, Inc. and
transferred to the Real Estate Companies the stock of entities owning the
general partnership interests in 11 properties. The Company manages these
properties pursuant to long-term contracts terminable only for cause, and
has a right of first refusal with respect to the sale of any of these
properties or the Real Estate Companies' general partnership interests in
partnerships owning these properties. The Company also entered into short-term
property management contract with respect to four other properties, which are
owned by unaffiliated owners. The 15 properties have an aggregate of 2,578
units. The Company paid Rescorp approximately $2.4 million in connection with
the acquisition, and transferred the general partnership interests to the Real
Estate Companies in exchange for the Real Estate Companies assuming the cost
and responsibilities of the general partner.
43
<PAGE> 45
Hall
In February 1995, the Company and the Real Estate Companies
substantially completed the Hall Acquisition. In the Hall Acquisition, the
Company and the Real Estate Companies acquired, for $12.5 million (of which
$4.0 million was allocated to management rights), a 50% common equity interest
in a joint venture which, in turn, owns an interest in a portfolio of 32
apartment properties containing 8,028 units and the associated property
management rights. Each property is owned by a limited partnership, the
managing general partner of which is an affiliate of the Real Estate Companies.
As managing general partner, each of these affiliates has entered into a
management contract with the Company having a term coinciding with the term of
the current financing of the properties, or approximately 5.75 years.
Other
In addition in 1995, the Company acquired the management rights to an
additional 1,213 units at a total cost of approximately $1.0 million.
Congress
On December 31, 1994, the Company and the Real Estate Companies entered
into a binding agreement to purchase for $6.7 million from Congress Realty
Companies the general partner interests, property management rights and rights
to certain receivables related to a 13-property portfolio containing 4,301
units (the "Congress Properties"). Pursuant to the agreements between the
Company and the Real Estate Companies discussed in Note 9, the Real Estate
Companies are required to select the Company as the property manager for the
Congress Properties. The acquisition was accounted for as a 1994 transaction
using the purchase method of accounting. Substantially all of the purchase
price was paid in January 1995.
Oxford
In December 1993, the Company purchased for $23.4 million substantially
all of the assets used by Oxford Development Corporation and its affiliates
(collectively "Oxford") in its property management and services operations,
including the rights to manage 174 Oxford properties consisting of 39,000
apartments and a 9.5% ownership interest (of nominal value) in Oxford Holding
Company, which contractually secures the Company's property management rights
relating to the Oxford properties. The transaction was accounted for as a 1993
transaction using the purchase method of accounting.
As consideration for the acquisition of Oxford, the Company and the
Real Estate Companies paid cash of $18.7 million, issued a $1.2 million note
payable to Oxford, bearing interest at 6% (which was retained as a liability of
the Company after the sale of the Real Estate Companies), and agreed to pay
certain Oxford employees consulting compensation of $2.1 million in 1994. The
cash payment included $3.4 million paid to the Company's controlling
shareholder to acquire a note receivable from Oxford which had been previously
acquired by the shareholder. This note receivable from Oxford was retained by
the Real Estate Companies.
44
<PAGE> 46
(4) NOTES PAYABLE
Notes payable consist of the following (in thousands).
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
---- ----
<S> <C> <C>
Total notes payable to banks $23,000 $51,259
Less current portion - (7,500)
--------- -------
Note payable to banks $23,000 $43,759
========= =======
Notes payable issued to certain shareholders (Note 9) $ - $11,006
Note payable issued to former shareholder - 7,000
Note payable to Oxford 495 868
Notes payable-other (net of unamortized discount of $42) 195 -
--------- -------
Total notes payable - other 690 18,874
Less current portion (412) (351)
--------- -------
Notes payable - other $ 278 $18,523
========= =======
</TABLE>
Notes Payable to Banks
In December 1993, in connection with the Oxford acquisition, the
Company amended its then existing credit agreement (the "Amended Credit
Agreement"), increasing the number of participating banks to three and
increasing the loan balance. The Amended Credit Agreement had a five-year term.
Interest on borrowings under the Amended Credit Agreement was, at the Company's
option, based on either the prime rate plus 1% per annum or the London
Interbank Offered Rate ("LIBOR") plus 2.5% per annum.
In August 1995, the Company entered into a $75.0 million, three-year
unsecured revolving credit facility (the "Credit Facility") with a group of
banks. At the end of two years, the Company may extend the Credit Facility (as
a revolving facility) for a fourth year or may convert it at the end of the
second year to a two-year term loan with equal quarterly installments based on
a five year amortization schedule and the remaining balance (approximately 60%)
due at the end of the two-year term. Availability under the Credit Facility is
subject to the Company's compliance with various financial ratios, operating
covenants and other customary conditions. The Credit Facility restricts the
payment of dividends by the Company unless the Company's ratio of income from
continuing operations before interest, income taxes, depreciation and
amortization ("EBITDA") to interest expense is greater than 3 to 1, calculated
on a four quarter average basis. Interest on the Credit Facility is equal to,
at the Company's option, either The First National Bank of Boston's base rate
from time to time or 175 basis points over the LIBOR in effect from time to
time. The Credit Facility also requires the payment of a commitment fee of 37.5
basis points per annum on the unused portion of the Credit Facility. The
Credit Facility requires that any other borrowings be subordinated to the
Credit Facility, except that up to $10.0 million of additional unsubordinated
borrowings will be permitted if entered into in connection with the acquisition
of assets which will result in additional management contracts for the Company.
The Credit Facility limits the amount of loans or other advances by the Company
to the Real Estate Companies to a total of $10.0 million. The Company's
compliance with this latter requirement was waived by the bank group for a
period of six months ending August 8, 1996, to permit up to $16.0 million of
borrowings in connection with the Company's pending acquisition of a portfolio
of 13 properties containing 3,145 units (for further discussion see Note 13).
At December 31, 1995 the Company classified all borrowings under the
Credit Facility due within one year as long-term. The Company has both the
intent and the ability, through the Credit Facility, to refinance these amounts
on a long-term basis.
Notes Payable - Other
The notes payable issued to certain shareholders of $11.0 million as of
December 31, 1994 had an interest rate of 13% and were due on demand after
payment of all borrowings under the credit agreement existing at the time.
Additional notes payable issued by the Company include a note for $7.0 million
issued in February 1992 to a former
45
<PAGE> 47
shareholder in connection with the repurchase of certain shares of the
Company's outstanding stock. The interest rate on the note to the former
shareholder was 8 3/4% with interest payments due on a quarterly basis and the
entire principal amount due in February 1997.
In December 1993 as part of the Oxford acquisition, the Company issued
a $1.2 million note (the "Oxford Note"). The Oxford Note bears interest at 6%
and is due in varying installments through 1997. In addition, in December 1995,
in connection with the acquisition of certain additional property management
rights, the Company issued a $0.2 million noninterest bearing note which is due
in quarterly installments through December 1999. This note has been recorded
net of an unamortized discount of $0.04 million based on an imputed interest
rate of 9.5%.
Repayments of Debt
Upon the completion of the IPO in August of 1995, the Company drew
$20.0 million on the Credit Facility and used those funds together with the net
proceeds of the IPO as follows: (i) $54.7 million was used to repay in full
the Company's indebtedness under its previous credit facility, which was
simultaneously terminated by the Company; (ii) $7.0 million was used to repay a
note to a former institutional shareholder of the Company; and (iii) $5.5
million was used to repay indebtedness to Demeter, Capricorn, and Mr. Heller.
The remaining proceeds were added to the Company's working capital.
In consideration for the sale of the Real Estate Companies in August of
1995, Demeter, Capricorn and Mr. Heller canceled $9.1 million of indebtedness
owed to them by the Company (for further discussion, see Notes 2 and 9).
Other
The following table provides more detail on interest rates and
borrowings made under the Company's various credit agreements (dollar amounts
in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average interest rate, including
commitment fee, at period-end 8.40% 6.42% 5.83%
Maximum month-end borrowings during the period $58,466 $57,126 $57,126
Average borrowings during the period $41,457 $54,454 $31,389
Weighted average interest rate, during the
period (including commitment fee, payment
premium and penalties) 9.03% 6.47% 7.05%
</TABLE>
Aggregate annual maturities for the Company's notes payable as of
December 31, 1995, are $0.4, $0.2, $0.06 and $23.1 million for the years 1996
through 1999, respectively. For the purposes of calculating aggregate
maturities, the Credit Facility is assumed to be extended for a fourth year but
the Company has not yet determined what option it will choose under the terms
of the Credit Facility.
(5) INCOME TAXES
The Company files a consolidated Federal income tax return, and in
certain states, consolidated state income tax returns. As of December 31, 1994,
the Company had net operating loss carryforwards (NOLs) of approximately $140
million which were attributable primarily to partnership losses related to the
Real Estate Companies. In connection with the sale of the Real Estate Companies
(discontinued operations), the Company utilized approximately $60 million of
its NOLs, and the remaining NOLs were allocated between the Company and the
Real Estate Companies. At December 31, 1995, the Company estimates that it has
approximately $75 million of gross unused NOLs for Federal tax purposes which
expire in varying amounts between 2004 and 2008. Realization of the NOLs is
dependent on generating sufficient taxable income prior to the expiration of
the NOLs. Although realization is not assured, management believes it is more
likely than not that all of the deferred tax asset will be realized. The amount
of
46
<PAGE> 48
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.
Upon the sale of the Real Estate Companies, the Company reduced its
valuation allowance resulting in a net deferred tax asset as of December 31,
1995 of $20.4 million. The Company reduced the valuation allowance after the
sale of the Real Estate Companies as these entities have historically generated
operating losses, while continuing operations have historically generated
operating income.
The following table summarizes the consolidated tax effect related to
the Company's deferred tax assets and liabilities (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1994
----------------------------------------------
Continuing Discontinued
1995 Operations Operations Total
-------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $26,904 $30,417 $25,099 $55,516
Tax credit carryforwards 572 64 131 195
Other temporary differences between book
and tax 381 617 - 617
------- ------- ------- -------
Total deferred tax assets 27,857 31,098 25,230 56,328
Valuation allowance for deferred tax assets (5,020) (28,346) (17,448) (45,794)
------- ------- ------- -------
Deferred tax assets 22,837 2,752 7,782 10,534
Deferred tax liabilities:
Amortization of purchased management
contracts 847 (488) - (488)
Management fees receivable 1,623 1,283 - 1,283
Tax Partnership losses in excess of book - - 9,739 9,739
------- ------- ------- -------
Total deferred tax liabilities 2,470 795 9,739 10,534
------- ------- ------- -------
Net deferred tax asset $20,367 $ 1,957 $(1,957) $ -
======= ======= ======= =======
</TABLE>
The Company did not record a tax provision during the first and second
quarter of 1995, therefore, a year-to-date tax provision was recorded in the
third quarter. A reconciliation of income tax expense computed at the statutory
Federal and state rates to the provision for income taxes included in the
consolidated statements of operations is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
--------- ----------- -------------
<S> <C> <C> <C>
Federal income tax provision (benefit) at the
Federal statutory rate - 35% in 1995, 34% in $ 4,834 $ 5,608 $(201)
1994 and 1993
State income tax provision (benefit), net of
Federal income tax benefit - 5% 690 924 (33)
Change in valuation allowance (23,326) (6,532) 234
------- -------- -----
Benefit for income taxes $17,802 $ - $ -
======= ======== =====
</TABLE>
On a consolidated basis, and for continuing and discontinued
operations, the Company had no current or deferred provision or benefit for
income taxes for either 1994 or 1993, primarily because of NOLs generated in
prior years which resulted largely from partnership tax losses generated by the
Real Estate Companies. Historically, a valuation allowance equal to the net
deferred tax asset was established due to the uncertainty, on a consolidated
basis, surrounding the Company's ability to generate sufficient taxable income
in future years to utilize the NOLs. The net change in the valuation allowance
in 1994 and 1993, reduced the annual provision (benefit) for income taxes to
zero for 1994 and 1993. The components of the benefit for income taxes for 1995
is summarized as follows (in thousands):
47
<PAGE> 49
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Current provision $ 608
Deferred provision 4,916
Change in valuation allowance for deferred
tax asset (23,326)
--------
Benefit for income taxes $ 17,802
========
</TABLE>
(6) SHAREHOLDERS' EQUITY
Authorized Stock
The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, $.01 par value, of which 12,264,675 shares were issued
and outstanding as of December 31, 1995.
Treasury Stock
In February 1993, effective as of December 31, 1992, the Company
entered into a Stock Purchase Agreement (the "Stock Agreement") with The NHP
Foundation (the "Foundation"), a non-profit organization formed to provide aid
to low-income families through assisted housing. The Stock Agreement provided
for reimbursement to the Company for services provided to the Foundation via
redemption of shares, at approximately $10.56 per share, of the Company's
common stock held by the Foundation. On December 31, 1993, the Foundation
exchanged 53,500 shares in satisfaction of $0.6 million due the Company for
services rendered to the Foundation in 1993. In 1994, the Foundation exchanged
46,500 shares in satisfaction of $0.5 million due the Company for services
rendered to the Foundation in 1994. In an unrelated transaction in 1994, the
Company purchased 30,000 shares at a price of $12 per share, from a member of
management upon his resignation from the Company. All shares were retired by
the Company, as received.
On January 27, 1995, 331,950 shares of Company stock owned by the
Foundation were purchased by other current Company shareholders. Additionally,
on May 1, 1995, 31,250 shares of Company stock were repurchased from the
Foundation at a price of $12 per share, effectively terminating the Stock
Agreement.
(7) STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. In accordance
with APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The Company has a non-qualified stock option plan (the "1990 Plan")
under which options to purchase shares of the Company's common stock have been
granted to key employees. Options were granted at the fair market value of the
shares on the date of grant and become exercisable cumulatively over a
five-year period beginning one year after date of grant. As of December 31,
1995, 405,000 options under the 1990 Plan have been granted. No further
options are expected to be granted under the 1990 Plan.
On February 8, 1995, the Company's Board of Directors extended the
exercise period of the options granted under the 1990 Plan from five to ten
years. As a result, in the first quarter of 1995, compensation expense of $0.5
million was recognized by the Company, of which $0.1 million was allocated to
the discontinued Real Estate Companies. Additionally, on March 3, 1995, as part
of a severance agreement, the Company agreed to extend a departing employee's
time to exercise his 1990 Plan options through February 28, 1997. Related
compensation expense of $0.1 million was recorded in the first quarter of 1995.
The corresponding credit for both of these transactions was to additional
paid-in capital.
On February 8, 1995, the Company's Board of Directors approved the 1995
Stock Option Plan (the "1995 Plan"). The 1995 Plan is a qualified stock option
plan under which a maximum of 800,000 options to purchase shares
48
<PAGE> 50
of the Company's common stock may be granted to employees. Any options granted
under the 1995 Plan must have an exercise price equal to the fair market value
as of date of grant and must be exercised within ten years of the date of
grant. As of December 31, 1995, 228,750 options remain available to be granted
under the 1995 Plan.
Effective with the consummation of the IPO, the Company granted Mr.
Heller performance vesting options to purchase 120,000 shares of common stock
at $16.00. The options will vest in 10 years but are subject to accelerated
vesting under certain circumstances.
The following table summarizes option activity for the years ended
December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Number of Shares Under Stock Options:
Outstanding at the beginning of year 443,750 537,500 612,500
Granted 711,250 - -
Exercised - (32,500) (22,500)
Forfeited (58,750) (61,250) (52,500)
------------- --------- ---------
Outstanding at the end of year 1,096,250 443,750 537,500
============= ========= =========
Stock options exercisable at the end of the year 420,000 341,250 290,000
============= ========= =========
Price of Stock Options:
Granted $13.00-$16.00 - -
Exercised - $10.56 $10.56
Forfeited $10.56 $10.56 $10.56
Outstanding $10.56-$16.00 $10.56 $10.56
</TABLE>
(8) EMPLOYEE BENEFIT PLANS
Substantially all full-time Off-Site and On-Site Employees with at
least one year of continuous service are eligible to participate in a 401(k),
defined contribution retirement plan. The Company also has a non-qualified
supplemental executive retirement savings plan which permits employees who are
vice-presidents and above, who participate, to defer salary that they would
otherwise be prohibited from deferring under the 401(k) plan due to IRS
restrictions. Under these plans, the employees may contribute to various
investment alternatives. The plans allow the Company to make discretionary and
matching contributions. Total net expense related to the Company's
contributions to these plans, after reimbursement from the partnerships for
On-Site Employees, was $0.8, $0.7 and $0.5 million for the years ended December
31, 1995, 1994 and 1993, respectively.
(9) RELATED PARTY TRANSACTIONS
On January 28, 1993, in connection with the extension of the credit
agreement in existence at the time (the "Previous Credit Agreement"), the
Company issued $9.0 million in notes to certain shareholders. The shareholders
were repaid an aggregate of $2.0 million on July 15, 1993. Additionally, in
connection with the extension of the Previous Credit Agreement, on January 28,
1993, the same shareholders purchased a $2.3 million interest in the Previous
Credit Agreement for $2.0 million from one of the participating banks. The
shareholders became parties to the loan agreement at that time, but as a
condition of the purchase of the interest, had no voting rights in the bank
consortium. The shareholders were repaid on July 15, 1993, in full, in
connection with the refinancing of the Previous Credit Agreement.
During 1994, the Company borrowed an additional $3.9 million from
certain shareholders to purchase general partnership interests in properties
which the Company already managed. As of December 31, 1994, a total of $11.0
million was due to shareholders, excluding accrued interest of $1.4 million.
These notes were due on demand, but only after repayment of all borrowings
under the then existing credit agreement, and had an interest rate of 13%. As
discussed in Note 4, a portion of the proceeds from the IPO along with amounts
drawn on the Credit Facility was used to repay $5.5 million of the shareholder
notes, including $2.4 million of interest. In addition, in consideration for
the
49
<PAGE> 51
sale of the Real Estate Companies in August 1995, certain shareholders
(Demeter, Capricorn and Mr. Heller) canceled $9.1 million of the Company's
shareholder notes.
One of the Company's directors is counsel to a law firm which provides
legal services to the Company. Amounts paid for legal services provided for the
Company by this firm were $0.9, $0.2 and $0.6 million, during the years ended
December 31, 1995, 1994 and 1993, respectively.
In November 1995, the Company issued 1,500 shares of stock to each of
the members of the Board of Directors other than Mr. Heller (total of 9,000
shares) as a portion of their 1995 and 1996 annual compensation.
In connection with the sale of the Real Estate Companies, the Company
and the Real Estate Companies entered into agreements (the "Intercompany
Agreements") which govern their ongoing relationship. Significant aspects of
the Intercompany Agreements include provisions whereby (i) the Company will be
selected to provide property management and related services for properties in
which the Real Estate Companies have a controlling interest, subject to certain
conditions, for an initial period of 25 years; (ii) upon the disposal by the
Real Estate Companies of properties or interests in properties which the
Company managed on August 18, 1995, the Real Estate Companies will make a
payment of up to 200%, subject to certain conditions, of the annual fees the
Company receives with respect to the property; (iii) the Company will provide
to the Real Estate Companies, at cost, certain administrative services and
advice regarding acquisition, financing, asset restructuring, disposition and
similar activities relating to investment in multi-family properties,
terminable on short notice by either party; (iv) the Real Estate Companies and
their equity holders have granted the Company a right of first refusal with
respect to any transactions resulting in a change of control of the Real Estate
Companies, as defined; (v) the Real Estate Companies have indemnified the
Company against any loss directly or indirectly caused by, relating to, based
upon, arising out of, or incurred in connection with the Company's ownership
(as opposed to management) of properties prior to, on and after August 18,
1995; (vi) the Real Estate Companies will limit the Company's liability, by an
agreed-upon formula, for taxes arising from the sale of the Real Estate
Companies. The Intercompany Agreements may only be amended with the approval of
the Real Estate Companies and the Company. A majority of the members of the
Board of Directors of the Company having no interest in the Real Estate
Companies must approve such amendments if they involve a conflict of interest
with directors having an interest in the Real Estate Companies. In addition,
the Board of Directors has created a Conflicts Committee, consisting of
directors who have no direct or indirect financial interest in and are not
affiliated with entities having an interest in the Real Estate Companies which
monitors dealings between the Company and the Real Estate Companies which may
present a conflict of interest.
Going forward, the Company will participate in additional acquisitions
with the Real Estate Companies primarily in the form of identifying and
negotiating acquisitions and providing other asset acquisition services to the
Real Estate Companies, acquiring rights to manage the properties through the
Intercompany Agreements or other arrangements, and paying that portion of the
acquisition costs allocable to the management rights. See Note 3 for further
discussion of acquisitions.
As of December 31, 1995, $2.1 million was due to the Company directly
from the Real Estate Companies. These amounts are included in receivables on
the consolidated balance sheet.
(10) COMMITMENTS AND CONTINGENCIES
Guarantees
As of December 31, 1995, the Company was committed to performance
guarantees, loan guarantees and other guarantees totaling $8.6 million, which
relate primarily to transactions consummated by the Real Estate Companies
prior to their sale in August 1995. As discussed in Note 9 above, the Real
Estate Companies have indemnified the Company for any costs which might be
incurred by the Company related to these guarantees. In the opinion of
management, future calls, if any, on these guarantees are not expected to have
a material adverse effect on the Company's financial position or results of
operations.
50
<PAGE> 52
Litigation
In the normal course of business, the Company is a party to various
legal actions and claims. In the opinion of management, based on advice of
counsel, the resolution of these actions and claims is not expected to have a
material adverse effect on the Company's financial position or results of
operations.
Leases
The Company leases office space and equipment under noncancelable
operating leases. Most office leases provide for the pass-through of increased
operating expenses. Net rent expense, substantially all of which is minimum
rentals under operating leases, was $1.8, $2.1 and $1.5 million in 1995, 1994
and 1993, respectively. Future minimum rental commitments under existing
operating leases having an initial or remaining noncancelable lease terms in
excess of one year at December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
Lease Commitments
-----------------
<S> <C>
1996 $ 2,565
1997 2,539
1998 2,093
1999 1,686
2000 1,642
Thereafter 1,905
</TABLE>
In December 1995, the Company entered into a six-year lease agreement
for new office space in Vienna, Virginia. The Company will relocate its
Washington, D.C. and Reston, Virginia offices to the new Vienna location during
the second quarter of 1996. The Company currently has no long-term commitment
on its Washington facilities and plans to sublet its Reston facilities for the
remainder of its lease, which expires in July 1998.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate
fair value. The estimated fair value of the financial instruments has been
determined based on pertinent information available to management and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, receivables, accounts payable and accrued expenses approximate
fair value because of the short-term maturities of those items. The carrying
amount of the Company's Credit Facility approximates fair value because the
interest rates on the Credit Facility change with market interest rates. The
fair value of the Company's other debt instruments was determined based upon
the present value of expected cash flows considering expected maturities and
using the Company's incremental borrowing rate.
(12) NON-RECURRING EXPENSES AND EXTRAORDINARY ITEMS
Non-recurring Expenses
In 1993, the Company initiated a systems project to replace its three
current computer systems with a single system based on a client-server
technology. In December 1994, the Company concluded that the conceptual design
of the new system was flawed and expensed all costs associated with the
project, totaling $1.8 million, as a non-recurring expense. Subsequently, in
June 1995, the Company received a net cash payment of $0.4 million from two of
the parties participating in the project which has been reflected as a
reduction of non-recurring expenses in the accompanying financial statements.
In February 1995, as discussed in Note 7, the Company extended the
exercise term of options granted under the Company's 1990 Stock Option Plan and
granted a terminating employee the right to exercise his options for up to two
years after his departure. As a result of these actions, non-recurring
compensation expense of $0.5 million was recognized in the first quarter of
1995.
51
<PAGE> 53
Extraordinary Items
In connection with the repayment of the Company's credit facility in
the third quarter of 1995, the Company expensed the remaining $0.7 million of
deferred financing costs related to the Company's previous credit facility.
This charge was recorded net of a $0.3 million income tax benefit and
classified as an extraordinary item in the Consolidated Statement of
Operations.
The extraordinary item for the year ended 1993 is the result of gains
on restructuring the debt of various real estate partnerships in which the Real
Estate Companies have an ownership interest. The amounts recorded represent the
Real Estate Companies' equity interest in the gains realized by the
partnerships. No taxes were recorded on these gains.
(13) SUBSEQUENT EVENTS
On February 29, 1996, the Company entered into a three-year contract
with CRI, Inc., a Rockville, Maryland-based real estate investment firm, to
provide asset management, refinancing and disposition services for 286
affordable multifamily communities containing over 35,000 apartment units,
which are owned by 129 of CRI's public and private real estate partnerships.
The transaction increased the Company's total asset management portfolio by
over 50% to approximately 840 multifamily properties.
On March 20, 1996, the Company and Commonwealth Overseas Trading
Company Limited ("Commonwealth") entered into a Stock Purchase Agreement
providing for the purchase from Commonwealth of all of the issued and
outstanding common stock of WMF Holdings Ltd. for $21 million, in the form of
$16.8 million in cash and 210,000 shares of the Company's common stock. WMF
Holdings Ltd. is the owner of Washington Mortgage Financial Group, Ltd.
("Washington Mortgage Financial"), located in Fairfax County, Virginia, one of
the nation's leading multifamily mortgage originators and servicers. Washington
Mortgage Financial had mortgage servicing contracts aggregating approximately
$4.5 billion as of February 29, 1996 and originated approximately $805 million
in multifamily and other commercial mortgages in 1995. The transaction is
expected to be completed in early April 1996.
On February 14, 1996, the Real Estate Companies agreed to acquire 13
multifamily properties containing 3,145 apartment units from affiliates of
Great Atlantic Management, Inc. At closing, the Company is expected to acquire
from the Real Estate Companies for approximately $1.6 million the right to
manage the units on a long-term basis with the exact terms to be determined. In
addition, the Company may provide the Real Estate Companies up to $16 million
in secured financing for acquisition of the properties until such time as a
third-party investor acquires an equity interest in the properties. Such
borrowing would bear interest at 10% per year. The Company's Credit Facility
limits the amount of loans or other advances the Company may make to the Real
Estate Companies in connection with the Real Estate Companies' acquisition of
real estate assets to $10.0 million, but this limitation has been waived for a
period of six months ending August 8, 1996 to permit the advance to the Real
Estate Companies in connection with this acquisition.
52
<PAGE> 54
(14) SUPPLEMENTAL NET INCOME PER SHARE INFORMATION
As previously discussed, on August 18, 1995 the Company completed an
IPO of 4.3 million shares of common stock and used the proceeds in their
entirety to repay certain outstanding debt. The following is provided as
supplemental information to illustrate the effect on net income from continuing
operations per share as if the Company had issued the 4.3 million shares on
January 1, 1995 and used the $52.0 million of net proceeds to repay debt at
that time, thereby increasing shares outstanding for the entire year and
reducing interest expense.
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Net income from continuing operations per
share as reported $3.27
Net income from continuing operations per
share pro forma $2.67
</TABLE>
(15) QUARTERLY FINANCIAL AND OPERATING DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
and operating data for the years ended December 31, 1995 and 1994. The Company
believes that the following selected quarterly information includes all
adjustments necessary for a fair presentation, in accordance with generally
accepted accounting principles.
<TABLE>
<CAPTION>
1995 Quarters (in thousands)
----------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total revenue $42,002 $42,916 $43,877 $45,879
Operating income 3,705 4,674 5,056 5,872
Income from continuing operations before extraordinary item 1,882 2,745 23,720 3,266
Income (loss) from discontinued real estate operations (2,557) 504 90 -
Income before extraordinary item (675) 3,249 23,810 3,266
Per Common Share:
Income from continuing operations before extraordinary
item $ .24 $ .35 $ 2.35 $ .26
Income (loss) from discontinued real estate operations (.32) .06 .01 -
Income before extraordinary item (.08) .41 2.36 .26
Dividends declared (a) - - - -
Stock Price (b):
High - - $ 14 18 5/8
Low - - 12 13 3/4
</TABLE>
<TABLE>
<CAPTION>
1994 Quarters (in thousands)
-------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Total revenue $34,440 $35,341 $39,981 $37,534
Operating income 4,487 4,024 4,398 1,832
Income from continuing operations before extraordinary item 3,127 2,680 2,908 290
Income (loss) from discontinued real estate operations (1,443) (2,659) 2,792 8,800
Income before extraordinary item 1,684 21 5,700 9,090
Per Common Share:
Income from continuing operations before extraordinary
item $ .39 $ .33 $ .36 $ .04
Income (loss) from discontinued real estate operations (.18) (.33) .35 1.10
Income before extraordinary item .21 - .71 1.14
Dividends declared (a) - - - -
</TABLE>
53
<PAGE> 55
- ------------------
(a) The Company has never paid dividends and does not intend to pay
dividends in the foreseeable future. Any payment of future dividends
and the amounts thereof will be dependent upon the Company's earnings,
financial and other requirements, including contractual obligations.
(b) The Company completed its initial public offering on August 18, 1995.
Stock prices shown are only for periods subsequent to that date.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
54
<PAGE> 56
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
J. Roderick Heller, III 58 Chairman of the Board, President and Chief Executive Officer
Richard S. Bodman 57 Director
John W. Creighton, Jr. 63 Director
Lloyd N. Cutler 78 Director
Michael R. Eisenson 40 Director
Tim R. Palmer 38 Director
Herbert S. Winokur, Jr. 52 Director
Linda J. Brower 44 Executive Vice President - Asset Management
Linda G. Davenport 46 Executive Vice President - Acquisitions
Ann Torre Grant 37 Executive Vice President, Chief Financial Officer and Treasurer
Robert M. Greenfield 48 Executive Vice President - Acquisitions
J. Robert Hiner 44 Executive Vice President - Management Company Operations
Joel F. Bonder 47 Senior Vice President, General Counsel and Secretary
Christine Freeland 41 Senior Vice President - Management Company Operations
Richard M. Powell 45 Senior Vice President - Special Services
Joseph P. Stefan 43 Senior Vice President - Buyers Access
Charles S. Wilkins, Jr. 45 Senior Vice President - Regulatory and Legislative Affairs
Jeffrey J. Ochs 38 Vice President and Chief Accounting Officer
</TABLE>
J. Roderick Heller, III has served as a Director, President and Chief
Executive Officer of the Company since its organization in 1986 and has served
as Chairman of the Board since 1988. From 1982 until 1985, Mr. Heller served as
President and Chief Executive Officer of Bristol Compressors, Inc., a Bristol,
Virginia-based company involved in the manufacturing of air conditioning
compressors. From 1971 until 1982, he was a partner in the Washington, D.C.
law firm of Wilmer, Cutler & Pickering. Mr. Heller is a Director of Auto-Trol
Technology Corporation and a number of nonprofit organizations, including
public television station WETA, the National Trust for Historic Preservation
and The Civil War Trust.
Richard S. Bodman has served as a director of the Company since August
1995. He is a member of the Management Executive Committee of AT&T and has
served as Senior Vice President of AT&T for Corporation
55
<PAGE> 57
Strategy and Development since joining AT&T in 1990. Mr. Bodman manages
AT&T's intellectual property portfolio and is Chairman of AT&T Ventures, a high
technology venture capital partnership. Mr. Bodman is a director and Chairman of
the Compensation Committee of Tyco International, Inc.
John W. Creighton, Jr. has served as a director of the Company since
August 1995. He has served as Chief Executive Officer of Weyerhaeuser Company
since 1991. Mr. Creighton joined Weyerhaeuser Company in 1970 and was elected
Vice President in December of that year, Executive Vice President in 1985 and
President and Director in 1988. He also served as President of Weyerhaeuser
Real Estate Company from 1983 to 1989. Mr. Creighton previously served as a
director of NHP from 1986 to 1988 and as a director of NCHP from 1981 to 1988.
Mr. Creighton serves as a director of Washington Energy Company, Portland
General Corporation, Unocal Corporation, Quality Food Centers, Inc. and MIP
Properties, Inc.
Lloyd N. Cutler has served as a director of the Company since August
1995. He is Senior Counsel at the law firm of Wilmer, Cutler & Pickering, a
position he has held since September 1994 and from 1990 to March 1994. Mr.
Cutler served as Special Counsel to President Clinton from March 1994 through
September 1994 and Counsel to President Carter from 1979 to 1980. Mr. Cutler
previously served as a director of the Company from 1987 until March 1994.
Michael R. Eisenson has served as a director of the Company since 1990.
Mr. Eisenson has been President and Chief Executive Officer of Harvard Private
Capital Group, Inc. ("Harvard Capital") since December 1993, which manages the
direct investment and private placement portfolio of the Harvard University
endowment fund. Harvard Capital is an affiliate of Demeter. Mr. Eisenson has
been a partner of Harvard Management Company, Inc., the parent of Harvard
Capital, since 1986. Mr. Eisenson is a Director of ImmunoGen, Inc., Harken
Energy Corporation, and Somatix Therapy Corporation.
Tim R. Palmer has served as a director of the Company since 1990. Mr.
Palmer joined Harvard Capital in 1990 and is currently Managing Director. From
1987 to 1990, Mr. Palmer was a manager of business development at The Field
Corporation, a private investment firm. Mr. Palmer is a director of PriCellular
Corporation.
Herbert S. Winokur, Jr. has served as a director of the Company since
1991. Since 1987, he has served as the President of Winokur & Associates, Inc.,
an investment and management services firm, and Winokur Holdings, Inc., which
is the managing general partner of Capricorn, a private investment partnership.
Mr. Winokur is the Chairman of DynCorp and serves as a director of Enron
Corporation and NacRe Corporation.
Linda J. Brower has served as Executive Vice President of NHP since
March 1994 and served as Senior Vice President of NCHP from February 1992 to
March 1994. Ms. Brower is responsible for asset management of the multifamily
portfolio. From 1984 to 1991, Ms. Brower was Vice President and Area Director
for the Orange County, California and Washington, D.C. offices of Citicorp Real
Estate and was responsible for analyzing investment proposals, asset management
and restructuring.
Linda G. Davenport has served as Executive Vice President of the
Company since March 1994. She is primarily responsible for corporate and
portfolio acquisitions and was responsible for two bulk acquisitions by NCHP of
multifamily properties from the RTC in 1992. Ms. Davenport served as Executive
Vice President and Chief Operating Officer of NCHP from 1990 to January 1994
and as General Counsel and Senior Vice President of the Company from 1986 to
1989. Prior to joining NCHP in 1979 as Assistant General Counsel, Ms.
Davenport was employed in the Office of the General Counsel of the Federal
Deposit Insurance Corporation.
Ann Torre Grant has served as Executive Vice President, Chief Financial
Officer and Treasurer of NHP since February 1995. She was Vice President and
Treasurer of USAir, Inc. and USAir Group, Inc. from 1991 through January 1995,
and held other finance positions at the airline between 1988 and 1991. From
1983 to 1988, she held various finance positions with American Airlines, Inc.
Ms. Grant serves as a director of the Mutual Series Funds.
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<PAGE> 58
Robert M. Greenfield has served as Executive Vice President of NHP
since March 1994. He joined NCHP in October 1991 as Senior Vice President. Mr.
Greenfield is primarily responsible for corporate and portfolio acquisitions
and was instrumental in the negotiation and closing of the Oxford and Congress
Acquisitions. From 1978 to 1984, and from 1990 to 1991, Mr. Greenfield was a
consultant in corporate strategy for the Boston Consulting Group, providing
analyses and recommendations to clients in the areas of corporate strategy,
business development and divestiture. From 1991 to 1994, he was a principal in
Schindler Greenfield, Inc. and OCC, Inc., closely held real estate development
firms. In February of 1992, Mr. Greenfield and his wife filed for protection
under Chapter 7 of the United States Bankruptcy Code as a result of their
inability to meet certain direct and guaranteed obligations on borrowings by or
on behalf of Schindler Greenfield, Inc., and its affiliates.
J. Robert Hiner has served as Executive Vice President of NHP
Management Co. since October 1993. He previously served as Senior Vice
President of NHP Management Co. from 1991 to 1993. During 1990, Mr. Hiner
served as President of Shadwell-Jefferson Property Management, Inc., a retail
property management company formed to manage 71 shopping centers in the
midwestern and southern United States. From 1986 to 1990, he served as
President of Cardinal Apartment Management Group, Inc., which was responsible
for the management of 55,000 apartment units.
Joel F. Bonder has served as Senior Vice President and General Counsel
of the Company since April 1994. Mr. Bonder also served as Vice President and
Deputy General Counsel from June 1991 to March 1994, as Associate General
Counsel from 1986 to 1991, and as Assistant General Counsel of the Company from
1985 to 1986. From 1983 to 1985, he was with the Washington, D.C. law firm of
Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law
firm of Ross and Hardies.
Christine Freeland has served as Senior Vice President of NHP
Management Co. since February 1995. She previously served as Regional Vice
President of NHP Management Co. from 1990 to 1995, as Division Vice President
from 1988 to 1990, and as Senior Asset Manager from 1987 to 1988. Ms. Freeland
is a graduate of the University of Maryland and holds a graduate degree from
the University of Tulsa.
Richard M. Powell has served as Senior Vice President of NHP since
February 1996. He is primarily responsible for large-scale acquisitions and
transactions to privatize military, public and student housing. Prior to
joining NHP, Mr. Powell was vice president of commercial real estate services
with Barnes Morris Pardoe & Foster from 1987 to 1996.
Joseph P. Stefan has served as President of Property Services Group,
Inc. (which administers the Company's Buyers Access(R) program) since 1986.
Prior to joining the Company, Mr. Stefan served as Executive Vice President of
ADEC, Inc., a manufacturer of energy management systems for the multifamily
housing industry, from 1981 to 1986.
Charles S. Wilkins, Jr. has served as Senior Vice President of NCHP
since September 1988 and is currently responsible for legislative and
regulatory affairs. He was formerly responsible for asset and property
management of the affordable multifamily portfolio. Prior to joining NCHP, Mr.
Wilkins was Senior Vice President of Westminster Company, a regional real
estate development firm where he was responsible for the property management of
a diverse portfolio of properties. Mr. Wilkins is immediate past- president of
the National Assisted Housing Management Association and is a director of the
National Leased Housing Association as well as various regulatory committees,
including the Executive Committee of the HUD Occupancy Task Force.
Jeffrey J. Ochs has served as Vice President and Chief Accounting
Officer of NHP Incorporated since September 1995. From 1994 until September
1995, Mr. Ochs was Assistant Controller of USAir, Inc. From 1987 to 1994, he
held various accounting positions with USAir, Inc.
Fifty percent (50%) of the compensation received by non-management
members of the Company's Board of Directors for service on the Board is paid in
NHP stock. Accordingly, on November 1, 1995, each of Messrs. Bodman, Creighton,
and Cutler, and Demeter (with which Messrs. Eisenson and Palmer are affiliated)
and Capricorn (with which Mr. Winokur is affiliated) received 1,500 shares of
NHP common stock for services during
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<PAGE> 59
the period August 18, 1995 through December 31, 1996. The Forms 4 required with
respect to the issuance of these shares inadvertently were not filed on behalf
of each of the foregoing, and the transactions were reported in Forms 5 filed
on February 14, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the
compensation paid by the Company for services rendered during the years ended
December 31, 1995 and 1994 to the Chief Executive Officer and to each of the
four other most highly compensated executive officers of the Company (the
"Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(#) COMPENSATION(2)
- --------------------------- ---- ------ -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
J. Roderick Heller, III 1995 $345,961 $192,500 220,000 $15,078
Chairman of the Board, 1994 331,609 160,000 20,352
President and Chief
Executive Officer
Ann Torre Grant 1995 212,981 120,000 80,000 467
Executive Vice President,
Chief Financial Officer
and Treasurer
J. Robert Hiner 1995 195,038 85,000 61,250 11,958
Executive Vice President 1994 167,191 50,000 13,843
Linda G. Davenport 1995 190,961 45,000 15,000 12,282
Executive Vice President 1994 179,139 20,000 16,838
Robert M. Greenfield 1995 191,525 30,000 55,000 12,461
Executive Vice President 1994 176,339 50,000 15,594
</TABLE>
- ------------------
(1) The amounts reported below were paid in 1996 and 1995 with respect to
the years ended December 31, 1995 and December 31, 1994, respectively.
Messrs. Heller, Hiner and Greenfield and Ms. Davenport were paid
$140,000, $40,000, $65,000 and $30,000, respectively, in bonuses in
1994 with respect to the year ended December 31, 1993.
(2) These amounts represent NHP's payment of life insurance premiums and
matching and discretionary contributions to the NCHP 401(k) Retirement
Plan.
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The following table sets forth certain information regarding
options granted to the named officers during the year ended December 31, 1995.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENT OF APPRECIATION FOR
TOTAL OPTIONS OPTION TERM
OPTIONS GRANTED IN EXERCISE EXPIRATION ------------------------------
NAME GRANTED (#) FISCAL YEAR PRICE (#/SH) DATE 5%($) 10%($)
- ---- ----------- ----------- ------------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
J. Rockerick Heller, III 100,000 14.5% $13.00 8/17/05 $817,563 $2,071,865
120,000 17.4% 16.00 8/17/05 621,076 2,126,238
Ann Torre Grant 80,000 11.6% 13.00 8/17/05 654,050 1,657,492
J. Robert Hiner 61,250 8.9% 13.00 8/17/05 500,757 1,269,017
Linda G. Davenport 15,000 2.2% 13.00 8/17/05 122,634 310,780
Robert M. Greenfield 55,000 8.0% 13.00 8/17/05 449,660 1,139,526
</TABLE>
- ------------------
(1) All options become exercisable over a five year period, with one-fifth
of the options becoming exercisable at the end of each year except as
follows. Mr. Heller's 120,000 options are subject to accelerated
vesting in certain circumstances as described under "Employment and
Related Contracts," below. Ms. Grant's options are exercisable 20% six
months after the date of grant and 20% each year thereafter. Of the
55,000 options granted to Mr. Greenfield, 25,000 are exercisable
immediately and the remainder become exercisable over five years, with
one-fifth of the options becoming exercisable at the end of each year.
The following table sets forth certain information regarding
unexercised options held by the Named Officers at December 31, 1995. No options
were exercised by the named Officers during the year ended December 31, 1995.
AGGREGATED OPTION EXERCISES IN 1995
AND YEAR-END 1995 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
DECEMBER 31, 1995 IN THE MONEY OPTIONS(1)
------------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Roderick Heller, III 156,250 220,000 $1,240,625 $850,000
Ann Torre Grant 16,000 64,000 88,000 352,000
J. Robert Hiner 18,750 61,250 148,875 336,875
Linda G. Davenport 75,000 15,000 595,500 82,500
Robert M. Greenfield 65,000 40,000 455,100 244,400
</TABLE>
- -------------------
(1) Calculated on the closing price of the underlying securities on
December 29, 1995 minus the exercise price.
DIRECTORS COMPENSATION
Non-management directors are entitled to compensation in the amount of
$20,000 per year for their service as directors, plus $1,000 for each board
meeting in excess of six meetings per year. One half of this amount is to be
paid in the form of shares of common stock. Each non-management director of the
Company received compensation
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<PAGE> 61
of $5,000 for the period August 18, 1995 through December 31, 1995 and 1,500
shares of NHP common stock for the period August 18, 1995 through December 31,
1996.
EMPLOYMENT AND RELATED CONTRACTS
On August 18, 1995, the Company granted Mr. Heller performance vesting
options to purchase 120,000 shares of common stock at a price equal to $16 per
share. The options vest in 2005, subject to acceleration of vesting under
certain circumstances. Acceleration of vesting will occur as follows upon a
control transfer: options with respect to 40,000 shares will vest upon a control
transfer if, upon such occurrence, the stock has appreciated from $16 per share
at a compound annual rate (the "Appreciation Rate") in excess of 20%; options
with respect to 80,000 shares will vest upon a control transfer if the
Appreciation Rate is in excess of 22.5%; and options with respect to 120,000
shares will vest upon a control transfer if the Appreciation Rate is in excess
of 25%. A control transfer is defined as an event in which Demeter, Capricorn
and Mr. Heller have "meaningful liquidity," including a sale of interests after
which the purchaser owns more than 50% of the issued and outstanding shares of
the Company, or a series of offerings as a result of which shareholders not
affiliated with Demeter, Capricorn or Mr. Heller own more than 50% of the issued
and outstanding shares of the Company.
In January 1995, the Company entered into an agreement with Ms. Grant,
the Executive Vice President, Chief Financial Officer and Treasurer of the
Company, establishing Ms. Grant's base compensation as $225,000. The agreement
provides that Ms. Grant's employment could be terminated at anytime by NHP or
Ms. Grant, subject to Ms. Grant's right to receive severance pay under certain
circumstances equal to one year's base salary in effect at the time of such
event plus the greater of (a) 20% of her base salary and (b) the bonus she
received with respect to the immediately preceding fiscal year.
In February 1996, the Company entered into an agreement with Mr.
Powell, Senior Vice President - Special Services, establishing Mr. Powell's
base compensation as $180,000. The agreement provides that Mr. Powell's
employment could be terminated at anytime by NHP or Mr. Powell, subject to Mr.
Powell's right to receive severance pay under certain circumstances equal to
one year's base salary in effect at the time of such event plus the greater of
(a) 20% of his base salary and (b) the bonus he received with respect to the
immediately preceding fiscal year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has created a Compensation Committee which
consists of Messrs. Eisenson, Winokur and Creighton. The Compensation Committee
is charged with determining the compensation of all executive officers. No
member of the Compensation Committee has ever been an officer of the Company or
any of its subsidiaries. Mr. Eisenson and Mr. Winokur are officers of Demeter
and Capricorn, respectively, the controlling shareholders of the Company.
Demeter and Capricorn have engaged in a variety of transactions with the
Company, as described under "Item 13 - Certain Relationships and Related
Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 15, 1996 the number and
percentage of outstanding shares of the Company's Common Stock beneficially
owned by (i) all persons known by the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each director and each executive officer
who is a stockholder, and (iii) all directors and executive officers as a
group. The business address of each of the following is 1225 Eye Street, N.W.,
Washington, D.C. 20005, unless otherwise specified.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ ------ -------
<S> <C> <C>
Demeter Holdings Corporation 5,568,425 45.4%
600 Atlantic Ave.
Boston, MA 02210
</TABLE>
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<PAGE> 62
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ ------ -------
<S> <C> <C>
Capricorn Investors, L.P. 1,309,492 10.7%
72 Cummings Point Rd.
Stamford, CT 06902
Warburg, Pincus Counsellors, Inc. 814,500 6.6%
466 Lexington Ave.
New York, NY 10017
J. Roderick Heller, III (1) 392,500 3.2%
Michael R. Eisenson (2) 5,568,425 45.4%
600 Atlantic Ave.
Boston, MA 02210
Tim R. Palmer (2) 5,568,425 45.4%
600 Atlantic Ave.
Boston, MA 02210
Herbert S. Winokur, Jr. (3) 1,309,492 10.7%
72 Cummings Point Rd.
Stamford, CT 06902
John W. Creighton 17,125 *
CH5 33663 Weyerhaeuser Way South
Federal Way, Washington 98003
Richard S. Bodman 4,900 *
Lloyd N. Cutler 2,500 *
Ann Torre Grant (4) 17,800 *
J. Robert Hiner (5) 19,250 *
Linda G. Davenport (6) 82,325 *
Robert M. Greenfield (7) 65,000 *
Charles S. Wilkins, Jr. (8) 26,000 *
Joseph P. Stefan 8,175 *
Joel F. Bonder 400 *
Christine Freeland 200 *
All directors and executive officers as a group (14 persons) (9) 7,514,092 62.4%
</TABLE>
- ------------------
* Less than 1%
(1) Includes 156,250 shares subject to options that are exercisable
currently or within 60 days of the date of this report and 101,250
shares held in trusts for the benefit of Mr. Heller's children. Mr.
Heller disclaims beneficial ownership of the shares held in these
trusts. The total excludes shares Mr. Heller has the right to acquire
pursuant to a performance vesting option. See "Item 11 - Executive
Compensation - Employment and Related Contracts."
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<PAGE> 63
(2) Includes all shares held by Demeter Holdings Corporation, for which
Messrs. Eisenson and Palmer serve as representatives on the Company's
Board of Directors. Messrs. Eisenson and Palmer disclaim beneficial
ownership of the shares held by Demeter.
(3) Includes all shares held by Capricorn Investors, L.P., for which Mr.
Winokur serves as a representative on the Company's Board of Directors.
Mr. Winokur disclaims beneficial ownership of shares held by Capricorn.
(4) Includes 16,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(5) Includes 18,750 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(6) Includes 75,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(7) Includes 65,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(8) Includes 25,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(9) Includes all shares set forth above other than those held by Warburg,
Pincus Counsellors, Inc. The reported amount excludes 607,250 shares of
Common Stock reserved for issuance to executive officers under the
Company's Stock Option Plans that are not exercisable within 60 days of
the date of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1995, the Company engaged in the
following transactions and is a party to the following agreements with entities
in which its directors or executive officers have the interests described.
SALE OF THE REAL ESTATE COMPANIES
At the time of NHP's IPO, the Company sold the Real Estate Companies,
which owned all of the Company's direct and indirect interests in real estate
and the Company's captive insurance subsidiary, and certain related assets and
liabilities, to entities owned and controlled by Demeter (with which Messrs.
Eisenson and Palmer are affiliated), Capricorn (with which Mr. Winokur is
affiliated) and Mr. Heller. The purchasing entities paid an aggregate of
approximately $9.1 million in the form of cancellation of indebtedness of NHP
to Demeter, Capricorn and Mr. Heller in exchange for 100% of the equity
interest in the Real Estate Companies. In addition, the Real Estate Companies
retained all liabilities associated with their assets and assumed approximately
$5.3 million of obligations of the Company. In addition, the Real Estate
Companies agreed to indemnify the Company for any taxes incurred by the Company
arising from the sale to the extent such taxes exceed the sum of (i) $2.5
million and (ii) an amount equal to the present value of the estimated
alternative minimum tax credit benefits that will be available to NHP as a
result of the sale.
At the time of the sale of the Real Estate Companies, certain
intercompany balances existed between the Real Estate Companies and NHP. The
net amount of these balances was approximately $59,000 owed to the Real Estate
Companies by NHP. Subsequent to the sale, the Real Estate Companies incurred
obligations to NHP as described below, and the amount owed the Real Estate
Companies was offset against these obligations.
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<PAGE> 64
MANAGEMENT FEES
Pursuant to a Master Property Management Agreement between NHP and the
Real Estate Companies, the Real Estate Companies have agreed to cause the
Company to be retained as the property manager of all multifamily properties
owned by the Real Estate Companies, their subsidiaries or any affiliate
controlled by the Real Estate Companies or their subsidiaries, subject to
certain exceptions. Pursuant to this agreement, the Company manages
approximately 455 properties and received approximately $31.2 million in
management fees. In addition, the Master Property Management Agreement requires
the Real Estate Companies to pay NHP a termination fee upon sale or disposition
of a property managed by NHP in certain circumstances unless there is no
termination of management fees with respect to the property for 36 months after
disposition. The amount of the fee is 200% of the annual fees the Company
receives with respect to the property, reduced on a pro rata basis to the
extent the Company receives management fees for periods less than 36 months
after disposition. The Real Estate Company incurred obligations to NHP of
approximately $0.2 million in termination fees pursuant to this agreement in
the year ended December 31, 1995.
FINANCIAL AND ADVISORY SERVICES
The Company has agreed to provide to the Real Estate Companies, their
subsidiaries and their controlled affiliates, administrative services and
advice regarding acquisition, financing, asset restructuring, disposition and
similar activities relating to investments in multifamily properties. The
services provided by the Company to the Real Estate Companies include
accounting, data processing, insurance administration, payroll, personnel
administration, investor administrative and reporting, investment, tax and
legal services. The Real Estate Companies are required to reimburse the Company
for its costs of providing these services. Either the Company or the Real
Estate Companies may terminate this relationship on 30-days' written notice.
The Real Estate Companies incurred obligations to NHP of approximately $1.2
million pursuant to this agreement in the year ended December 31, 1995.
PROPERTY OCCUPANCY
The Real Estate Companies lease office space in Washington, D.C., a
portion of which the Company occupies as its headquarters facility. In
connection with the sale of the Real Estate Companies, the Company agreed to
reimburse to the Real Estate Companies a portion of the costs incurred by the
Real Estate Companies in leasing this space. Under a separate agreement, the
Real Estate Companies are required to reimburse the Company for the cost of
space leased by the Company (in Reston, Virginia) and allocable to the services
provided to the Real Estate Companies. The Company and the Real Estate Companies
subsequently agreed that the respective obligations to reimburse leasing costs
would completely offset one another, so that no amount would be due either
party. As noted under "Item 2 - Facilities," the Company has signed a lease
for property in Vienna, Virginia and intends to move all of its Washington and
Reston operations to that location. At the time of this relocation, the Real
Estate Companies will once again be obligated to reimburse the Company for
their allocable portion, if any, of the cost of occupying space in the new
facility.
INDEMNIFICATION
The Real Estate Companies have agreed to indemnify the Company against
any loss directly or indirectly caused by, relating to, based upon, arising out
of, or incurred in connection with the Company's ownership (as opposed to
management), through the Real Estate Companies, of properties prior to, on and
after the date of the IPO, and the management contracts for individual
properties generally contain standard indemnification provisions providing for
indemnity by and to the Company. The Real Estate Companies have also agreed to
indemnify the Company against any environmental liability with respect to any
property in which the Real Estate Companies have had, have or acquire an
interest, unless such liability results from the direct introduction of toxic
substances into a property by the Company after the IPO.
The Company remains the guarantor (along with the Real Estate
Companies) of a portion of the indebtedness on two properties and the guarantor
of certain obligations relating to the sale of limited partnership interests in
another property. The Real Estate Companies are prohibited from taking any
action that would increase
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<PAGE> 65
the maximum exposure under these guarantees above the current maximum level of
approximately $4 million, and the Real Estate Companies have agreed to
indemnify NHP for the full amount of any liability it incurs with respect to
these guarantees. There can be no assurance that the Real Estate Companies will
be able to satisfy their indemnity obligations. The Company believes that its
ultimate exposure to liability under these guarantees is not material.
TAX ALLOCATION AGREEMENT
In connection with the sale of the Real Estate Companies, the Company
and the Real Estate Companies entered into a tax allocation agreement. Pursuant
to this agreement, the Company will be required to bear liability for only the
first $2.5 million in taxes arising from the transaction plus an amount equal
to the present value of the estimated alternative minimum tax credit benefits
that will be available to the Company as a result of the sale of the Real
Estate Companies. The Real Estate Companies have indemnified the Company for
any taxes arising from the sale in excess of this amount including any taxes
payable on tax indemnification payments from the Real Estate Companies.
Pursuant to this agreement, NHP paid approximately $45,000 in taxes incurred by
the Real Estate Companies in connection with the sale of the Real Estate
Companies.
The Company and/or the properties to which the Company has provided
services may be liable for certain past state sales and use taxes, including
interest and penalties thereon. Pursuant to the tax allocation agreement, the
properties owned by partnerships of which the Real Estate Companies are the
general partners, partnerships owning such properties and/or the general
partners thereof will be responsible for any such taxes and interest that are
assessed against the Company with respect to such properties, or that are
assessed against the properties but cannot be paid by the properties. However,
pursuant to this arrangement, the Company will be responsible for any penalties
that are assessed with respect to such taxes. As of December 31, 1995, no
payments have been made with respect to such taxes. In the Company's opinion,
the resolution of these matters will not have a material adverse effect on the
financial condition or results of operations of the Company.
WORKING CAPITAL ADVANCES
The Company has provided advances of working capital to the Real Estate
Companies to offset certain of the obligations described above and to meet
short-term capital needs of the Real Estate Companies. Such advances are
payable upon demand and incur interest at the rate equal to the prime rate plus
1% (currently 9.25%), accruing from the end of the month in which the advance
is made. The maximum amount owing the Company pursuant to this arrangement
during the year ended December 31, 1995 was approximately $2.1 million as of
December 31, 1995, including approximately $27,000 in accrued interest.
Among the amounts owed NHP at the time of the sale of the Real Estate
Companies was $1.0 million which the Real Estate Companies contributed to a
subsidiary that was a vehicle for a pending acquisition. The Real Estate
Companies were able to repay this amount pending completion of the acquisition,
and the amount was repaid in September 1995. NHP advanced this amount back to
the Real Estate Companies in November 1995, and it was part of the balance
outstanding of $2.1 million on December 31, 1995. The Real Estate Companies
expect to be able to repay this amount promptly upon completion of the
acquisition.
GUILFORD ACQUISITION
The Real Estate Companies completed the Guilford Acquisition in January
1996, by which the Real Estate Companies acquired, for approximately $4.8
million, the general partnership interests and certain limited partnership
interests in partnerships that own 14 properties containing 2,995 units. In
conjunction with this acquisition by the Real Estate Companies, the Company
paid the Real Estate Companies $2.6 million to enter into property management
contracts with each property for a period of four to five years, commencing in
December 1995.
SOUTHPORT ACQUISITION
In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing
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<PAGE> 66
2,140 units. The Company began managing 12 of these properties containing 1,857
units in November 1995 and will begin managing the remaining two properties
containing 283 units upon receipt of the necessary consents. The Company will
acquire from the Real Estate Companies the right to manage all 14 of the
Southport properties for $4.0 million. The Company manages the Southport
properties pursuant to long-term contracts terminable only for cause, and has a
right of first refusal with respect to the sale of any of these properties or
the Real Estate Companies' general partnership interests in partnerships owning
these properties.
RESCORP ACQUISITION
On October 31, 1995, the Company acquired from Rescorp Realty, Inc. and
transferred to the Real Estate Companies the stock of entities owning the
general partnership interests in 11 properties. The Company manages these
properties pursuant to long-term contracts terminable only for cause, and
has a right of first refusal with respect to the sale of any of these
properties or the Real Estate Companies' general partnership interests in
partnerships owning these properties. The Company also entered into short-term
property management contracts with respect to four other properties, which are
owned by unaffiliated owners. The 15 properties have an aggregate of 2,578
units. The Company paid Rescorp approximately $2.4 million in connection with
the acquisition, and transferred the general partnership interests to the Real
Estate Companies in exchange for the Real Estate Companies assuming the cost
and responsibilities of the general partner.
GREAT ATLANTIC ACQUISITION
On February 14, 1996, the Real Estate Companies agreed to acquire 13
multifamily properties containing 3,145 apartment units from affiliates of
Great Atlantic Management, Inc. At closing, the Company is expected to acquire
from the Real Estate Companies for approximately $1.6 million the right to
manage the units on a long-term basis with the exact terms to be determined.
In addition, the Company may provide the Real Estate Companies up to $16
million in secured financing for acquisition of the properties until such time
as a third-party investor acquires an equity interest in the properties.
Such borrowing would bear interest at 10% per year. See "Item 1 - Business -
Acquisition Program."
SHAREHOLDER LOANS
In connection with a variety of transactions since January 1993,
Demeter, Capricorn and Mr. Heller loaned an aggregate amount of approximately
$12.1 million to the Company (the "Shareholder Loans"). As of the time of the
IPO, the principal amounts outstanding to Demeter, Capricorn and Mr. Heller
were $9,456,198, $2,321,023 and $347,990, respectively, and interest and
premiums were $1,926,873, $464,571 and $60,179, respectively. Approximately
$9.1 million of these obligations were canceled as consideration for the
acquisition of interests in the Real Estate Companies. The remaining
approximately $5.4 million was repaid out of the proceeds of the offering and a
draw on the Credit Facility.
LEGAL SERVICES
Lloyd N. Cutler is Senior Counsel to the law firm of Wilmer, Cutler &
Pickering. Wilmer, Cutler & Pickering has provided legal advise to the Company
with respect to the IPO, the sale of the Real Estate Companies and other
matters.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. Financial Statements - see Index on page 31.
2. Financial Statement Schedules - Schedule II -
Valuation and Qualifying Account - Allowance for
Doubtful Accounts, see page 68.
All other schedules are not submitted because they are
not applicable or not required, or because the
required information is included in the consolidated
financial statements and the notes thereto.
3. Exhibits - See Index on Pages 69 and 70,
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the forth
quarter of 1995.
66
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NHP INCORPORATED
By: /s/ J. Roderick Heller, III
---------------------------
J. Roderick Heller, III
Chairman, President and
Chief Executive Officer
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Roderick Heller, III Chairman of the Board, March 29, 1996
- ---------------------------- President and Chief Executive
J. Roderick Heller, III Officer
/s/ Ann Torre Grant Executive Vice President, March 29, 1996
- ---------------------------- Chief Financial Officer
Ann Torre Grant and Treasurer
/s/ Jeffrey J. Ochs Vice President and Chief March 29, 1996
- ------------------------------- Accounting Officer
Jeffrey J. Ochs
/s/ Richard S. Bodman Director March 29, 1996
- -------------------------
Richard S. Bodman
/s/ John W. Creighton, Jr. Director March 29, 1996
- --------------------------
John W. Creighton, Jr.
/s/ Lloyd N. Cutler Director March 29, 1996
- ------------------------------
Lloyd N. Cutler
/s/ Michael R. Eisenson Director March 29, 1996
- --------------------------
Michael R. Eisenson
/s/ Tim R. Palmer Director March 29, 1996
- ------------------------------
Tim R. Palmer
/s/ Herbert S. Winokur Director March 29, 1996
- --------------------------
Herbert s. Winokur
</TABLE>
67
<PAGE> 69
NHP INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Balance at End
Description Beginning of Period Expense Write-Offs of Period
----------- ------------------- ------- ---------- ---------
<S> <C> <C> <C> <C>
1993 Allowance for Doubtful Accounts $2,195 $126 $(225) $2,096
1994 Allowance for Doubtful Accounts 2,096 53 (288) 1,861
1995 Allowance for Doubtful Accounts 1,861 50 (298) 1,613
</TABLE>
68
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
NOTE EXHIBIT
NUMBER NUMBER DESCRIPTION
------ ------ -----------
<S> <C> <C>
(1) 1.1 Form of Underwriting Agreement
(1) 3.1 Certificate of Incorporation of the Company
(1) 3.2 Bylaws of the Company
(1) 4.1 Specimen certificate for Common Stock
(1) 5.1 Opinion of Wilmer, Cutler & Pickering as to the validity of the issuance of the Common Stock
(1) 10.1 Form of Master Property Management Agreement between NHP Incorporated, NHP Partners, Inc. and The National
Housing Partnership
(1) 10.2 Form of Equity Purchase Agreement between NHP Incorporated, NHP Partners Limited Partnership and Demeter
Holdings Corporation
(1) 10.3 Form of Services Agreement between NHP Incorporated and NHP Partners, Inc.
(1) 10.4 Form of Administrative and Reporting Fee Allocation Agreement between NHP Incorporated, NHP Partners, Inc.,
National Corporation for Housing Partnerships and National Housing Partnership
(1) 10.5 Form of Right of First Refusal Agreement between NHP Incorporated, NHP Partners, Inc., The National Housing
Partnership, Demeter Holdings Corporation, NHP Partners Limited Partnership, Capricorn Investors, L.P., and
J. Roderick Heller, III
(1) 10.6 Form of Indemnification Agreement between NHP Incorporated, NHP Partners, Inc., The National Housing
Partnership and National Corporation for Housing Partnerships
(1) 10.7 Form of Credit Agreement among NHP Incorporated, certain of its subsidiaries and The First National Bank of
Boston, Fleet Bank of Massachusetts, N.A. and Morgan Guaranty & Trust Company of New York and The First
National Bank of Boston, as agent
(1) 10.8 Deed of Lease between OP&F Schroder Trust and NHP Property Management, Inc. dated June 16, 1993
(1) 10.9 1990 Stock Option Plan
(1) 10.10 1995 Incentive Stock Option Plan
(1) 10.11 Stock Redemption Agreement dated as of December 23, 1991, by and between NHP and Weyerhaeuser Real Estate
Company.
(1) 10.12 Oxford Purchase Agreement dated as of July 15, 1993 by and among Oxford Holding Corporation, Oxford
Management Company, Inc., Oxford Retirement Services, Inc., Oxford Realty Services Corp. and Oxford
Development Corporation and NHP-HG, Inc., NHP, Inc. and NHP Property Management, Inc.
(1) 10.13 Stock and Asset Transfer Restrictions Agreement dated December 10, 1993 by and among Oxford Holding
Corporation, Oxford Management Company, Inc., Oxford Retirement Services, Inc., Oxford Realty Services
Corp., Oxford Development Corporation, NHP-HG, Inc., NHP, Inc., NHP Property Management, Inc., Oxford Asset
Management Corporation and Leo E. Zickler
(1) 10.14 Lease Agreement dated June 22, 1982 between Oxford Development Corporation and Castle Creek II Associates
and amendments thereto.
(1) 10.15 Form of Cost Allocation Agreement by and between NHP Incorporated and National Corporation for Housing
Partnerships
10.15a First Amendment to Cost Allocation by and between NHP Incorporated, National Corporation for Housing
Partnerships and NHP Partner, Inc. dated October 15, 1996.
10.15b First Amendment to Services Agreement by and between NHP Incorporated, National Corporation for Housing
Partnerships and NHP Partners, Inc. dated October 15, 1996
(1) 10.16 Letter Agreement between Michael R. Eisenson and J. Roderick Heller, III dated February 17, 1995 regarding
performance vesting options
(1) 10.17 Letter Agreement between NHP Incorporated and Ann Torre Grant dated January 24, 1995
(1) 10.18 Form of Tax Sharing Agreement among NHP Incorporated, NHP Partners, Inc. and The National Housing
Partnership Limited Partnership
(1) 10.19 Form of Amended and Restated Shareholders Agreement among NHP Incorporated, Demeter Holdings Corporation,
John Frick and Capricorn Investors, L.P.
(1) 10.20 Shareholders Agreement dated December 10, 1993 by and among Leo E. Zickler, NHP-HG II, Inc. and Oxford
Asset Management Corporation
</TABLE>
69
<PAGE> 71
<TABLE>
<CAPTION>
NOTE EXHIBIT
NUMBER NUMBER DESCRIPTION
------ ------ -----------
<S> <C> <C>
(1) 10.21 Shareholders Agreement dated December 10, 1993 by and among Leo E. Zickler, Francis P. Lavin, ML Oxford
Finance Corp., NHP-HG III, Inc., Oxford Asset Management Corporation
(1) 10.22 Promissory Note dated December 10, 1993 in the amount of $1,200,000 by NHP-HG, Inc., NHP Property
Management, Inc., and NHP, Inc., Payor, and Oxford Management Company, Inc., Oxford Retirement Services,
Inc., Oxford Realty Services Corp., Oxford Holding Corporation and Oxford Development Corporation
(1) 10.23 Cash Escrow Account Agreement dated December 10, 1993 by and among NHP Property Management, Inc., Oxford
Asset Management Corporation, Oxford Corporation, Oxford Development Corporation, Oxford Development
Enterprises, Inc., Oxford Management Company, Inc., Oxford Equities Corporation, Indiana Mortgage &
Investment Corporation, Oxford Engineering Services, Inc., Oxford Properties Corporation, Oxford Mortgage
and Investment Corporation, Oxford Real Estate Holdings Corporation, Oxford Securities Corporation, Oxford
Holding Corporation, Oxford Realty Services Corp., Oxford Retirement Services, Inc. and Oxford Investment
Corporation
10.24 Fairfax Square Office Lease Agreement by and between Fairfax Square Associates II and NHP Incorporated
dated December 8, 1995
10.25 Keystone Office Lease between WRC Properties, Inc. and NHP Incorporated dated March 14, 1996
10.26 Asset Management Agreement between C.R.I., Inc. and NHP Incorporated dated February 29, 1996
10.27 Letter Agreement between Richard M. Powell and J. Roderick Heller, III dated February 2, 1996
10.28 Stock Purchase Agreement by and between NHP Incorporated and Commonwealth Overseas Trading Company
Limited and Sheik Mohammed A. Al-Tuwaijri dated March 20, 1996
10.29 Purchase agreement by and between NHP HDV-Three, Inc. and NHP HDV-Two, Inc. dated October 31, 1995
10.30 Right of First Refusal by and between NHP Incorporated, NHP-HDV Four, Inc., NHP-HDV Five, Inc.,
NHP-HDV Six, Inc., NHP-HDV Seven, Inc. and NHP-HDV Eight, Inc., dated December 1, 1995
11 Statement re computation of per share earnings
(1) 16.1 Letter regarding change in certifying accountant
21 Subsidiaries
27 Financial Data Schedule
</TABLE>
- ------------------
(1) Filed as an exhibit to the Company's report on Form S-1 Registration
Statement effective August 14, 1995, and incorporated herein by reference.
70
<PAGE> 1
EXHIBIT 10.15(a)
FIRST AMENDMENT TO COST ALLOCATION AGREEMENT
This First Amendment to Cost Allocation Agreement (the "First
Amendment") is made and entered into as of this 15th day of October, 1995, by
and among NHP INCORPORATED, a Delaware corporation ("NHP"), NATIONAL
CORPORATION FOR HOUSING PARTNERSHIPS, a District of Columbia corporation
("NCHP"), and NHP PARTNERS, INC., a Delaware corporation ("Partners").
RECITALS
WHEREAS, NHP and NCHP are all of the original parties to that
certain Cost Allocation Agreement dated August 18, 1995 (the "Allocation
Agreement"), whereby NHP agreed to reimburse NCHP an allocable share of the
rent and other charges payable under the Agreement of Lease dated September 4,
1984 by and between 1225 Eye Street, N.W. Associates Limited Partnership and
NCHP, as supplemented and later amended (the "Eye Street Lease"); and
WHEREAS, pursuant to that certain Services Agreement dated
August 18, 1995 by and among NHP, NCHP, and Partners (the "Services
Agreement"), Partners agreed to reimburse NHP an allocable share of all costs
incurred by NHP in providing various administrative and advisory services to
Partners, NCHP and other affiliates of Partners, including an allocable share
of the rent and other charges for occupancy of space from which such services
are provided; and
WHEREAS, NHP and NCHP desire to amend the Allocation Agreement
pursuant to Section 9.4 thereof to reflect an offset of all reimbursements
payable by NHP under the Allocation Agreement with respect to the Eye Street
Lease and all reimbursements payable to NHP under the Services Agreement with
respect to space from which services thereunder are provided, and Partners
wishes to agree to and acknowledge such amended provisions as applicable, all
on the terms set forth in this First Amendment.
NOW, THEREFORE, in consideration of the foregoing and the
respective covenants and agreements set forth in the First Amendment and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, NHP, NCHP and Partners agree as follows:
1. All capitalized terms not otherwise defined herein
shall have the meanings given in the Allocation Agreement.
<PAGE> 2
2. Effective as of the Effective Date of the Allocation
Agreement, any and all installments of Basic Rent Reimbursement Payments and
Additional Rent Reimbursement Payments payable by NHP under the Allocation
Agreement ("NHP Payment Obligations") shall be offset by the reimbursement
payable by Partners to NHP with respect to the allocable cost of space from
which services are provided to Partners and its affiliates under the Services
Agreement ("Partners Payment Obligations") during the corresponding time
period, and all Partners Payment Obligations shall be offset by NHP Payment
Obligations during the corresponding time period. NHP and Partners agree that
such offsets shall constitute full satisfaction of all NHP Payment Obligations
and Partners Payment Obligations during corresponding time periods,
notwithstanding the fact that NHP Payment Obligations may exceed Partners
Payment Obligations or Partners Payment Obligations may exceed NHP Payment
Obligations with respect to any particular time period.
3. Each of the parties hereto agrees and acknowledges
that, as of the date of the First Amendment, there is no outstanding NHP
Payment Obligation or Partners Payment Obligation due and owing by either
party. NCHP acknowledges that it has no knowledge of any default by NHP on or
prior to the date of the First Amendment in fulfilling any of the terms of the
Allocation Agreement. NCHP hereby waives any claims with respect to the
subject matter of the First Amendment arising on or prior to the date of the
First Amendment.
4. Upon termination of the Allocation Agreement,
Partners shall be required to satisfy all Partners Payment Obligations arising
under the Services Agreement after the date of termination of the Allocation
Agreement. Upon termination of the Services Agreement, the terms of Section 2
provided herein shall be of no further effect, and NHP shall be required to
satisfy all NHP Payment Obligations arising under the Allocation Agreement
after the date of termination of the Services Agreement.
5. The amendments to the Allocation Agreement set forth
herein shall be binding and take effect as of the Effective Date of the
Allocation Agreement.
6. Except as otherwise expressly modified herein, all
terms and conditions of the Allocation Agreement are hereby ratified and
confirmed and are in full force and effect.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned authorized signatories
have executed this First Amendment as of the date set forth in the first
paragraph of this First Amendment.
NHP INCORPORATED
By:
----------------------------
Its:
---------------------------
NATIONAL CORPORATION FOR
HOUSING PARTNERSHIPS
By:
-----------------------
J. Roderick Heller, III
Its: President and Chief Executive Officer
NHP PARTNERS, INC.
By:
----------------------
J. Roderick Heller, III
Its: President and Chief Executive Officer
-3-
<PAGE> 1
EXHIBIT 10.15(b)
FIRST AMENDMENT TO SERVICES AGREEMENT
This First Amendment to Services Agreement (the "First
Amendment") is made and entered into as of this 15th day of October, 1995, by
and among NHP INCORPORATED, a Delaware corporation ("NHP"), NATIONAL
CORPORATION FOR HOUSING PARTNERSHIPS, a District of Columbia corporation
("NCHP"), and NHP PARTNERS, INC., a Delaware corporation ("Partners").
RECITALS
WHEREAS, NHP, NCHP, and Partners are all of the original
parties to that certain Services Agreement dated August 18, 1995 (the "Services
Agreement"), whereby Partners agreed to reimburse NHP an allocable share of all
costs incurred by NHP in providing various administrative and advisory services
to Partners, NCHP and other affiliates of Partners, including an allocable
share of the rent and other charges for occupancy of space from which such
services are provided; and
WHEREAS, pursuant to that certain Cost Allocation Agreement
dated August 18, 1995 by and between NHP and NCHP (the "Allocation Agreement"),
NHP agreed to reimburse NCHP an allocable share of the rent and other charges
payable under the Agreement of Lease dated September 4, 1984 by and between
1225 Eye Street, N.W. Associates Limited Partnership and NCHP, as supplemented
and later amended (the "Eye Street Lease"); and
WHEREAS, NHP, NCHP and Partners desire to amend the Services
Agreement pursuant to Section 7.5 thereof to reflect an offset of all
reimbursements payable to NHP under the Services Agreement with respect to
space from which services thereunder are provided and all reimbursements
payable by NHP under the Allocation Agreement with respect to the Eye Street
Lease, all on the terms set forth in this First Amendment.
NOW, THEREFORE, in consideration of the foregoing and the
respective covenants and agreements set forth in the First Agreement and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, NHP, NCHP and Partners agree as follows:
1. All capitalized terms not otherwise defined herein
shall have the meanings given in the Services Agreement.
2. Effective as of the Effective Date of the Services
Agreement, any and all reimbursements payable by Partners to NHP with respect
to the allocable cost of
<PAGE> 2
space from which services are provided to Partners and its affiliates under the
Services Agreement ("Partners Payment Obligations") shall be offset by the
installments of Basic Rent Reimbursement Payments and Additional Rent
Reimbursement Payments payable by NHP under the Allocation Agreement ("NHP
Payment Obligations") during the corresponding time period, and all Partners
Payment Obligations shall be offset by NHP Payment Obligations during the
corresponding time period. NHP and Partners agree that such offsets shall
constitute full satisfaction of all NHP Payment Obligations and Partners
Payment Obligations during corresponding time periods, notwithstanding the fact
that NHP Payment Obligations may exceed Partners Payment Obligations or
Partners Payment Obligations may exceed NHP Payment Obligations with respect to
any particular time period.
3. Each of the parties hereto agrees and acknowledges
that, as of the date of the First Amendment, there is no outstanding NHP
Payment Obligation or Partners Payment Obligation due and owing by either
party. NHP acknowledges that it has no knowledge of any default by Partners on
or prior to the date of the First Amendment in fulfilling any of the terms of
the Services Agreement. NHP hereby waives any claims with respect to the
subject matter of the First Amendment arising on or prior to the date of the
First Amendment.
4. Upon termination of the Services Agreement, NHP shall
be required to satisfy all NHP Payment Obligations arising under the Allocation
Agreement after the date of termination of the Services Agreement. Upon
termination of the Allocation Agreement, the terms of Section 2 provided herein
shall be of no further effect, and Partners shall be required to satisfy all
Partners Payment Obligations arising under the Services Agreement after the
date of termination of the Allocation Agreement.
5. The amendments to the Services Agreement set forth
herein shall be binding and take effect as of the Effective Date of the
Services Agreement.
6. Except as otherwise expressly modified herein, all
terms and conditions of the Services Agreement are hereby ratified and
confirmed and are in full force and effect.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned authorized signatories
have executed this First Amendment as of the date set forth in the first
paragraph of this First Amendment.
NHP INCORPORATED
By:
-----------------------------
Its:
----------------------------
NATIONAL CORPORATION FOR
HOUSING PARTNERSHIPS
By:
-----------------------
J. Roderick Heller, III
Its: President and Chief Executive Officer
NHP PARTNERS, INC.
By:
-----------------------
J. Roderick Heller, III
Its: President and Chief Executive Officer
-3-
<PAGE> 1
EXHIBIT 10.24
FAIRFAX SQUARE
OFFICE LEASE AGREEMENT
BY AND BETWEEN
FAIRFAX SQUARE ASSOCIATES II
(LANDLORD)
AND
NHP INCORPORATED
(TENANT)
DATE: DECEMBER 8, 1995
<PAGE> 2
FAIRFAX SQUARE
OFFICE LEASE AGREEMENT
THIS LEASE AGREEMENT ("this Lease"), is executed in five (5)
counterparts and made as of the 8th day of December, 1995, by and between
FAIRFAX SQUARE ASSOCIATES II ("Landlord"), a Virginia general partnership, and
NHP INCORPORATED, a Delaware corporation ("Tenant"), Landlord and Tenant having
the following notice addresses on the date of this Lease:
<TABLE>
<CAPTION>
LANDLORD: WITH A COPY TO:
- -------- --------------
<S> <C>
Fairfax Square Associates II Landlord's Partner,
8045 Leesburg Pike MAV Properties, Inc.
Suite 200 c/o Teachers Insurance and
Vienna, Virginia 22182 Annuity Association of
Attn: Jennifer A. Tepper America
730 Third Avenue
New York, New York 10017
Attn: James Fitzpatrick,
Mortgage and Real Estate
WITH AN ADDITIONAL COPY TO: Law
- --------------------------
Teachers Insurance and
Annuity Association of America
730 Third Avenue
New York, New York 10017
Attn: Vice President and Manager,
Real Estate and Mortgage Law
TENANT: WITH A COPY TO:
- ------ --------------
NHP Incorporated NHP Incorporated
Suite 601 Suite 601
1225 Eye Street, N.W. 1225 Eye Street, N.W.
Washington, D.C. 20005 Washington, D.C. 20005
Attn: Arthur Dochterman Attn: Joel Bonder
</TABLE>
SUMMARY OF FUNDAMENTAL LEASE PROVISIONS
The provisions set forth below represent the agreement of the parties
hereto as to certain fundamental lease provisions ("Fundamental Lease
Provisions"). Specified Section, Schedule and Article references designate
where in this Lease provisions corresponding to Fundamental Lease provisions
appear. The monetary charges payable by Tenant set forth in the Summary of
i
<PAGE> 3
Fundamental Lease Provisions shall not be construed to constitute an exhaustive
list of all amounts which may become payable under this Lease.
<TABLE>
<S> <C>
(a) Main Term: 6 years (See Section 3.3)
(b) Premises Number: Suite 400 (8065 Leesburg Pike) (See Sch. A)
(c) Gross Leasable
Area in Premises: 65,083 sq. ft. (See Section 1.2)
(i) Gross Leasable
Area in the
Building: 188,913 sq. ft. (See Section 1.2)
(office - 124,909 sq. ft.)
(ii) Gross Leasable
Area in the
Project: 513,607.1 sq. ft. (See Section 1.2)
(d) (i) Landlord's
Architect: The M Group (See Section 2.2)
(ii) Tenant's
Architect Intraplan, Inc., and (See Section 2.2)
Foster-Crowder Design
(e) Engineering Plan
Delivery Date: January 10, 1996 (See Section 2.2)
(f) Construction
Document
Delivery Date: January 10, 1996 (See Section 2.2)
(g) Base Rent: (See Section 4.3)
<CAPTION>
Year Base Rent
---- ---------
<S> <C>
1 $18.65/s.f.
2 19.12/s.f.
3 19.59/s.f.
4 23.15/s.f.
5 23.73/s.f.
6 24.33/s.f.
(h) Security Deposit: None
(i) Permitted Use: General Office Purposes (See Art. 5)
(j) Scheduled Term
Commencement Date: March 15, 1996 (See Section 2.4)
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ARTICLE 1 INTRODUCTORY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. General Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Determination of GLA of Premises, Building
and Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3. Changes to Project. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.4. Status of Landlord and Project . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 PREMISES AND TENANT'S WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1. Lease of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2. Construction Plans and Contractors . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3. Construction Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.4. Construction of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.5. Substantial Completion and Occupancy . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.6. Tenant's Occupancy of Premises . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.7. Right of First Offer (Recurring) . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.8. Right of First Offer (Secondary) . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.9. Mechanics' and other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.10. Tenant's Property; Landlord's Lien . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 3 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.1. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.2. Preliminary Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.3. "Main Term," "Lease Year" Defined . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.4 Renewal Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.5 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.6. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 4 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.1. Tenant's Agreement to Pay Rent . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.2. Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.3. Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.4. Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.5. Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.6. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.7. Interest Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 5 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1. Prompt Occupancy and Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.2. Operating Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.3. Operational Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.4. Signs; Painting; Displays . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.5. Access Keys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ARTICLE 6 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1. Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2. Payment of Tenant's Taxes . . . . . . . . . . . . . . . . . 29
Section 6.3. Refund of Taxes . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.4. Taxes on Rent and Other Taxes . . . . . . . . . . . . . . . 30
ARTICLE 7 COMMON AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.1. Use and Management . . . . . . . . . . . . . . . . . . . . 30
Section 7.2. Operating Costs Defined . . . . . . . . . . . . . . . . . . 31
Section 7.3. Tenant's Operating Costs Charge . . . . . . . . . . . . . . 35
Section 7.4. Parking Validation System . . . . . . . . . . . . . . . . . 38
ARTICLE 8 ENVIRONMENTAL COVENANT . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.1. Environmental Covenant. . . . . . . . . . . . . . . . . . . 39
Section 8.2. Environmental Laws . . . . . . . . . . . . . . . . . . . . 39
Section 8.3. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.4. Survival . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 9 MAINTENANCE, REPAIRS AND ALTERATIONS . . . . . . . . . . . . . . . . . . . 40
Section 9.1. Landlord's Duty to Maintain Structure and
Building Systems . . . . . . . . . . . . . . . . . . . . . 40
Section 9.2. Tenant's Duty to Maintain Premises . . . . . . . . . . . . 41
Section 9.3. Tenant's Duty to Repair Damage . . . . . . . . . . . . . . 42
Section 9.4. Alterations by Tenant . . . . . . . . . . . . . . . . . . . 42
Section 9.5. Landlord's Right of Access . . . . . . . . . . . . . . . . 42
ARTICLE 10 INDEMNITY AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.1. Tenant's Insurance . . . . . . . . . . . . . . . . . . . . 43
Section 10.2. Tenant's Contractor's Insurance . . . . . . . . . . . . . . 44
Section 10.3. Policy Requirements . . . . . . . . . . . . . . . . . . . . 44
Section 10.4. Indemnities by Tenant and Landlord . . . . . . . . . . . . 45
Section 10.5. Landlord Not Responsible for Acts of Others . . . . . . . . 46
Section 10.6. Landlord's Insurance . . . . . . . . . . . . . . . . . . . 47
Section 10.7. Increase in Insurance Premiums . . . . . . . . . . . . . . 47
Section 10.8. Mutual Waiver . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 11 CASUALTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 11.1. Obligation to Repair and Reconstruct . . . . . . . . . . . 48
Section 11.2. Landlord's Option to Terminate Lease . . . . . . . . . . . 49
Section 11.3. Insurance Proceeds . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
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<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ARTICLE 12 CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 12.1. Effect of Taking . . . . . . . . . . . . . . . . . . . . . 50
Section 12.2. Condemnation Awards . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 13 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 13.1. Landlord's Consent Required . . . . . . . . . . . . . . . . 51
Section 13.2. Transfer; Issuance of Corporate Shares. . . . . . . . . . 51
Section 13.3. Acceptance of Rent from Transferee . . . . . . . . . . . . 51
Section 13.4. Conditions of Consent . . . . . . . . . . . . . . . . . . . 51
Section 13.5. Profits from Use or Transfer . . . . . . . . . . . . . . . 52
ARTICLE 14 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 14.1. "Event of Default" Defined . . . . . . . . . . . . . . . . 53
Section 14.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 14.3. Damages . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE 15 SUBORDINATION, NONDISTURBANCE AND ATTORNMENT . . . . . . . . . . . . . . 57
Section 15.1. Subordination . . . . . . . . . . . . . . . . . . . . . . . 57
Section 15.2. Mortgagee's Unilateral Subordination . . . . . . . . . . . 58
Section 15.3. Attornment and Non-disturbance . . . . . . . . . . . . . . 58
ARTICLE 16 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 17 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 17.1. Sending of Notices . . . . . . . . . . . . . . . . . . . . 59
Section 17.2. Notices to Mortgagees . . . . . . . . . . . . . . . . . . . 59
Section 17.3. Estoppel Certificate . . . . . . . . . . . . . . . . . . . 59
ARTICLE 18 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 18.1. Modification . . . . . . . . . . . . . . . . . . . . . . . 60
Section 18.2. Memorandum of Lease . . . . . . . . . . . . . . . . . . . . 60
Section 18.3. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . 60
Section 18.4. Successors and Assigns . . . . . . . . . . . . . . . . . . 61
Section 18.5. Compliance with Laws and Regulations . . . . . . . . . . . 61
Section 18.6. Captions and Headings . . . . . . . . . . . . . . . . . . . 62
Section 18.7. Joint and Several Liability . . . . . . . . . . . . . . . . 62
Section 18.8. Broker's Commissions . . . . . . . . . . . . . . . . . . . 62
Section 18.9. No Discrimination . . . . . . . . . . . . . . . . . . . . . 63
Section 18.10. No Joint Venture . . . . . . . . . . . . . . . . . . . . . 63
Section 18.11. Schedules . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 18.12. Severability . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
v
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
Section 18.13. No Third Party Beneficiary . . . . . . . . . . . . . . . . 64
Section 18.14. Corporate Tenants . . . . . . . . . . . . . . . . . . . . . 64
Section 18.15. Applicable Law . . . . . . . . . . . . . . . . . . . . . . 64
Section 18.16 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . 64
Section 18.17 Limitation of Liability . . . . . . . . . . . . . . . . . . 64
Section 18.18 No Accord and Satisfaction . . . . . . . . . . . . . . . . 67
Section 18.19 Time of Essence . . . . . . . . . . . . . . . . . . . . . . 67
Section 18.20 "Person(s)" Defined . . . . . . . . . . . . . . . . . . . . 67
Section 18.21 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 18.22 Consents . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 18.23 Unilateral Amendment . . . . . . . . . . . . . . . . . . . 67
Section 18.24 Integration of all Prior Agreements and
Execution of Lease . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
vi
<PAGE> 8
SCHEDULES
A Drawing showing approximate location of the Premises
A-1 Legal Description
A-2 Tenant's Drawings
A-4 Drawing showing approximate location of the Storage Space
B Landlord Services
C Tenant's Plan Requirements
D Tenant's Interior Finish Building Standards
E Form of Term Commencement Letter
F Rules and Regulations
G Form of Subordination, Non-disturbance and Attornment
Agreement
H Form of Tenant Estoppel
I Base Building Description
J Construction Schedule
K Duties of Construction Manager
L Prior Rights of Current Tenants
vii
<PAGE> 9
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined In
Defined Term Section
- ------------ ----------
<S> <C>
Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5
Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(b)
Costs Base Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3(a)
Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(c)
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1
Fairfax Square . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(c)
General Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(c)
GLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(d)
GLA Fraction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(e)
Landlord's Management Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(f)
Lease Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(b)
Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3(a)
Main Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(a)
Market Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4(c)
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1(a)
Mortgagee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1(a)
Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
Parking Garage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4
Partial Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3(d)
Permitted Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
Person(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.20
Preliminary Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(d)
Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Recurring ROFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7(a)
Renewal Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4(a)
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1
Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2
Rental Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2
</TABLE>
viii
<PAGE> 10
TABLE OF DEFINED TERMS (CONTINUED)
<TABLE>
<CAPTION>
Defined In
Defined Term Section
- ------------ ----------
<S> <C>
Secondary ROFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8(a)
Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7
Storage Space. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
Substantial Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5(a)
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1(a)
Tax Base Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 (a)
Tenant's Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7
Tenant's Occupancy Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6
Tenant's Operating Costs Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
Tenant's Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(a)
Tenant's Plan Excess Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
Tenant's Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10(a)
Tenant's Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1(b)
Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1
Termination Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.3(a)
Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1
</TABLE>
ix
<PAGE> 11
ARTICLE 1
INTRODUCTORY PROVISIONS
Section 1.1. General Definitions.
As used herein, the term:
(a) "Building" means the referenced tower of a
three-building multi-story office and retail towers located in Fairfax County,
Virginia. The "Project" consists of three office/retail towers and a
multi-level parking facility, plus surface parking. The Project is known as
"Fairfax Square," and is located at 8045, 8065 and 8075 Leesburg Pike, Vienna,
Virginia 22182. The estates and improvements therein comprising the Building
and the Project are owned by the Landlord in fee simple. The Landlord's fee
simple estate is subject to a mortgage (defined below) securing debt to
Teachers Insurance and Annuity Association of America.
(b) "Common Areas" means those areas and facilities which
may be furnished, from time to time, by Landlord at the Building, for the
non-exclusive general or limited common use of Landlord, Tenant, other tenants,
subtenants and other occupants of the Building, their officers, agents,
employees, customers, suppliers and materialmen, and those areas and facilities
used for maintenance, management and marketing of the Building, and all loading
docks, ramps and areas and access roadways thereto, delivery passages, freight
elevators, package pick-up stations, service corridors, sidewalks, walkways,
roadways, alleyways, parking areas, courts, courtyards, ramps, fountains,
retaining walls, stairways, escalators, elevators, fire corridors, fire
escapes, park areas, bus stops, bicycle parking areas, first-aid stations,
maintenance and mechanical areas, rest rooms, meeting rooms, management
offices, promotional offices, utility plants, distribution equipment, fire
command centers and security systems equipment and service lines, pipes, tanks,
pumps, exhaust fans, transformers and conduits for heat, ventilation, light and
air conditioning, and other similar areas, facilities or improvements serving
the Building.
(c) "Default Rate" means an annual rate of interest equal
to the lesser of (i) the maximum rate of interest for which Tenant may lawfully
contract in the Commonwealth of Virginia from time to time, or (ii) the prime
rate charged from time to time by Citibank, New York City, plus two percent
(2%) per annum.
(d) "GLA" means with respect to the area being measured,
the number of square feet of area measured in accordance with the Washington,
D.C. Association of Realtors Standard Method of Measurement (the "WDCAR"),
January 1, 1989,
<PAGE> 12
edition. The core factor is 9.45% on a full floor user and 13.70% on a
multi-floor user, based on the WDCAR method.
The GLA in the Premises and in all other areas set aside for tenants within the
Building shall be utilized to calculate the GLA Fraction and to make any other
calculations required to determine Tenant's proportionate share of certain
charges set forth in this Lease.
(e) "GLA Fraction" means a fraction, the numerator of
which shall be the GLA in the Premises and the denominator of which shall be
the total GLA in the Building.
(f) "GLA Tax Fraction" means a fraction, the numerator of
which shall be the GLA in the Premises and the denominator of which shall be
the total GLA in the Project.
(g) "Landlord's Management Agent" means the person or
persons designated by Landlord from time to time to lease, manage, operate,
and/or supervise the operations of the Building for and on behalf of Landlord;
provided, however, that neither Insignia Financial Group,, Inc. nor any
affiliate thereof, shall be Landlord's Management Agent without Tenant's prior
written consent.
(h) "Premises" means that portion of the Building as
shown outlined in red on Schedule A, having the GLA specified in clause (c) of
the Fundamental Lease Provisions (subject to Landlord's revised measurement
thereof as provided in Section 1.2).
The section references for definitions of all other capitalized terms
used in this Lease are contained in the Table of Defined Terms immediately
following the Table of Contents.
Section 1.2. Determination of GLA of Premises, Building and
Project.
(a) The GLA in the Premises, the Building, and the
Project have been calculated by Landlord's architect in accordance with the
WDCAR and shall be as set forth in clause (c) of the Fundamental Lease
Provisions for all purposes of this Lease, unless adjusted pursuant to this
Section. Landlord has delivered to Tenant a certificate from Landlord's
architect certifying (to the best of its knowledge, information and belief) the
GLA of the Premises, the Building, and the Project and shall deliver to Tenant
a similar certificate from Landlord's architect within thirty (30) days after
any increase or decrease in the size of the Premises, the Building, or the
Project for any reason. As soon as practicable, but in any event within sixty
(60) days following Tenant's initial request therefor after
2
<PAGE> 13
Tenant's Occupancy Date, Landlord shall certify to Tenant the actual GLA in the
Premises. If the actual GLA in the Premises shall be greater or lesser than
that set forth in clause (c) of the Fundamental Lease Provisions, Landlord
shall adjust the GLA and such adjusted GLA shall thereafter be conclusively
deemed to be the GLA of the Premises for all purposes of this Lease.
(b) If Tenant is dissatisfied with Landlord's
determination of the GLA of the Premises, the Building, or the Project, then
Tenant shall have the right, at Tenant's expense, to cause its architect to
determine the exact GLA contained therein. In the event that Tenant's
architect's determination yields a GLA less than the number determined by
Landlord, Tenant's architect may submit its measurements to Landlord's
architect for review. Whether or not the difference in the GLA falls within
the variance recognized by the WDCAR, if Landlord and Tenant are unable to
resolve the discrepancies no later than thirty (30) days after the date
Tenant's architect submitted said measurements to Landlord's architect, the
parties shall select a qualified, independent, professional third party to
resolve the discrepancies who will submit his or her determination within
fifteen (15) days after selection. At such time as the exact GLA is
ascertained, Landlord and Tenant shall execute an amendment to this Lease
stating the exact GLA and adjusting all payments and prorations hereunder, as
necessary; provided, however, that in no event shall the GLA of the Premises be
more than 65,083 square feet.
Section 1.3. Changes to Project.
As between Landlord and Tenant, Landlord may at any time and from time
to time eliminate or add any improvements, or change or consent to a change in
the shape, size, location, number, height or extent of the improvements to any
portion of the Building. Nothing herein contained, however, shall be deemed to
permit Landlord to change the dimensions or location of the Premises or the
lobby of the Building or materially adversely affect the access to the Premises
from the Common Areas adjacent thereto, if any, without Tenant's consent,
unless any such changes are required by reason of any federal, state or local
environmental or other law, rule, regulation, guideline, judgment, order or
action.
Section 1.4. Status of Landlord and Project.
Landlord has good and marketable fee simple title to the Project.
Landlord is a general partnership duly organized and in good standing in the
Commonwealth of Virginia, has full right, power, and authority to execute,
deliver, and perform this Lease, and the person signing on behalf of Landlord
is authorized to do so by any and all necessary partnership and corporate
actions.
3
<PAGE> 14
No litigation has been initiated or, to the knowledge of Landlord, threatened
against Landlord or against the Project which, if adversely determined, would
impair Landlord's ability to execute, deliver, and perform this Lease. Neither
Landlord, any affiliate of Landlord, the Project, nor the Building is subject
to or otherwise bound by any legal requirements or agreement (written or oral)
which would be breached, or which would result in the creation or imposition of
any title exception applicable to the Building, by Landlord's execution,
delivery, or performance of this Lease. Landlord will not seek or consent to
any street or alley closing or other action that would eliminate or shut off
light, air, or view to or from the Premises (provided that Landlord shall not
be required to initiate judicial action to prevent others from so doing).
ARTICLE 2
PREMISES AND TENANT'S WORK
Section 2.1. Lease of Premises.
(a) Office Premises. Landlord, in consideration of the Rent to be
paid and the covenants to be performed by Tenant, hereby leases to Tenant, and
Tenant hereby leases and takes from Landlord, for the Term, the Premises, at
the rental, and upon the covenants and conditions, herein set forth.
(b) Storage Space. Landlord hereby leases to Tenant certain
additional space containing approximately 1,000 rentable square feet in such
areas as more particularly designated on Schedule A-4 attached hereto. In
addition, Landlord hereby grants to Tenant the right to lease certain
additional storage space in such areas of the Project as are designated for
storage by Landlord on a first-come, first-served basis (the initial storage
space and additional storage space leased to Tenant by Landlord, if any, are
collectively the "Storage Space"). Tenant may exercise its option to lease
additional Storage Space from time to time throughout the term of the Lease by
giving written notice to Landlord of its desire to lease the same, which notice
shall be conditioned upon the availability of the desired space.
Tenant shall pay Landlord an annual rental for the Storage Space (the
"Storage Rent") equal to $10.00 per rentable square foot of GLA of the Storage
Space, adjusted annually at the rate of 2 1/2% per annum. The Lease Years for
Storage Space shall be concurrent with the Lease Years for the Premises. No
janitorial or trash removal services shall be provided to the Storage Space.
No other charges shall be applied, as Additional Rent or otherwise, to the
Storage Space, except for charges incurred by Landlord in enforcing its rights
relating to the Storage Space under this Lease, in accordance with the terms of
this Lease.
4
<PAGE> 15
The Tenant shall have the option, exercisable at any time during the Term, to
cancel its lease of the Storage Space, upon thirty (30) days prior written
notice to the Landlord. Except as provided in this Section 2.1(b), the terms
and conditions of Tenant's occupancy of the Storage Space shall be as set forth
in this Lease.
The Storage Space shall be provided with non-standard double door
access, secure doors, door frames, and other improvements; provided, that the
Landlord"s cost to build out the Storage Space shall not exceed Five Dollars
($5.00) per square foot. There shall also be no core factor for the Storage
Space (i.e., the usable areas shall be equal to the rentable area).
(c) Common Areas. Tenant, its partners, employees, and invitees
shall have the right during the entire Term to use in common with others, in
accordance with the covenants and obligation of Tenant contained in this Lease,
the lobbies, entrances, exits, stairs, corridors, elevators, off-street loading
areas, men's and women's rest rooms, and other public portions or facilities
(including the health club located at the Project) from time to time provided
by Landlord for use in common by Tenant and other tenants (the "Common Areas")
located in the Building.
Section 2.2. Construction Plans and Contractors.
(a) (i) The schedule of documentation, delivery, approvals, and
construction items with respect to the build-out of the improvements to the
Premises (the "Construction Schedule") is attached to this Lease as Schedule J,
and is incorporated in this Lease by reference.
(ii) Tenant has delivered to Landlord and Landlord's architect
a schematic design plan ("Tenant's Plan"), showing schematic space planning,
perimeter offices and special location items. Landlord has reviewed and
approved Tenant's Plan.
(iii) Notwithstanding anything contained herein, Tenant, at its
sole cost and expense, may select its own architect for all architectural,
mechanical, electrical, plumbing and construction documents. Tenant's
architect shall prepare all necessary construction drawings and specifications
required for the construction of tenant improvements, as shown on Tenant's Plan
(the "Constructions Documents"), on or before the Construction Document
Delivery Date identified in clause (f) of the Fundamental Lease Provisions. A
copy of the Construction Documents shall be sent to Landlord and Landlord's
architect on or before the Construction Document Delivery Date. Landlord,
within three (3) business days of receipt of the Construction Documents, shall
either approve or reasonably disapprove the
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same, and apprise Tenant, in writing, of Landlord's approval or disapproval.
Any disapproval shall list Landlord's specific objections or requested
revisions.
(b) Within five (5) business days of its receipt of the
Construction Documents, Landlord shall furnish Tenant with a statement of
anticipated costs of construction and material necessary to complete the
Premises in accordance with Tenant's Plans. A list of tenant interior finish
building standard requirements is attached as Schedule D. To the extent that
such costs exceed the cost of Tenant improvements and related items covered by
the Allowance (defined below), then the excess cost shall be referred to as
"Tenant Plan Excess Costs." Tenant shall reimburse Landlord, as Additional
Rent, for Tenant Plan Excess Costs as follows: (i) during the period of
construction, Landlord may, on or about the first day of each month, deliver to
Tenant a statement showing the proportion of Tenant Plan Excess Costs allocated
to the previous month's work, and (ii) Tenant shall pay to Landlord, as
Additional Rent, the amount specified in each statement within thirty (30) days
after its receipt thereof. Such allocation shall be based on a fraction, the
numerator of which is the Tenant Plan Excess Cost and the denominator of which
is the total cost of the leasehold improvements to the Premises.
(c) (i) Landlord shall contract with a general contractor (the
"General Contractor") to complete the leasehold improvements in accordance with
this Lease, Tenant's Plans, Schedule D and the Construction Documents. The
Contract with the General Contractor shall provide for a ten percent (10%)
retainage until completion of the work. Landlord shall bid the general
contractor work to at least three (3) general contractor bidders, two (2) of
whom may, at Tenant's option, be selected by Tenant. Each of the general
contractor bidders shall submit a bid including the subcontractor or "trade"
work, bid by the general contractor to at least three (3) subcontractor
bidders. Landlord shall deliver to Tenant a copy of each bid within two (2)
business days after it is received. The selection of the General Contractor
shall be by mutual agreement of the parties, each acting in commercial good
faith.
(ii) Landlord or its affiliate shall be the construction
manager, and, in said capacity, shall perform the services described on
Schedule K. For such services, Landlord shall receive a fee equal to Eighty
Cents ($.80) per square foot of GLA, which shall be paid by Tenant from the
Allowance and/or the Design Allowance.
(iii) Tenant shall appoint a construction coordinator who,
together with Tenant's architect, shall be entitled to field verify the
existing status of the Premises, inspect the
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construction work and attend the periodic job-site meetings and otherwise act
on Tenant's behalf during construction. Tenant's construction coordinator
shall have full authority to make all decisions on behalf of Tenant with
respect to material or design changes and change orders, and any decisions made
in the field by him shall be binding upon Tenant.
(iv) Landlord agrees that it shall cooperate, and shall cause
the General Contractor and Landlord's construction manager to cooperate, with
Tenant's construction coordinator. The fees of the General Contractor and
construction manager and Tenant's architect shall be paid out of the Allowance,
as described below.
(d) Landlord shall remove the existing raised floor where
designated by Tenant's architect, and restore/patch the floor to the condition
described in Schedule I, at no cost to Tenant and not out of the Allowance
(defined below). Tenant shall have the right to use all Liebert equipment, and
all UPS units and related equipment currently located in the Premises.
(e) Landlord represents that the Premises is currently completed
as improved office space above base building core finished shell, which base
building is more particularly described in Schedule I. Landlord shall maintain
all life safety systems as set forth in Schedule I, and Landlord shall comply
with all requirements of all prevailing governmental authorities having or
claiming jurisdiction over the Building, Project or Common Areas concerning the
same. The construction coordinator and Tenant's architect shall be entitled to
field verify the completion of base building core finished shell. If any work
is required to cause the Premises to comply with the standards for base
building finished shell and to comply with any and all requirements of all
prevailing governmental authorities having or claiming jurisdiction over the
Premises, including the requirements of the ADA (as defined below), the work
shall be completed by Landlord, at Landlord's sole cost and expense, as
promptly as possible after execution of this Lease and prior to or concurrently
with the commencement of the demolition of the existing improvements and
build-out of Tenant's improvements, at Landlord's expense.
(f) As used in this Lease, the Americans with Disabilities Act
("ADA") shall mean the Americans with Disabilities Act of 1990, 42 U.S.C.
Section 1201 et seq., and all implementing regulations. Landlord and Tenant
intend to comply with the requirements of the ADA and the parties hereby
mutually agree to allocate responsibility for such compliance as follows:
(i) Landlord shall have the responsibility to comply with
the requirements of the ADA in all Common Areas and common
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elements, including all restrooms located within the Premises. Such compliance
responsibility shall include, but shall not be limited to, the obligation to
remove architectural and communication barriers in the Common Areas and common
elements where such removal is readily achievable. Landlord represents that
the Building is in compliance with the ADA and agrees to indemnify Tenant from
any claims arising from Building non-compliance and shall remedy the same at no
cost to Tenant, unless such non-compliance results from Tenant's actions.
(ii) Tenant shall have the responsibility to comply with
the requirements of the ADA in the Premises. Such responsibility shall
include, but shall not be limited to, the obligation to remove architectural
and communication barriers in the Premises created by Tenant's trade fixtures
and leasehold improvements made by Tenant, where such removal is readily
achievable.
(iii) Where Building alterations involve the Common Areas
or common elements which are under Landlord's control, it shall be the
Landlord's responsibility to comply with the standards of accessibility
required under the ADA.
(iv) Each party shall be responsible for the ADA
compliance of its own standards, criteria, administrative methods, eligibility
criteria, policies, practices, and procedures.
(v) Tenant shall be responsible for the provision of any
"auxiliary aids and services," as such term is defined and used in the ADA, to
its customers, clients, or patrons if and to the extent required in connection
with the operation of its business or occupancy of the Premises.
(vi) To the extent permitted by the ADA, where either
Landlord or Tenant can demonstrate that barrier removal is not readily
achievable in an area in which either party has responsibility for ADA
compliance, the party responsible for compliance, as herein provided, shall
make use of alternatives to barrier removal, if such alternatives area readily
achievable.
(vii) Where alterations made by either party trigger "path
of travel" requirements under the ADA, the party making such alterations shall
be responsible for satisfying such requirements.
Section 2.3. Construction Allowance.
(a) Tenant shall receive a total construction allowance (the
"Allowance") in the amount of Twenty-four Dollars ($24.00) per square foot of
GLA of the Premises, which shall be applied
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towards leasehold improvements over the existing improved condition, or as
listed below. For the purposes of this paragraph, leasehold improvements may
specifically include, but not be limited to, construction of Tenant
improvements, construction management services, permit fees, signage costs,
suite security systems, voice and data cabling, modular furniture, Tenant's
construction coordinator, and any other applicable internal and/or external
costs incurred by Tenant (which combined costs shall not be reimbursed in an
amount in excess of the Allowance).
(b) In addition to the Allowance, Landlord shall pay the
following:
(i) a design allowance (the "Design Allowance") not to
exceed a total of Two Dollars and Ten Cents ($2.10) per square foot of GLA of
the Premises, to offset Tenant's cost of any and all design, architectural and
engineering services and documents, including the cost of the completed
preliminary plan on 8065 Leesburg Pike and the construction management fee
described in Section 2.2(c)(ii). The Design Allowance shall be paid by
Landlord to Tenant's architect upon Landlord's receipt of invoices, pursuant to
Landlord's payment procedure (i.e., if the invoice is submitted by the 25th day
of a month, Landlord shall pay the same by the end of the following month).
Any unused portion of the Design Allowance shall be retained by Landlord; and
(ii) a relocation/moving expense (the "Moving Allowance") of
Two Dollars ($2.00) per square foot of GLA of the Premises, which shall be used
by Tenant to offset any moving expenses, which shall include all moving and
relocation expenses, costs of relocation/reconnection of computer and telephone
equipment, disassembly/reassembly of modular furniture, relocation of copier
equipment, and relocation, reassembly and parts for the central file systems.
The Moving Allowance shall be paid by Landlord to Tenant upon its reasonable
approval of Tenant's invoices for the actual costs incurred in such relocation,
pursuant to Landlord's payment procedure (i.e., if Tenant submits its invoices
by the 25th day of the month, Landlord shall reimburse Tenant by the end of the
following month). Any unused portion of the Moving Allowance shall be retained
by Landlord.
(c) The cost of construction of the leasehold improvements shall
be paid monthly by the Landlord out of the Allowance based upon the draw
schedule and work in place. Tenant and Tenant's construction coordinator shall
receive a copy of each monthly requisition. To the extent that any portion of
the Allowance to be contributed by the Landlord under this paragraph does not
apply to the initial construction of Tenant's improvements to the
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Premises, the remaining funds shall be retained by Landlord. It is hereby
agreed that all leasehold improvements shall immediately become the property of
Landlord upon completion unless otherwise agreed to in writing.
Section 2.4. Construction of Premises.
(a) The Landlord agrees to use due diligence to complete the
leasehold improvements including without limitation the Tenant improvements and
Base Building work as further described in Schedule C, Schedule D and Schedule
I attached hereto, and in accordance with the Schedule of Completion, on or
before March 15, 1996. The leasehold improvements shall be completed by
Landlord in a good and workmanlike manner using new materials and in accordance
with all applicable laws and codes governing the same, including, however, not
limited to the ADA. Upon approving Tenant's Plans, Landlord shall be required
to install all improvements set forth in Tenant's Plan; provided, however, that
Tenant's Plans shall (a) conform with all applicable laws, rules, regulations,
and ordinances; (b) conform with all Building and Project specifications and
plans; and (c) not adversely affect any Building system. Landlord agrees that
it shall not effect change orders without the written approval of Tenant or
Tenant's construction coordinator.
(b) Landlord agrees that if the Premises are not substantially
complete and delivered to Tenant by March 15, 1996, then Rent shall be abated
until the Rent Commencement Date.
(c) (i) If Landlord shall be hindered or delayed or prevented
from the performance of any act required in completing the leasehold
improvements to the Premises by any reason of force majeure, then the Rent
Commencement Date shall be extended for a period equivalent to the period of
delay. "Force majeure" shall mean any delay by reasons of strikes, lockouts,
failure of power to the area to which the Project is located, restrictive
governmental laws or regulations, riots, insurrection, war, acts of God, fire
or other casualty, or other reason of as similar nature beyond the reasonable
control of Landlord or Tenant.
(ii) If Landlord is unable to deliver possession of the
Premises to Tenant on the Scheduled Term Commencement Date for any reason,
based on information available to Landlord at that time, Landlord shall notify
Tenant at least fifteen (15) days prior to the Scheduled Term Commencement
Date.
(d) If anyof the following has not been satisfied by the date
listed below (subject in each instance except for clause (v) to any force
majeure), then Tenant shall be entitled, at Tenant's sole option, to terminate
this Lease by written notice thereof to
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the Landlord given no later than five (5) business days after the date of such
occurrence:
(i) Landlord fails to deliver to Tenant a fully executed copy
of a termination agreement between Landlord and AT&T in form reasonably and
substantially similar to that approved by Tenant by the date hereof; or
(ii) AT&T fails to vacate the Premises by January 31, 1996; or
(iii) the demolition to be completed within the Premises has
not been completed by March 15, 1996; or
(iv) the leasehold improvements have not been Substantially
Completed by June 30, 1996; or
(v) notwithstanding any force majeure, the leasehold
improvements have not been Substantially Completed by September 30, 1996.
(e) (i) The date by which Landlord shall use its due
diligence to deliver the Premises, Substantially Complete (the "Delivery Date,"
initially set at March 15, 1996), the date on which Tenant is entitled to
terminate the Lease for failure of the Landlord to meet the Delivery Date or
for other cause set forth in Section 2.4(d), above (each, a "Termination
Date"), and the date by which Tenant must elect to terminate, if so entitled
(the "Election Date") shall each be extended by one (1) day for each day of
Tenant Delay. "Tenant Delay" shall mean any delay caused by or resulting from:
(1) failure of Tenant to deliver the Construction Documents to Landlord and
Landlord's architect by the Construction Document Delivery Date; (2) failure of
Tenant to timely or properly arrange its furnishings or be present for any
scheduled walk-through of the Premises in order to obtain the certificate of
occupancy once the Premises are otherwise Substantially Complete, or (3)
failure of Tenant's construction coordinator or Tenant's architect to appear at
the site within four (4) hours after request by Landlord or the General
Contractor (provided, if request is made after 2:00 p.m., or on a weekend or
legal holiday, the Tenant's construction coordinator shall respond by 12:00
p.m. noon on the next business day), and respond within two (2) business days
with a revision to the design, if necessary, upon request due to design
discrepancies. In addition:
(i) each business day of delay due to a Tenant Delay
shall add one (1) business day to the Delivery Date, the Termination Date and
the Election Date.
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(ii) the dates of March 15, 1996, June 30, 1996 and
September 30, 1996, as used in paragraph (d) of this Section 2.4, shall mean
such dates, plus any days by which each is extended due to a Tenant Delay.
(iii) additionally, all requests for revisions and for
appearance by the Tenant's construction coordinator shall be given by facsimile
(in addition to any oral notice provided), and no Tenant Delay or force majeure
shall exist unless and until Landlord notifies Tenant of the existence of
events giving rise to the claim by Landlord of a Tenant Delay or a force
majeure, which notice shall be given by hand delivery to Tenant's construction
coordinator (with copies by facsimile to Tenant), and which notice shall be
sent within two (2) business days after the discovery of the occurrence of such
events.
(f) (i) If Landlord shall be hindered or delayed or prevented
from the performance of any act required in completing the leasehold
improvements to the Premises by any reason of force majeure, then the Delivery
Date, Termination Date, Election Date and the Rent Commencement Date shall be
extended for a period equivalent to the period of delay, except for the outside
termination date set forth in clause (v) of Section 2.4(d). "Force majeure"
shall mean any delay by reasons of strikes, lockouts, failure of power to the
area to which the Project is located, restrictive governmental laws or
regulations, riots, insurrection, war, acts of God, fire or other casualty, or
other reason of as similar nature beyond the reasonable control of Landlord or
Tenant.
(ii) Upon any termination of this Lease pursuant to this
Section 2.4, and except as otherwise specified herein, neither Landlord nor
Tenant shall have any continuing liability to the other beyond the payment of
Tenant's reasonable architectural fees, which shall be paid from the Allowance.
Section 2.5. Substantial Completion and Occupancy.
(a) Landlord shall give Tenant at least thirty (30) days' prior
written notice of its estimated date on which the Premises will be
substantially complete and ready for occupancy by Tenant. The Premises shall
be deemed ready for occupancy by the Tenant on that date on which the
Landlord's architect and Tenant's construction representative have certified
that "substantial completion" of the leasehold improvements to the Premises has
occurred. "Substantial Completion" and "Substantially Complete" mean that date
on which (i) all leasehold improvements to the Premises have been completed in
accordance with Tenant's Plans and Schedules C and D to the Lease, subject only
to minor punch-list items of work which do not substantially interfere with
Tenant and Tenant's use of the Premises, (ii) when all
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governmental or quasi-governmental requirements applicable to the construction
and occupancy of the Premises are satisfied (it being understood that the
obligation to obtain the certificate of occupancy shall be borne mutually by
Landlord and Tenant, provided that Tenant shall timely and properly arrange its
furnishings and be available for walk-throughs of the Premises and Landlord
shall initiate and maintain the necessary contacts with Fairfax County), (iii)
Tenant, its employees, agents and invitees, have ready access to and egress
from the Premises and the Common Areas and such areas are installed, clean,
free of construction equipment and materials, (iv) all major equipment and
mechanical systems are in good working order, and (v) the Premises are broom
clean.
(b) Prior to the Rent Commencement Date, Tenant, Landlord, and
Tenant's architect shall inspect the Premises and the Common Areas and the
Landlord, Tenant and Tenant's architect shall prepare and execute a punch list.
Landlord shall complete as soon as conditions practically permit, but in any
event within sixty (60) days of Substantial Completion, all punch-list items,
and Tenant shall reasonably cooperate with Landlord in connection therewith.
During the first two (2) Lease Years, Landlord shall also promptly commence and
use due diligence to remediate any latent defects as they become known to
Landlord or which Tenant notifies Landlord of, after Tenant becomes aware of
the same.
Section 2.6. Tenant's Occupancy of Premises.
(a) The Tenant shall complete its move into the Premises within
forty-five (45) days following Substantial Completion. Tenant, upon commencing
its move into the Premises, shall diligently and without interruption complete
the move; provided, however, that Tenant may complete its move in two (2)
separate phases, each of which shall be uninterrupted and continuous. The
Monday following Tenant's move into the Premises shall be "Tenant's Occupancy
Date." Within fifteen (15) days following Tenant's Occupancy Date, Tenant
shall deliver to Landlord a fully executed "Term Commencement Letter" in the
form attached hereto as Schedule E.
(b) So long as Tenant does not unreasonably interfere with the
General Contractor's construction of the leasehold improvements to the Premises
and/or any other work of Landlord within the Building, Tenant may have access
to the Premises at least thirty (30) days prior to the projected Tenant's
Occupancy Date for the purpose of installing special equipment, millwork and
similar items. Tenant may also have access to the Project at reasonable times
upon reasonable advance notice, during construction to install cabling and
wiring to the partitions being enclosed, as necessary for the same. Tenant
shall use due diligence to complete, or cause to be completed, the installation
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of Tenants fixtures, furnishing and equipment prior to the date Tenant moves
into the Premises. If any of the work or installations to be carried out by
Tenant hereunder will or are likely to interfere with the work or the schedule
being conducted or overseen by the General Contractor, Tenant shall submit to
the construction manager a description of such work and coordinate its
installations and schedule with that of the General Contractor.
(c) If the Premises are Substantially Complete prior to the
Scheduled Term Commencement Date, Landlord shall notify Tenant, and Tenant
shall have the option of occupying the Premises prior to the Scheduled Term
Commencement Date. Upon Tenant's response to Landlord that it intends to
occupy the Premises, prior to the Scheduled Term Commencement Date, for its
business use: (i) the Scheduled Term Commencement Date shall be the date which
Tenant first occupies the Premises for the normal conduct of its business, as
set forth above; and (ii) Tenant shall not be obligated to pay Landlord the
Base Rent until the Scheduled Term Commencement Date.
(d) Landlord, at its cost and expense, shall repair or replace all
materials, workmanship, fixtures, or equipment incorporated by Landlord in the
Premises (whether as leasehold improvements or otherwise) which shall prove to
be defective during a period of twelve (12) months after the Rent Commencement
Date (the "Warranty Period"). Landlord shall assign to Tenant all warranties
(if assignable) from subcontractors and material suppliers for such materials,
workmanship, fixtures, or equipment in effect after the expiration of the
Warranty period; provided, however, that if any such warranties are not
assignable, Landlord shall, at Tenant's request, use its commercially
reasonable efforts to enforce for the benefit of Tenant, at Tenant's expense,
such non-assignable warranties. In performing any warranty work pursuant to
this Section 2.6(d), Landlord and its contractors and subcontractors shall
endeavor to perform any significant work during non-business hours, and shall
perform all work in such manner and at such times as will cause as little
inconvenience and disruption to Tenant as is practicable under the
circumstances.
Section 2.7. Right of First Offer (Recurring).
(a) Provided that Tenant is not in default under this Lease beyond
any applicable grace, notice or cure period or is diligently pursuing a good
faith cure of any default hereunder at the time that Tenant exercises such
option, and is not subletting more than fifty percent (50%) of the Premises or
assigned its interests under the Lease, Tenant shall have an ongoing right of
first offer (the "Recurring ROFO"), subject in all respects to the prior rights
of current tenants at the Project (which rights
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are described on Schedule L), to lease any office space not initially leased by
Tenant within Floor 2 of the Building and/or approximately 8,436 square feet of
GLA on Floor 6 of the Building, as hereinafter provided. This Recurring ROFO
may not be offered more than two (2) times in any twelve (12) month period, and
is not contingent upon Tenant's exercise of any other right or option under
this Lease except that Tenant shall not be entitled to exercise its ROFO during
the last twelve (12) months of the Main Term unless it has exercised its
renewal option under Section 3.4.
(b) Landlord shall provide written notice to Tenant as early as
reasonably possible in advance of the date that any such space may become
available, and shall use its commercially reasonable efforts to provide notice
simultaneously with any notice provided to any tenants with prior rights.
Landlord's notice shall contain the rent and allowances that will apply to the
proposed ROFO space (both calculated as provided in paragraph (c) below). If
Tenant elects to exercise its Recurring ROFO with respect to the proposed ROFO
space, it shall give written notice thereof within ten (10) business days after
receipt of Landlord's notice of availability. If Landlord does not receive
Tenant's election to exercise its Recurring ROFO within such ten (10) business
day period, then Landlord shall be entitled to lease the proposed ROFO space to
another tenant. If Tenant elects to exercise its Recurring ROFO, then in its
notice to Landlord of that election, Tenant shall inform Landlord as to whether
Tenant accepts or does not accept Landlord's calculation of Market Rent for the
ROFO space. If Tenant does not accept Landlord's calculation of Market Rent,
then the parties shall proceed directly to a "three-broker" determination.
Immediately after Tenant initially rejects Landlord's determination of Market
Rent, then Landlord's broker and Tenant's broker together shall select a third
licensed real estate broker with at least five (5) years experience in the
Tysons Corner, Virginia office market. The three brokers shall then, within
ten (10) days of Tenant's initial notice of rejection to Landlord, calculate
the Market Rent for the ROFO space by taking the average of those two (2) of
the three (3) brokers' rent calculations that are the closest together. The
brokers' calculation of Market Rent shall be irrevocable and binding upon
Landlord and Tenant; provided, however, that Tenant's exercise of its Recurring
ROFO is conditioned upon, and shall be revocable by Tenant in its sole
discretion until, three (3) business days after the final determination (as set
forth in this Section 2.7(b)) of the Base Rent for the ROFO space.
(c) If Tenant exercises its Recurring ROFO, Tenant shall
thereafter enter into a lease of the proposed ROFO space on the terms and
conditions as are set forth in this Lease (except the Rent and the Allowance).
If Tenant exercises the Recurring ROFO
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during the first two (2) Lease Years, Tenant shall pay the then-escalated Base
Rent for its occupancy of the proposed ROFO space. If Tenant exercises the
Recurring ROFO during the remaining four (4) Lease Years, the Base Rent shall
be ninety-five percent (95%) of the then-current Market Rent (defined in the
first paragraph of Section 3.4(c)). The Allowance applicable to the proposed
ROFO space shall be $26.10 multiplied by the GLA of the ROFO space, but reduced
on a pro-rata basis relative to Tenant's then-remaining Main Term. Base Rent
shall commence ten (10) business days after the delivery of the ROFO space to
Tenant (the "ROFO Rent Commencement Date") with the leasehold improvements
Substantially Completed. The leasehold improvements for the ROFO space shall
be completed by Landlord substantially in accordance with the provisions of
Article 2 of this Lease.
(d) Upon the ROFO Rent Commencement Date of any ROFO space, the
ROFO space shall be added to and constitute a part of the Premises, and the GLA
of the Premises shall be increased accordingly. The term of the lease for any
ROFO space shall be coterminous with the Term of this Lease. In addition,
Tenant shall be entitled to additional non-reserved parking spaces on the same
basis as described in Section 7.4.
Section 2.8. Right of First Offer (Secondary).
(a) Provided the Tenant is not in default under this Lease beyond
any applicable grace, notice or cure period or is diligently pursuing a good
faith cure of any default hereunder at the time that Tenant exercises such
option, and is not subletting more than fifty percent (50%) of the Premises or
assigned its interest under the Lease, Tenant shall have a one-time right of
first offer subject in all respects to the prior rights of current tenants at
the Project (which rights are described on Schedule L), to lease the entire 5th
floor of the Building (approximately 22,645 square feet of GLA), plus a
recurring right of first offer, not to exceed two times per year, on the entire
7th floor (14,537 square feet of GLA) and approximately 14,209 square feet of
GLA on the balance of the 6th floor, both spaces currently being occupied by
Informix, as the leases shall expire, but subject to the existing tenants'
renewal and expansion options (the "Secondary ROFO"). This Secondary ROFO is
not contingent upon Tenant's exercise of any other right or option under this
Lease, except the Tenant shall not be entitled to exercise its ROFO during the
last twelve (12) months of the Main Term unless it has exercised its renewal
option under Section 3.4 of this Lease.
(b) Landlord shall provide written notice to Tenant as early as
reasonably possible in advance of the date that any such space may become
available, and shall use its commercially reasonable efforts to provide notice
simultaneously with any
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notice given to any tenant with prior rights. Landlord's notice shall contain
the Rent and allowances that will apply to the proposed ROFO space (both
calculated as provided in paragraph (c), below). If Tenant elects to exercise
its Secondary ROFO with respect to the proposed ROFO space, it shall give
written notice thereof within ten (10) business days after receipt of
Landlord's notice of availability. If Landlord does not receive Tenant's
election to exercise its Secondary ROFO within such ten (10) business day
period, then Landlord shall be entitled to lease the proposed ROFO space to
another tenant. If Tenant elects to exercise its Secondary ROFO, then in its
notice to Landlord of that election, Tenant shall inform Landlord as to whether
Tenant accepts or does not accept Landlord's calculation of Market Rent for the
ROFO space. If Tenant does not accept Landlord's calculation of Market Rent,
then the parties shall proceed directly to a "three-broker" determination.
Immediately after Tenant initially rejects Landlord's determination of Market
Rent, then Landlord's broker and Tenant's broker together shall select a third
licensed real estate broker with at least five (5) years experience in the
Tysons Corner, Virginia office market. The three brokers shall then, within
ten (10) days of Tenant's initial notice of rejection to Landlord, calculate
the Market Rent for the Premises, in accordance with the method set forth in
Section 2.7(b) above. The brokers' calculation of Market Rent shall be
irrevocable and binding upon Landlord and Tenant; provided, however, that
Tenant's exercise of its Secondary ROFO is conditioned upon, and shall be
revocable by Tenant in its sole discretion until, three (3) business days after
the final determination (as set forth in this Section 2.8(b)) of the Base Rent
for the ROFO space.
(c) If Tenant exercises any one or more of its Secondary ROFOs,
Tenant shall thereafter enter into a lease of the proposed ROFO space on the
terms and conditions as are set forth in this Lease (except the Rent and the
Allowance). If Tenant exercises a Secondary ROFO, the Base Rent shall be
ninety-five percent (95%) of the then current Market Rent (defined in the first
paragraph of Section 3.4(c)). The Allowance applicable to the proposed ROFO
space shall be $26.10 multiplied by the GLA of the ROFO space, but shall be
reduced on a pro rata basis relative to Tenant's then remaining Main Term.
Base Rent shall commence on ten (10) business days after the delivery of the
ROFO space to Tenant with the leasehold improvements Substantially Completed.
The leasehold improvements for the ROFO space shall be completed by Landlord
substantially in accordance with the provisions of Article 2 of this Lease.
(d) Upon the ROFO Rent Commencement Date of any ROFO space, the
ROFO space shall be added to and constitute a part of the Premises, and the GLA
of the Premises shall be increased accordingly. The term of the lease for any
ROFO space shall be
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coterminous with the term of this Lease. In addition, Tenant shall be entitled
to additional non-reserved parking spaces on the same basis as described in
Section 7.4.
Section 2.9. Mechanics' and other Liens.
(a) With respect to any work performed by Tenant in furnishing or
equipping the Premises hereunder, and with respect to any alterations performed
pursuant to Section 10.4, Tenant will not permit to be created and has no
authority to permit to be created or to remain undischarged any lien,
encumbrance or charge (arising out of any work done or materials or supplies
furnished by a contractor, subcontractor, mechanic, laborer or materialman, or
any mortgage, security agreement or otherwise by or for Tenant), which might be
or become a lien or encumbrance or charge upon the Premises, or Tenant's
leasehold estate therein, the Project or any income therefrom. Tenant will not
suffer any other matter or thing whereby the estate, rights and interests of
Landlord in the Project might be encumbered or impaired.
(b) If any mechanics' lien on account of any alleged debt of
Tenant, or any person acting on Tenant's behalf, shall be filed against the
Premises, the Project or any income therefrom, Tenant shall take and diligently
prosecute appropriate action to have the same discharged or bonded and released
of record at Tenant's sole expense within thirty (30) days of the filing of
such lien. Upon Tenant's failure so to do, Landlord, in addition to any other
right or remedy that it may have, may cause said lien to be discharged or
bonded and take such other action as may be reasonably necessary to protect its
interest, and Tenant shall pay any amounts paid by Landlord in connection with
such action, and all reasonable legal and other costs and expenses incurred by
Landlord in connection therewith (including reasonable attorneys' fees, court
costs (if awarded post-judgment) and other necessary disbursements). Any such
amounts paid by Landlord and the amount of any such expenses or costs incurred
by Landlord, if not paid by Tenant to Landlord within thirty (30) days after
the date Tenant receives written notice and verification from Landlord of the
amount thereof and demand for payment of the same, shall, together with
interest thereon at the Default Rate from the date of the receipt by Tenant of
the aforesaid written notice to the date of payment thereof by Tenant, be
treated as Additional Rent, and shall be payable by Tenant to Landlord not
later than thirty (30) days after the giving of such written notice and demand.
Nothing herein contained shall obligate Tenant to pay or discharge any lien
created by Landlord.
(c) Tenant shall promptly pay all persons furnishing labor or
materials with respect to any work performed by or on behalf of Tenant in, on
or about the Premises. No work which Landlord permits Tenant to perform shall
be deemed to be for the immediate
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use and benefit of Landlord so that no mechanics or other lien shall be allowed
against the estate of Landlord by reason of any consent given by Landlord to
Tenant to improve the Premises. This Lease expressly provides that the
interest of Landlord shall not be subject to liens for improvements made for or
on behalf of Tenant, and Tenant shall notify each of Tenant's Contractors
(defined below) of the foregoing provisions.
(d) To the extent permitted by law, Landlord shall have the right
to post such other notices as Landlord may reasonably deem to be appropriate
for the protection of its interests in the Premises. The provisions of this
Section 2.9 shall apply with respect to any work performed by or on behalf of
Tenant in, on or about the Premises during the Term thereof. Nothing contained
in this Section 2.9 shall be deemed to relieve Landlord from its responsibility
for any liens resulting from Landlord's (or its affiliate's or agent's)
performance of any construction at the Project.
Section 2.10. Tenant's Property; Landlord's Lien.
(a) All trade fixtures, furniture, equipment apparatus (as
distinguished from leasehold improvements) owned by Tenant and installed in the
Premises ("Tenant's Property") shall be and remain the property of Tenant and
shall be removable at any time, including upon the expiration of the Term,
provided Tenant shall repair to the reasonable satisfaction of Landlord any
damage to the Premises caused by the removal of any of Tenant's Property.
(b) If Tenant's Property, or any portion thereof, is not removed
from the Premises upon the expiration of the Term or any earlier termination of
this Lease in accordance with the foregoing, such remaining Tenant's Property
shall, at the election of Landlord, become the personal property of Landlord,
and Tenant's rights therein shall cease upon the exercise of such election by
Landlord.
(c) Landlord hereby waives any statutory or other lien Landlord
may have on any of Tenant's personal property located at the Premises.
ARTICLE 3
TERM
Section 3.1. Term.
The term of this Lease ("Term") shall include the Preliminary Term and
the Main Term; provided, that if Tenant exercises its renewal option provided
in Section 3.4 of this Lease, then "Term" shall include (where the context is
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appropriate) the Preliminary Term, the Main Term and the Renewal Term.
Section 3.2. Preliminary Term.
The "Preliminary Term" shall begin as of the date of this Lease and,
unless sooner terminated as herein provided, continue thereafter through the
day immediately prior to the Rent Commencement Date.
Section 3.3. "Main Term," "Lease Year" Defined.
(a) "Main Term" means the period commencing on the Rent
Commencement Date and, subject to the provisions of Article 15 and the other
terms and conditions of this Lease, continuing for the number of years
specified in clause (a) of the Fundamental Lease Provisions.
(b) "Lease Year" means each successive twelve (12) calendar month
period commencing on the first (1st) day of the calendar month immediately
following the calendar month containing the Rent Commencement Date, as defined
in Section 4.2, unless the Rent Commencement Date shall be the first (1st) day
of the calendar month, in which event the Lease Year shall commence on the Rent
Commencement Date.
(c) It is intended that Base Rent and any other payments required
to be made by Tenant hereunder be calculated with reference to the Lease Year.
All other charges for which Tenant is responsible are to be based upon the
calendar year or partial calendar year, whichever is applicable.
Section 3.4 Renewal Term.
(a) Tenant shall have and is hereby granted one (1) option to
extend the Main Term, for an additional five (5) year term (the "Renewal
Term"), commencing at the expiration of the Main Term and terminating on the
fifth (5th) anniversary of the expiration of the Main Term. At least nine (9)
months before the expiration of the Main Term, Tenant shall provide written
notice to the Landlord of its desire to renew the Lease; provided, that the
renewal option shall be exercisable only if the Tenant (i) is not in default
under the Lease beyond any applicable grace, notice or cure period or is
diligently pursuing a good faith cure of any outstanding default, and (ii) has
not sublet more than fifty percent (50%) of the Premises or assigned its
interests under the Lease.
(b) Except as provided as follows, the Renewal Term shall be upon
the same terms, covenants and conditions as are set forth
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in this Lease, except for the provision of parking at no cost to Tenant (which
parking during any Renewal Term shall be at a rate not higher than the most
favorable rate [which may be zero] being given at that time to any office
tenant within the Project). For the purposes of this Lease, no distinction is
made between the terms "extend" or "renew" or any variations thereof.
(c) The Base Rent for the first (1st) Lease Year of the Renewal
Term shall be ninety-five percent (95%) of Market Rent.
"Market Rent" means the annual fair market rental for comparable
office premises in comparable buildings for a comparable term that would be
agreed upon by a landlord and a tenant located in the Tysons Corner, Virginia
area, taking into consideration the following: (a) the landlord and tenant are
well informed and well advised and each is acting in what it considers its own
best interests; (b) Landlord will not be providing to Tenant any market
concessions, including without limitation rental abatement, tenant improvement
allowance and additional tenant concessions, if any, being offered at
comparable buildings (which would serve to reduce what would otherwise be the
Market Rent); (c) the Premises are to be let substantially subject to the
provisions of this Lease for a five (5) year term; and (d) there is no broker's
or finder's fee or commission payable by either party, unless Tenant has
retained a broker, in which case Landlord shall pay Tenant's broker a market
rate commission or less if applicable, and the fact that Landlord is paying
such a commission shall be taken into account in determining Market Rent; and
(e) the Premises are being demised in their then "as-is" condition. Any
determination of Market Rent shall also include the rent escalation applicable
during the Renewal Term.
Within thirty (30) days of its receipt of Tenant's notice of its
desire to exercise a renewal option, the Landlord shall send to the Tenant a
written notice specifying its good faith determination of the Market Rent,
including rent escalations, for the Premises. In its determination of Market
Rent, Landlord shall provide its estimate, in its commercial good faith, of the
Operating Costs and Taxes. The Base Years for Building Operating Costs and for
Taxes shall also be updated to the twelve (12) month period following the
commencement date of the Renewal Term. Within thirty (30) days of its receipt
of notice from Landlord, Tenant shall accept or challenge, in writing,
Landlord's determination of Market Rent. If Tenant challenges Landlord's
determination of Market Rent, (i) the parties shall attempt to negotiate
mutually acceptable renewal terms, or Tenant may elect to proceed directly to a
"three-broker" determination and (ii) Tenant shall have the right to rescind
its exercise of said renewal option within five (5) business days following the
final determination of Market Rent. If Landlord and Tenant are unable to agree
on Market Rent within ten (10) days after Tenant
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initially rejects Landlord's determination of Market Rent, then Landlord and
Tenant shall each, within ten (10) days thereafter, select a licensed real
estate broker with at least five (5) years experience in the Tysons Corner,
Virginia area office market, who shall each determine the Market Rent for the
Premises in accordance with this paragraph.
If the higher determination of the Market Rent submitted by one of the
brokers is equal to or less than one hundred ten percent (110%) of the
determination of the Market Rent submitted by the other broker, the Market Rent
shall be the average of the two determinations. If the determination of the
Market Rent submitted by one of the brokers exceeds one hundred ten percent
(110%) of the determination of the Market Rent submitted by the other broker,
the two brokers shall jointly, within five (5) days after notice from either
Landlord or Tenant, appoint a third broker with similar qualifications to
determine the Market Rent. If the two brokers cannot agree as to the selection
of a third broker within five (5) days after the request that they do so,
either party may request that any officer of the Board of Realtors for Fairfax
County appoint the third broker, which appointment shall be made within ten
(10) days thereafter. The third broker shall complete its determination of the
Market Rent within thirty (30) days after its appointment. The Market Rent
shall be that determination which provides for a net effective rental rate that
is neither highest or lowest of the three determinations, unless two
determinations are the same, in which event it shall be that amount.
Landlord and Tenant shall each bear the cost of their respective
brokers, and one-half (1/2) the cost of the third broker, if any.
Section 3.5 Termination.
Unless sooner terminated pursuant to the provisions hereof, this Lease
shall terminate on the expiration of the Term without the necessity of any
notice from either Landlord or Tenant to terminate the same, and Tenant hereby
waives notice to vacate or quit the Premises and agrees that Landlord shall be
entitled to the benefit of all remedies at law or equity respecting the summary
recovery of possession of the Premises from a Tenant holding over, to the same
extent as if statutory notice had been given. For a period of six (6) months
prior to the expiration of the Term, upon reasonable prior notice to Tenant,
Landlord shall have the right to show the Premises and all parts thereof to
prospective tenants during normal business hours.
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Section 3.6. Holding Over.
If Tenant shall be in possession of the Premises after the termination
of this Lease, in the absence of any written agreement extending the Term, the
tenancy under this Lease shall become one from month-to-month, terminable by
Landlord or Tenant on thirty (30) days' prior written notice, at a monthly
rental equal to one hundred fifty percent (150%) of the sum of (i) the monthly
installment of Base Rent payable during the last calendar month of the Term and
(ii) one twelfth (1/12) of the average annual Operating Charge, Tenant's
Utility Charge and Tenant's Taxes payable thereunder for the last two (2) Lease
Years. Tenant shall also pay as Additional Rent all other charges payable
under the terms of this Lease, prorated for each month during which Tenant
remains in possession. Such month-to-month tenancy shall be subject to all
other conditions, provisions and obligations of this Lease. Tenant shall not
interpose any counterclaims in a summary proceeding or other action based on
holdover; provided, however, that Tenant may assert all applicable defenses in
any such proceeding.
ARTICLE 4
RENT
Section 4.1. Tenant's Agreement to Pay Rent.
Tenant hereby agrees to pay to Landlord during the Term, at the times
and in the manner herein provided, Base Rent, as may be increased from time to
time, and Additional Rent (collectively, "Rent"). Tenant's obligation to pay
Rent accrued and payable during the Term shall survive the termination of this
Lease.
Section 4.2. Rent Commencement Date. "Rent Commencement Date"
means the date that is ten (10) business days following the Substantial
Completion of the leasehold improvements.
Section 4.3. Base Rent. Tenant shall pay Landlord the Base Rent
set forth in clause (g) of the Fundamental Lease Provisions, in twelve (12)
equal monthly installments, on the first (1st) day of each calendar month. If
the Main Term should begin on a date other than the first (1st) day of a
calendar month, Tenant shall pay Landlord as Base Rent for such days remaining
in the partial month the product obtained by multiplying 1/365th of the Base
Rent for the first Lease Year by the number of days remaining in such partial
month.
Section 4.4. Additional Rent.
In addition to Base Rent, Tenant shall pay all other sums of money or
charges of whatever nature required to be paid by Tenant
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to Landlord pursuant to this Lease (collectively, "Additional Rent"), whether
or not the same are designated as Additional Rent.
Section 4.5. Payment of Rent.
Tenant shall pay all Rent when due and payable, without any set-off,
deduction, notice or prior demand therefor whatsoever. If Tenant shall fail to
pay any Rent within five (5) days after notice that the same is due, Tenant
shall be obligated to pay a late payment charge equal to five percent (5%) of
any Rent payment not paid when due, to reimburse Landlord for its additional
administrative costs. Unless otherwise provided herein, any Additional Rent
which shall become due shall be payable with the next installment of Base Rent,
and if none is thereafter due, upon Landlord's demand therefor. Rent and any
reports and statements required of Tenant shall be paid and delivered to
Landlord at the designated management office in the Building between the hours
of 8:00 a.m. and 6:00 p.m., Monday through Friday, or at such other place
reasonably acceptable to Tenant as Landlord may, from time to time, designate
in a notice to Tenant. Any payment by Tenant or acceptance by Landlord of a
lesser amount than shall be due from Tenant to Landlord shall be treated as a
payment on account. The acceptance by Landlord of a check for a lesser amount
with an endorsement or statement thereon, or upon any letter accompanying such
check, that such lesser amount is payment in full shall be given no effect, and
Landlord may accept such check without prejudice to any other rights or
remedies which Landlord may have against Tenant.
Section 4.6. Security Deposit. INTENTIONALLY DELETED.
Section 4.7. Interest Charge.
In addition to any late payment charge which might otherwise be due,
any Rent payable by Tenant under this Lease which is not paid within five (5)
days after the same is due shall bear interest at the Default Rate from the
first day due until such Rent, plus all interest accrued thereon, are paid in
full; provided, however, that the terms of this Section 4.7 shall be waived the
first (1st) two (2) times in any twelve (12) month period that Tenant fails
timely to pay any Rent within such five (5) day period.
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ARTICLE 5
USE
Section 5.1. Prompt Occupancy and Use.
Tenant shall occupy the Premises upon commencement of the Main Term
and thereafter shall continuously occupy and use the Premises for the permitted
use as set forth in clause (i) of the Fundamental Lease Provisions ("Permitted
Use") and for no other purpose whatsoever without the prior written consent of
Landlord. If Tenant vacates the Premises for a period exceeding three (3)
consecutive calendar months at any time during the Term, unless due to a
Casualty or approved Transfer, Landlord shall have the right (but not the
obligation) to terminate this Lease and recapture the Premises, but if Tenant
is not otherwise in default under this Lease, Landlord shall not be entitled to
recover damages or collect Rent (beyond the date of Landlord's termination) as
a result thereof.
Section 5.2. Operating Hours.
The operating hours for office tenants at the Building are 8:00 a.m.
until 6:00 p.m. Mondays through Fridays and 8:00 a.m. until 1:00 p.m. Saturdays
(excepting, however, Sundays and legal holidays). If Tenant is operating
within the Premises for hours in excess of the stated operating hours and
requests additional HVAC service for such periods, then Tenant shall pay to
Landlord as Additional Rent, upon demand, any additional costs actually
incurred by Landlord in connection therewith. The current costs to Landlord
for after hours HVAC is $48.00 per floor per hour.
Section 5.3. Operational Requirements.
(a) Landlord shall perform or provide certain standard building
services at, to or within the Building, a schedule of which is attached hereto
as Schedule B, in accordance with the standards of a modern, first-class office
building. The cost of providing or performing the services are included within
the "Operating Costs" of the Building, a proportionate share of the increase to
which over those for calendar year 1996 shall be paid by Tenant in accordance
with the terms of this Lease.
(b) In regard to the use and occupancy of the Premises, Tenant shall,
at its expense: (i) keep the inside and outside of all glass doors of the
Premises clean; (ii) replace promptly any cracked or broken glass (except
exterior glass) with glass of like kind and quality; (iii) maintain the
Premises in a clean, orderly and sanitary condition; (iv) keep all mechanical
apparatus free of vibration and noise which may be transmitted beyond the
interior of the Premises; (v) comply with all federal,
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state, county and city laws, ordinances, codes, rules, regulations and
reasonable recommendations of Landlords's insurer or applicable fire insurance
rating organizations now or hereafter in effect; (vi) comply with and observe
all reasonable rules and regulations established by Landlord from time to time
for the Building, a copy of which current rules and regulations are attached
hereto as Schedule F, provided the same are applied equally to all tenants of
the Building; and (vii) conduct its business in all respects in a dignified
manner in accordance with the highest standards of a first-class office project
in the Tysons Corner, Virginia area.
(c) In regard to the use and occupancy of the Premises and the Common
Areas, Tenant shall not; (i) place or maintain any trash, refuse or other
articles in any vestibule, service corridor or entry way of the Premises, on
the footwalks or any corridors adjacent thereto or elsewhere on the exterior of
the Premises so as to obstruct any driveway, corridor or any other Common
Areas; (ii) permit the parking of vehicles so as to unreasonably interfere with
the use of any Common Area or other area within the Project; (iii) receive or
ship articles of any kind, except mail and packages, outside the designated
loading area for the Project; (iv) obstruct the Common Areas adjacent to the
Premises; (v) use or permit the use of any portion of the Premises in a manner
likely to injure the reputation of the Project or which will be in violation of
law, nor permit any part of the Premises to be used for any unlawful,
disreputable or immoral purpose whatsoever or for any other activity of a type
which is not generally considered appropriate for urban office centers
conducted in accordance with the highest standards of operation; (vi) use or
permit the use of any portion of the Premises for any activity which
constitutes a nuisance or is hazardous; (vii) place a load upon any floor which
exceeds the floor load which the floor was designed to carry; or (viii) operate
its heating or air-conditioning in such a manner as to drain heat or
air-conditioning from the Common Areas or from the premises of any other tenant
or other occupant of the Project.
Section 5.4. Signs; Painting; Displays.
(a) Tenant shall not place or suffer to be placed or maintained on
the exterior of the Premises any signs, advertising matter or any other thing
of any kind, and will not place or maintain any matter on the glass of any
window, door or other portions of the Premises in such a manner as to be
visible from the exterior of the Premises, unless and to the extent approved by
Landlord as part of Tenant's Plans or as otherwise approved in writing by
Landlord. Tenant shall, at its expense, maintain such sign, decoration,
lettering, advertising matter or other thing as may be permitted hereunder in
good condition and repair at all times.
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(b) Tenant shall not paint or decorate any part of the exterior of
the Premises, or any part of the interior visible from the exterior thereof,
without first obtaining Landlord's approval.
(c) Tenant shall have the right, at its sole cost and expense (which
may be paid from the Allowance), to manufacture and affix and install (which,
again, may be paid from the Allowance) a sign on one side of the exterior of
the Building, which both parties agree shall be the Route 7 side of Leesburg
Pike at the approximate location of the current "AT&T" sign, which sign shall
be subject to the approval of any governmental or civic authority which has
jurisdiction thereover. The existing AT&T sign shall be removed at Tenant's
sole cost and expense (which may be paid from the Allowance). The design,
locations, materials, size and manner in which the name is attached to the
Building shall be acceptable in all respects to the Landlord in its reasonable
discretion. Tenant shall at its sole cost and expense cause the sign to be
maintained, and the contractors or workmen responsible for maintaining the same
must perform their work in a manner which does not cause any damage to the
Building or unreasonably interfere with Landlord's maintenance of the Building.
Tenant shall obtain, at its cost, all permits and governmental consents
necessary for the sign. Tenant shall be permitted to display the sign for so
long as Tenant occupies at least 43,398 square feet of GLA within the Building.
(d) Tenant shall receive, at no charge to Tenant, up to eight (8)
strips for names and suite numbers on the directory in the lobby of the
Building; provided, however, that any subsequent changes to the names on the
directory shall be made at Tenant's sole cost.
(e) Landlord agrees that it shall not name the Building after Insignia
Financial Group, Inc., or any affiliate thereof.
Section 5.5. Access Keys.
If permitted by the Fairfax County Code, Tenant shall have the right,
at Tenant's cost (which cost may be paid from the Allowance), to install
security key locks and readers on the inside of both stairwells on the second
(2nd), third (3rd) and fourth (4th) floors so that Tenant's employees will be
able to use the stairs for internal access. If permitted, all such systems
shall be installed and maintained in compliance with applicable Fairfax County
and/or Virginia law; provided, however, that Tenant shall provide Landlord with
all keys or cards necessary to provide Landlord with access to the Premises.
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ARTICLE 6
TAXES
Section 6.1. Real Estate Taxes.
(a) Beginning with the second (2nd) Lease Year during the Main Term,
and continuing for each successive Lease Year thereafter, Tenant shall pay in
each Tax Year, or portion thereof occurring during the Term, as Additional
Rent, Tenant's proportionate share of the increase to all Taxes over those
Taxes incurred by Landlord for the Project during calendar year 1996 (the "Tax
Base Year"), grossed up to reflect one hundred percent (100%) assessment at
full occupancy. As used herein, "Taxes" shall mean amounts payable by Landlord
with respect to personal property taxes, intangible taxes, real estate taxes,
ad valorem taxes, general and special assessments, taxes on real estate rental
receipts, taxes on Landlord's gross receipts, or any other Tax imposed upon or
levied against real estate or upon owners of real estate rather than persons
generally, payable with respect to or allocable to the Project (including, but
not limited to, any payments in lieu of any Taxes, and reasonable fees of
attorneys, consultants and appraisers in contesting any Taxes). Taxes shall not
include, nor shall Tenant be obligated to pay pursuant to this Section, such
taxes as capital gains, corporation, unincorporated business, income, profit,
excess profit, inheritance, transfer, recordation, estate, gift, or franchise
taxes, or license fees, or any taxes, fees, or charges imposed, assessed,
levied, or charged which are directly associated with construction of
improvements on the Project, or any vault rental or other vault charges, or any
fines, penalties, and interest on late payments of any taxes, or any personal
property taxes of Landlord for equipment or items not used directly in the
operation or maintenance of the Project or any withholding tax in the event the
Building is sold to a non-United States entity.
(b) The amount of Tenant's proportionate share of the increase in
Taxes ("Tenant's Taxes") for the second (2nd) and each successive Lease Year
shall be computed by multiplying the amount of such increase in Taxes over
those incurred in the Tax Base Year by the GLA Tax Fraction. In the last Lease
Year of the Term the provisions of this Section shall apply, but Tenant's
liability for its proportionate share of any increase in Taxes for such year
shall be subject to a pro rata adjustment based upon the number of days of such
Lease Year falling within the calendar year in question. Tenant expressly
agrees that Tenant shall have no right to appear or contest any Taxes assessed,
allocated or imposed with respect to the Project and Tenant hereby expressly
waives any and all rights now or hereafter conferred upon it by law to
independently contest any Taxes.
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(c) Landlord shall contest any Taxes imposed upon the Project if
requested to do so in writing by tenants occupying at least fifty percent (50%)
of the then-leased space within the Project.
Section 6.2. Payment of Tenant's Taxes.
Tenant's Taxes shall be paid by Tenant in twelve (12) equal monthly
installments in advance in such amounts as are estimated and billed for each
applicable Lease Year by Landlord at the commencement of the second (2nd) Lease
Year during the Main Term. Each installment is due on the first (1st) day of
each calendar month. At any time or times during any Lease Year, Landlord may
reasonably revise its estimate of Tenant's Taxes and adjust Tenant's equal
monthly installments payable thereafter during such Lease Year to reflect such
revised estimate. Any revised estimate shall include a reasonably detailed
explanation of the revision. Within sixty (60) days after the date upon which
Landlord shall be obligated to pay any Tax, or such reasonable (in Landlord's
determination) time thereafter, Landlord shall certify to Tenant the amount of
Taxes allocated and assessed for the Lease Year in question and the amount of
Tenant's proportionate share thereof, which certification shall include a copy
of the tax bill at issue. The proportionate share paid or payable for each
such Lease Year shall be adjusted between Landlord and Tenant, the parties
hereby agreeing that Tenant shall pay Landlord or Landlord shall credit to
Tenant's account, or (if such adjustment is at the end of the Term), pay
Tenant, as the case may be, within thirty (30) days of Tenant's receipt of such
certification, such amounts as may be necessary to effect such adjustment to
the agreed upon proportionate share for each such Lease Year. The failure of
Landlord to provide such certification within the time prescribed above shall
not relieve Tenant of its obligations generally or for the specific Lease Year
in which any such failure occurs. Notwithstanding anything herein to the
contrary, if it should thereafter be determined by a court of competent
jurisdiction that any abatement, waiver or release of any Taxes shall have been
invalid, the amount, if any, due from Tenant on account of Tenant's Taxes
during the then current and each prior Lease Year shall be redetermined for
purposes of this Lease as if such Taxes had been assessed and imposed without
regard to the effect of any such abatement, waiver or release thus determined
to be invalid, and any Additional Rent thereby determined to be due from Tenant
shall be paid to Landlord within thirty (30) days after receipt of notice from
Landlord.
Section 6.3. Refund of Taxes.
Notwithstanding anything in Sections 6.1 or 6.2 to the contrary, if
any Taxes paid by Landlord and previously included
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in payments made by Tenant pursuant to this Article are refunded, Landlord
shall promptly pay to Tenant Tenant's proportionate share of such refund (less
the reasonable expenses incurred by Landlord in obtaining such refund to the
extent not otherwise included in Taxes) based upon the proportion that the
Taxes paid by Tenant as part of Tenant's share of Taxes for the period to which
such refund relates bears to the total amount of Taxes paid by Tenant during
the calendar year to which such refund relates.
Section 6.4. Taxes on Rent and Other Taxes.
In addition to Tenant's proportionate share of the increase in Taxes
over those paid by Landlord for the Tax Base Year and to the extent not
included in Taxes, Tenant shall pay to Landlord (if Landlord is required by law
to collect, or has any liability for the payment of, such taxes), any excise or
other tax, levied, imposed or assessed by any governmental authority or other
taxing authority upon any Rent payable hereunder (collectively, "Rental Tax");
provided, that such Rental Tax is in addition to and not substitution of
existing Taxes. Tenant shall pay such Rental Tax to Landlord with each payment
of Rent (including payments of Base Rent and Additional Rent). Tenant shall
also pay, prior to the time the same shall become delinquent or payable with
penalty, all personal property taxes imposed on its furniture, trade fixtures,
apparatus, equipment or leasehold improvements installed by Tenant or by
Landlord on behalf of Tenant (except to the extent such leasehold improvements
shall be covered by Taxes referred to in Section 6.1 hereof), and any other
property of Tenant; provided that Tenant shall have the right to contest any
such taxes. Landlord may require that Tenant's leasehold improvements be
separately assessed by the taxing authority.
ARTICLE 7
COMMON AREAS
Section 7.1. Use and Management.
(a) Upon the express agreement of Tenant that it will use the Common
Areas in harmony with Landlord, other tenants and licensees of other portions
of the Project, Landlord grants to Tenant and its agents, employees and
customers, a non-exclusive license to use the Common Areas, subject to the
exclusive control and management thereof at all times by Landlord, and subject
further to the rights of Landlord set forth in the next paragraph, which in no
way shall adversely or materially affect Tenant's use of the Common Areas.
(b) Landlord shall operate and maintain, or cause to be operated
and maintained, any areas designated by Landlord as Common Areas in a manner in
the best interests of the Project and
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consistent with the highest standards of maintenance for a first-class office
building in Fairfax County, Virginia. Landlord shall have the right from time
to time to take the following actions; provided, with respect to clauses (ii)
through (vi), that such changes do not adversely or materially affect Tenant's
use and occupancy of the Premises: (i) to establish, modify and enforce rules
and regulations governing the use and operation by all tenants, including but
not limited to Tenant, in, on, about, or with respect to the Common Areas which
Landlord shall reasonably deem necessary or desirable in order to assure the
highest level of quality and character of operation of the Common Areas; (ii)
to add to or subtract from the Common Areas; (iii) to enter into, modify and
terminate easements and other agreements pertaining to the use and maintenance
of the Common Areas, and any portions thereof; (iv) to close any or all
portions of the Common Areas to such extent as may, in the reasonable opinion
of Landlord, be necessary to prevent a dedication thereof or the opinion of
Landlord, be necessary to prevent a dedication thereof or the accrual of any
rights by any person or by the public therein; provided, that if such closing
will adversely or materially affect Tenant's use and occupancy of the Premises,
Landlord may exercise this right if it provides Tenant with reasonable
alternative access or egress to and from the Premises; (v) to close temporarily
any or all portions of the Common Areas; and (vi) to do and perform such other
acts in, on, to and with respect to the Common Areas and improvements therein
as, in the exercise of good business judgment, Landlord shall reasonably
determine to be advisable or necessary.
Section 7.2. Operating Costs Defined.
"Operating Costs" means any and all costs and expenses incurred by
Landlord for services performed by Landlord or by others on behalf of Landlord
with respect to the operation and maintenance of the Building (including the
Premises) and the Common Areas located therein or within the Building and
serving or allocable to the Building, determined in accordance with generally
accepted accounting principles consistently applied from year to year,
including, without limitation, except as specifically set forth herein, all
costs and expenses of:
(a) operating, maintaining, repairing, lighting, signing,
cleaning, removing trash, painting, striping, controlling of traffic,
controlling of rodents, and policing and securing the Common Areas (including,
without limitation, the costs of uniforms, equipment, assembly permits,
supplies and alarm systems);
(b) purchasing and maintaining in full force insurance for
the Building (including, without limitation, liability insurance for personal
injury, death and property damage, rent
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insurance, insurance against fire, extended coverage, theft or other
casualties, worker's compensation insurance covering personnel, fidelity bonds
for personnel, insurance against liability for defamation and claims of false
arrest occurring on or about the Building, and plate glass insurance)
(excluding, however, any costs for all insurance purchased by Landlord on
leasehold improvements in the premises of other tenants);
(c) removing snow, ice, water and debris;
(d) operating, maintaining and repairing machinery,
furniture, accessories and equipment used in the operation and maintenance of
the Building, and the personal property taxes and other charges incurred in
connection with such machinery, furniture, accessories and equipment except as
otherwise specifically excluded herein;
(e) maintaining and repairing paving, curbs, walkways,
drainage, pipes, ducts, conduits, grease traps, and lighting fixtures
throughout the Building;
(f) planting and replanting flowers, shrubbery, trees,
grass and planters;
(g) providing, electricity and heating, ventilation and
air conditioning to the Building and operating, maintaining and repairing any
equipment used in connection therewith (to the extent not specifically excluded
from Operating Costs); no replacement costs for major components of the
heating, ventilating or air conditioning system or energy costs are included in
this category;
(h) water and sanitary sewer services and other services,
if any, furnished to the Building for the non-exclusive use of tenants;
(i) enforcing any operating agreements pertaining to the
Building or any portions thereof, and any easement and/or rights agreements
entered into by Landlord for the benefit and use of all tenants of the
Building, or any arbitration or judicial actions undertaken with respect to the
same;
(j) maintaining and repairing the Building, including,
without limitation, exhaust systems, sprinkler systems, pumps, fans,
switchgear, loading docks and ramps, freight elevators, passenger elevators,
stairways, services corridors, delivery passage, utility plants, transformers,
doors, walls, floors, skylights, ceiling and windows; and
(k) management fees (not to exceed four percent (4%) of
gross receipts generated from the operation of the Building;
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provided, however, that if the management fee is increased, then the Base Year
Operating Costs shall be recalculated to include the amount of such increase)
and expenses and payroll and employee benefits of on-site personnel, (below the
level of property manager).
Notwithstanding anything contained herein to the contrary, and by way of
illustration and not limitation, Operating Costs (for the Building, Common
Areas or the Building, whether or not specifically set forth) shall not
include, among other expenses or costs, any expenses or costs incurred or paid
by Landlord for the following items:
(a) Capital Expenditures, including any capital replacement,
capital repair or capital improvement made to the Building, the Common Areas,
the land or the Project and any other expense which would be deemed to be a
capital expenditure under generally accepted accounting principles,
consistently applied. Replacement of an item or of a major component of an
item and major repairs to such items in lieu of replacement shall each be
considered a Capital Expenditure if the original item or a subsequent
improvement to such item was, or could have been capitalized.
Capital Expenditures of $1,000 or less may be included in
Operating Costs. For purposes of this clause, a group of expenditures related
to the same capital project shall be considered a single expenditure;
(b) Depreciation or amortization of the Building or its contents
or components;
(c) Expenses for the preparation of space or other work which
Landlord performs for any tenant or prospective tenant of the Building.
(d) Expenses incurred in leasing or obtaining new tenants or
retaining existing tenants, including leasing commissions, legal expenses,
advertising or promotion;
(e) Interest, amortization or other costs, including legal fees,
associated with any mortgage, loan or refinancing of the land, the Building, or
the Common Areas;
(f) The cost of any item or service which Tenant separately
reimburses Landlord or pays to third parties, or that Landlord provides
selectively to one or more tenants of the Building, other than Tenant, whether
or not Landlord is reimbursed by such other tenant(s);
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(g) Any amount paid to an entity or individual related to Landlord
which exceeds the amount which would be paid for similar goods or services on
an arms-length basis between unrelated parties or for which Landlord is
reimbursed by other tenants or third parties, including insurance proceeds;
(h) The cost of correcting defects in the construction of the
Building, the Common Areas or the land; repairs resulting from ordinary wear
and tear shall not be deemed to be defects;
(i) Any costs of complying with any governmental laws, rules,
regulations, or other requirements applicable to the Land, the Building, the
Common Areas or the Premises;
(j) The cost of correcting any applicable building or fire code
violation(s) or violations of any other applicable law relating to the
Building, the Common Areas or the land; or the cost of any penalty or fine
incurred for non-compliance with the same;
(k) Any costs incurred to test, survey, cleanup, contain abate,
remove or otherwise remedy Hazardous Materials, as defined herein or asbestos
containing materials from the Building, the Common Areas, the Project or the
land (provided, that this exclusion from Operating Costs shall not affect the
provisions of this Lease or any other space lease at the Building with respect
to Tenant's or any other tenant's possible liability for all or a portion of
such costs);
(l) Any personal property taxes of Landlord for equipment or items
not used directly in the operation or maintenance of the Building;
(m) Contributions to Operating Costs reserves;
(n) All bad debt loss, rent loss, or reserve for bad debt or rent
loss;
(o) Costs incurred in connection with the sale, financing,
refinancing, mortgaging, selling, or change of ownership of the Building;
(p) Rentals and other related expenses incurred in leasing air
conditioning systems, elevators, or other equipment ordinarily considered to be
of a capital nature, except equipment not affixed to the Building which is used
in providing janitorial or similar services;
(q) Costs, other than those incurred in ordinary maintenance (for
such objects as may be located within the Common Areas), for sculpture,
paintings, or other objects of art;
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(r) Taxes;
(s) Costs of repairs, restoration, replacements or other work
occasioned by (A) fire, windstorm or other casualty (whether such destruction
be total or partial) and (B) the exercise by governmental authorities of the
right of eminent domain (whether such taking be total or partial);
(t) Costs incurred in connection with disputes with tenants, other
occupants, or prospective tenants, or costs and expenses incurred in connection
with negotiations or disputes with employees, consultants, management agents,
purchasers or mortgagees of the Building;
(u) Costs incurred by Landlord which are associated with the
operation of the business of the legal entity which constitutes Landlord as the
same is separate and apart from the cost of the operation of the Building,
including legal entity formation and legal entity accounting (including the
incremental accounting fees relating to the operation of the Building to the
extent incurred separately in reporting operating results to the Building's
owners or lenders);
(v) Any compensation paid to clerks, attendants or other persons
in commercial concessions operated for profit by Landlord;
(w) Fees or expenses for management of the Building in excess of
the management fees provided for in Section 7.2(k);
(x) Costs incurred for any items to the extent covered by a
manufacturer's, materialman's, vendor's or contractor's warranty (a "Warranty")
and the costs of any items that are not covered by a Warranty but for which a
reasonable, prudent landlord would have obtained a Warranty;
(y) Any costs associated with retail space, unless such space is
not separately metered, including without limitation, electricity, HVAC and
other utilities; and
(z) Any other cost or expense which, under generally accepted
accounting principles consistently applied, would not be considered to be an
Operating Cost of the Building.
Section 7.3. Tenant's Operating Costs Charge.
(a) Beginning with the second Lease Year during the Main Term and
continuing for each successive Lease Year thereafter, Tenant shall pay to
Landlord, as Additional Rent, a proportionate share of the increases to
Operating Costs over those Operating Costs incurred by Landlord for the Project
during calendar year
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1996 (the "Costs Base Year"), which share of such increases ("Tenant's
Operating Costs Charge") shall be computed by multiplying the increases in
Operating Costs for the period in question over those Operating Costs incurred
for the Costs Base Year by the GLA Fraction. Tenant's Operating Costs Charge
shall be paid by Tenant in monthly installments in such amounts as are
reasonably estimated and billed by Landlord at the beginning of each applicable
Lease Year, each installment being due with the monthly rent installment.
Landlord's bill to Tenant shall specify those Operating Costs that are
determined on a Project basis and those that are determined on a Building
basis. Those Operating Costs that are determined on a Project basis shall be
allocated to the individual buildings comprising the Project on a fair and
reasonable basis. The estimates provided at the beginning of each Lease Year
shall not exceed one hundred eight percent (108%) of the previous Lease Year's
allowable Operating Costs Charge, unless extraordinary events cause an excess
increase in a costs category, and evidence supporting the excess increase is
provided with such estimate. From time to time during each Lease Year,
Landlord may reasonably revise its estimate of Tenant's Operating Costs Charge
and adjust Tenant's monthly installments payable thereafter during such Lease
Year to reflect such revised estimate.
(b) Notwithstanding any provisions of this Lease to the contrary,
Tenant shall not be obligated for pay for any annual increase in controllable
Operating Costs over the Base Year that exceeds one hundred eight percent
(108%) of the controllable Operating Costs for the previous year.
"Controllable" Operating Costs are all Operating Costs except for Taxes,
insurance and utilities.
(c) If at any time during the Lease Term, including calendar year
1996, less than 95% of the total rentable area of the Building is occupied by
tenants, or the Landlord is not supplying services to 95% of the total rentable
area of the Building at any time during any calendar year, the Operating Costs
for such calendar year shall be an amount equal to the expenses that would
normally be expected to be incurred had such occupancy been 95% of the total
rentable area of the Building and had Landlord been supplying services to 95%
of the total rentable area of the Building throughout the calendar year. The
only costs which shall be adjusted in this manner shall be variable expenses
where the amount is directly related to the level of occupancy or square foot
area receiving a particular service. Landlord will indicate which expenses
were adjusted in this manner in the Operating Expense statement.
(d) Within one hundred twenty (120) days (or such additional time
as is reasonable under the circumstances) after the end of each such Lease
Year, Landlord shall deliver to Tenant
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an itemized statement broken down in categories with reasonable detail of the
Operating Costs for such period, and the monthly installments paid or payable
shall be adjusted between Landlord and Tenant, the parties hereby agreeing that
Tenant shall pay Landlord or Landlord shall credit Tenant's account, (or if
such adjustment is at the end of the Term, pay Tenant, as the case may be,)
within thirty (30) days of receipt of such statement, such amounts as may be
necessary to effect adjustment to the agreed proportionate share for such Lease
Year. The failure of Landlord to provide such statement within the time
prescribed above shall not relieve Tenant of its obligations generally or for
such period in which any such failure occurs.
(e) Upon at least ten (10) days' prior notice to Landlord and as
further described herein, Landlord shall permit Tenant's certified public
accountant or other representative to inspect, at Landlord's designated
management office during normal business hours, Landlord's records in regard to
Operating Costs for such preceding Lease Year; provided, however, that if
Tenant shall not have requested such inspection by written notice within three
(3) years following Tenant's receipt of the statement of Operating Costs for
such billing period, Tenant shall be conclusively deemed to have accepted such
statement and to have waived any further right to inspection. If such records
relating to Operating Costs for the second or third preceding Lease Year are
not located within the Washington, D.C. metropolitan area, Landlord, at
Tenant's sole cost and expense, shall cause such records to be available
therein within ten (10) days after Tenant's request therefor, at Tenant's cost.
If Tenant's audit of the Operating Costs indicates that Tenant was overcharged
for the same, Landlord shall promptly repay all such overpayments to Tenant,
and adjust Tenant's Cost Base Year, if necessary. If any Tenant's audit of the
Operating Costs indicates that Tenant was overcharged for the Operating Cost
Charge, by an amount which exceeds $4,500.00, Landlord shall promptly reimburse
Tenant for all of Tenant's expenses incurred for the audit.
(f) Provided that no uncured monetary or material non-monetary
Event of Default exists and is continuing, and further provided that space is
available in the Building and is not the subject of bona fide lease
negotiations or tenant construction, upon prior written notice to Landlord
received at least sixty (60) days prior to December 20, Landlord shall use
reasonable efforts to provide Tenant with approximately 5,000 to 10,000
rentable area of additional space in the Building for use and occupancy by
Tenant's auditors (the "Auditor's Space") for approximately 115 days during the
period between December 20 and April 30 of the following year during each Lease
Year during the Term (the "Audit Period"). Tenant shall pay the then-escalated
Base Rent, plus any Additional Rent applicable to the Auditor's Space, as Rent
for the Auditor's Space, payable under the same
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conditions as Rent for the Premises prorated for any month of partial
occupancy. The Auditor's Space shall be accepted in "AS-IS" condition, and
Landlord shall have no obligation to make alterations or improvements thereto.
Building services shall be provided to the Auditor's Space during regular
business hours. Tenant acknowledges that Landlord reserves the right to
continue marketing any space occupied by Tenant's auditors, and to enter into
leases which would allow other occupied by Tenant's auditors, and to enter into
leases which would allow other tenants to occupy the Auditor's Space during the
Audit Period and require the removal of Tenant's auditors; provided, however,
that Tenant shall receive at least thirty (30) days notice from Landlord before
being required to vacate the Auditor's Space. The Auditor's Space shall be
governed by the then current terms and conditions governing the Tenant's use
and enjoyment of the Premises including but not limited to compliance with the
Rules and Regulations. During the time Landlord makes the Auditor's Space
available to the Tenant, it shall be conclusively deemed for all purposes
hereunder that Tenant's auditors are "Agents" for purposes of this Lease and
Tenant shall be responsible for the Auditor's Space and said Agents the same as
if the Auditor's Space was part of the Premises and the auditors were employees
of the Tenant.
Section 7.4. Parking Validation System.
(a) Tenant acknowledges that it has been advised by Landlord that the
Building includes a multi-level parking garage operated by a third party other
than Landlord ("the Parking Garage").
(b) During the Term, Landlord shall cause the parking garage operator
to provide to Tenant (at no additional cost to Tenant during the Main Term),
parking spaces based on the parking ratio of 3.5 spaces per 1,000 square feet
of GLA. The parking spaces shall be located within the Parking Garage as for
Tenant's exclusive (with respect to the six (6) reserved spaces) or
non-exclusive (with respect to the remainder of the spaces) use. Parking
spaces shall be available and accessible to Tenant for Tenant's use twenty-four
(24) hours per day, seven (7) days per week. The cost of striping and
designating the reserved spaces shall be paid from the Allowance, as described
in Section 2.3(a) above. Landlord shall use its commercially reasonable
efforts to cause the Parking Garage operator to charge competitive hourly rates
for paid parking within the Parking Garage; provided, that Tenant's visitors
and invitees shall never be required to pay rates higher than the most
favorable rates charged to visitors and invitees of any other tenant within the
Project.
(c) Landlord hereby reserves the right, but shall have no
obligation, to establish a parking validation system ("the
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Parking Validation System") for the Project pursuant to which customers and
patrons of all tenants in the Project shall be entitled to park within the
Parking Garage at reduced rates, provided that they obtain a validation stamp
from one or more of the tenants within the Project. In the event that Landlord
shall establish such a Parking Validation System, Tenant hereby agrees to
participate in such Parking Validation System in accordance with the rules and
regulations established by Landlord, and to pay to Landlord its proportionate
share of the costs and expenses thereof, which costs and expenses shall be
included in Operating Costs. If a Parking Validation System is established,
then the Operating Costs for the Costs Base Year shall be recalculated as
though the costs of such Parking Validation System were imposed during the
Costs Base Year.
ARTICLE 8
ENVIRONMENTAL COVENANT
Section 8.1. Environmental Covenant.
In its use of the Premises and the remainder of the Building, the
Tenant shall not (either with or without negligence) cause or permit the
escape, disposal or release of any biologically or chemically active or other
hazardous substances or materials, or allow the storage or use of such
substances or materials in any manner, or allow any such materials or
substances to be brought onto the Property, other than in accordance with
applicable law.
Section 8.2. Environmental Laws.
(a) For the purposes of this Lease, "hazardous substances and
materials" shall include, without limitation those described in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (42 U.S.C. sections 9601 et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. sections 6901 et seq.), any applicable
state or local laws, and the regulations adopted under these acts.
(b) The Landlord has not caused or explicitly consented to the
unlawful storage or disposal of any hazardous substances or materials within
the Project. The Landlord has not received notice of any decree, judgment, or
order of an actual or alleged environmental contamination within the Project.
If the Premises become contaminated by any hazardous materials, which
contamination shall not have resulted from any action or cause of Tenant, then
Landlord shall pay for the cost of any required decontamination, removal and
replacement of such items.
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Section 8.3. Indemnity.
If any governmental agency ever requires testing to ascertain whether
or not there has been any release of hazardous materials within the Premises
during the term of this Lease, then Tenant's proportional share of the
reasonable costs thereof shall be reimbursed by the Tenant to the Landlord upon
ten (10) days' demand as additional charges if such requirement applies to the
Premises. The Tenant shall execute affidavits, representations and the like
from time to time at the Landlord's request concerning the Tenant's best
knowledge and belief regarding the presence of hazardous substances or
materials on the Premises. Landlord and Tenant shall each defend, indemnify
and hold harmless the other against and from any liability, claim of liability
or expense arising out of any release of hazardous materials on the Premises or
Building occurring while each is in possession thereof, or if incurred by
Landlord elsewhere in the Project if caused by the Tenant.
Section 8.4. Survival.
The foregoing covenants shall survive the expiration or earlier termination of
this Lease.
ARTICLE 9
MAINTENANCE, REPAIRS AND ALTERATIONS
Section 9.1. Landlord's Duty to Maintain Structure and Building
Systems.
Landlord shall maintain or cause to be maintained the structure of the
Building and shall be responsible for: (a) repairs to any mechanical,
electrical, plumbing, sprinkler system or other life saving systems or HVAC
system installed by or on behalf of Landlord and serving the Premises and
Common Areas, and (b) structural repairs to the exterior walls, structural
columns and structural floors which collectively enclose the Premises
(excluding, however, all doors, door frames, sliding doors, windows and any
glass therein); provided Tenant shall give Landlord notice of, or Landlord has
actual knowledge of, the necessity for such repairs (which notice may be given
telephonically to Landlord's on-site management agent). If the necessity for
such repairs shall have arisen, in whole or in part, from the willful acts or
omissions of Tenant or entities for which Tenant is responsible and the
insurance that Landlord is required to carry excludes from coverage any
casualty willfully caused by Tenant or entities for which Tenant is
responsible, then Tenant shall pay any amount not covered by Landlord's
insurance.
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Section 9.2. Tenant's Duty to Maintain Premises.
(a) Tenant shall at all times from and after delivery of possession
of the Premises to Tenant, at its own cost and expense, maintain the Premises
in good and tenantable condition, and make all repairs to the Premises or any
installations, equipment or facilities therein (except for any maintenance and
repairs required to be made by Landlord pursuant to Section 9.1 or
reconstruction required to be made by Landlord pursuant to Section 11.1 and
Article 12 and subject to the terms of Section 10.8). Without limiting the
generality of the foregoing, Tenant shall: (i) keep the interior of the
Premises, together with all of its specialized systems and its installations
therein, in good order and repair and shall make all replacements thereof from
time to time required by any governmental agency having jurisdiction thereover;
and (ii) surrender the Premises at the expiration of the Term or at such other
time as Tenant may vacate the Premises in as good condition as when received,
except for (A) ordinary wear and tear, (B) damage by Casualty other than as
provided in the last sentence of Section 9.1 above, or condemnation, or (C)
acts of God; and (iii) take care not to overload the electrical wiring serving
the Premises or within the Premises, and install at its expense, subject to the
provision of Section 9.4, any additional electrical, mechanical, plumbing or
any other equipment which may be required in connection with the Permitted Use.
Landlord acknowledges, after due inquiry, that if used in the normal course of
business, the electrical equipment installed as part of Tenant's Plans for the
initial improvements to the Premises will not overload the electrical wiring
system. If the necessity for such repairs shall have arisen, in whole or in
part, from the willful acts or omissions of Landlord or entities for which
Landlord is responsible and the insurance that Tenant is required to carry
excludes from coverage any casualty willfully caused by Landlord or entities
for which Landlord is responsible, then Landlord shall pay any amount not
covered by Tenant's insurance.
(b) Any damage or injury sustained by any person because of any
equipment or installation, the maintenance and repair of which is the
responsibility of Tenant pursuant to this Section, shall be paid for by Tenant.
(c) Notwithstanding anything contained in this Article 9 to the
contrary, Tenant's duties under this Section 9.2 and Section 9.3, below, are
subject to Landlord's maintenance and repair obligations under this Article 9,
the terms of Section 10.8, below, and Landlord's obligations under Articles 11
and 12, below.
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Section 9.3. Tenant's Duty to Repair Damage.
Any repairs or alterations to the Premises which may affect the
structure or external appearance of the Premises, any Common Areas or any
portion of the Building, shall require the prior written consent thereto by
Landlord. Landlord shall have the absolute right to withhold its consent and
require alternative methods of repair and alteration if the making thereof
will, in Landlord's reasonable opinion, adversely affect the Premises, the
Common Areas or the Building outside of the Premises. In default of the making
of such repairs by Tenant, at the expiration of thirty (30) days after notice
to Tenant (which notice shall not be required in emergency situations),
Landlord may make such repairs or cause the same to be made, and Tenant agrees
to pay to Landlord promptly upon Landlord's demand, as Additional Rent, with
interest at the Default Rate until paid, the reasonable amount incurred by
Landlord. Any repairs made by Landlord, without notice due to an emergency
situation shall not incur interest at the Default Rate.
Section 9.4. Alterations by Tenant.
Tenant shall not make any alterations, renovations, improvements or
other installations to the Premises (including, without limitation, any
alterations of the signs, structural alterations or any cutting or drilling
into any part of the Premises) unless and until (i) Tenant shall have caused
detailed plans and specifications therefor to have been prepared and delivered,
at Tenant's expense, by a licensed architect or other duly qualified person,
and (ii) Tenant shall have obtained Landlord's prior written approval thereof,
which approval shall not be unreasonably withheld, conditioned or delayed. If
approval is granted, Tenant shall cause the work described in such plans and
specifications to be performed, at its expense, promptly, efficiently and
competently by duly qualified or licensed persons or entities without
interference with or disruption of the operations of tenants or other users and
occupants of the Building. All such work shall comply with all applicable
governmental codes, rules, regulations and ordinances. Notwithstanding the
foregoing, Tenant shall have the right, without Landlord's consent (Tenant
must, however, provide notice to Landlord in accordance with the terms of this
Section), to repaint and/or recarpet all or any portion of the Premises at any
time or from time to time or to make any non-structural alteration the cost of
which does not exceed $10,000 for any alteration project.
Section 9.5. Landlord's Right of Access.
Except in case of an emergency (in which case Landlord may enter the
Premises at any time without notice) and provided
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Landlord provides Tenant with reasonable prior notice, minimizes the
interference of Tenant's business, and is accompanied by a representative of
Tenant, if requested, Landlord and its authorized representatives may: (a)
enter the Premises (i) during normal business hours for the purpose of
inspecting any repairs and alterations being made or required to be made by
Tenant hereunder, or (ii) at any other time Landlord deems reasonably necessary
to prevent waste and deterioration of the Premises or the Building; (b) use
exclusively all or any part of the roof, if any, of the Premises for any
purpose, including, without limitation, the erecting of temporary scaffolds and
other aids to construction on the exterior of the Premises, provided access to
the Premises shall not be denied; (c) install, maintain, use, repair and
replace within the Premises pipes, ducts, conduits, wires, access doors and all
other mechanical equipment serving other parts of the Building, the same to be
at such locations within the Premises as will not unreasonably deny Tenant's
use thereof; and (d) make any use it desires of the side or rear walls of the
Premises, provided that such use shall not encroach on the interior of the
Premises.
ARTICLE 10
INDEMNITY AND INSURANCE
Section 10.1. Tenant's Insurance.
At all times from and after entry by the Tenant into the Premises for
the purpose of completing the equipping or furnishing of the Premises prior to
the commencement of occupancy, Tenant shall take out and keep in full force and
effect, at its expense:
(a) Commercial general liability insurance, including Blanket
Contractual Liability, Broad Form Property Damage, Completed
Operations/Products Liability, Coverage for Employees as insureds, and Broad
Form General Liability Endorsement, with a combined single limit of not less
than Three Million Dollars ($3,000,000) per occurrence and Four Million Dollars
($4,000,000) in the aggregate;
(b) All-risk casualty insurance (including but not limited to
burglary and theft insurance) written at full replacement cost value and with
replacement cost endorsement covering (i) all of Tenant's Property, including,
without limitation, inventory, trade fixtures, floor covering, furniture,
electronic data processing equipment and any other property removable by Tenant
under the provisions of this Lease, and (ii) all leasehold improvements
installed in the Premises by or on
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behalf of Tenant pursuant to Schedule C or otherwise, regardless of the source
of funding thereof;
(c) Worker's compensation or similar insurance to the extent
and in the amounts required by law;
(d) Employer's Liability insurance, including All States
Endorsement in an amount not less than Five Hundred Thousand Dollars
($500,000); and
(e) Comprehensive automobile liability coverage on all owned,
non-owned or hired automobiles to be used by Tenant, with a combined single
limit of not less than One Million Dollars ($1,000,000).
Section 10.2. Tenant's Contractor's Insurance.
Tenant shall require any contractor of Tenant performing physical
improvements and/or changes in, on or about the Premises to take out and keep
in full force and effect, at no expense to Landlord:
(a) Commercial general liability insurance, including
Contractor's Liability coverage, Blanket Contractual Liability coverage, Broad
Form Property Damage Endorsement, Contractor's Protective Liability, Completed
Operations/Products Liability Interest of Employees as insureds, and Broad Form
General Liability Endorsement, in an amount not less than One Million Dollars
($1,000,000) Endorsement, in an amount not less than One Million Dollars
($1,000,000) combined single limit per occurrence and One Million Dollars
($1,000,000) in the aggregate;
(b) Comprehensive automobile liability insurance, with a
combined single limit of not less than One Million Dollars ($1,000,000)
covering all owned, non-owned or hired automobiles to be used by the
contractor;
(c) Worker's compensation or similar insurance in form and
amounts required by law; and
(d) Employers liability coverage, including All States
Endorsement in an amount not less than One Million Dollars ($1,000,000).
Section 10.3. Policy Requirements.
(a) The company or companies writing any insurance which Tenant is
required to take out and maintain or cause to be taken out or maintained
pursuant to Sections 10.1 and 10.2, shall be written by companies licensed to
do business in the Commonwealth of Virginia and have a Best rating of at least
A-VII with respect to Tenant or A-VI with respect to contractors or
subcontractors. Public liability and all-risk casualty insurance policies
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evidencing such insurance shall name Landlord and/or its designees (including,
without limitation, any Mortgagee) as additional insureds, and shall also
contain a provision by which the insurer agrees that such policy shall not be
cancelled, materially changed, terminated or not renewed except after thirty
(30) days' advance written notice to Landlord and/or such designees. All such
policies, or certificates thereof, shall be deposited with Landlord promptly
upon commencement of Tenant's obligation to procure the same. None of the
insurance which Tenant is required to carry shall contain deductible provisions
in excess of $2,500, unless approved in writing in advance by Landlord. If
Tenant shall fail to perform any of its obligations pursuant to this Section
10.1, Landlord may perform the same and the cost thereof shall be payable upon
Landlord's demand therefor as Additional Rent, with interest thereon at the
Default Rate until paid in full.
(b) Landlord and Tenant agree that on January 1 of the second (2nd)
full Lease Year and on January 1 of every second (2nd) Lease Year thereafter,
Landlord will have the right to request a reasonable change in the character
and/or amounts of insurance required to be carried by Tenant pursuant to the
provisions of this Article 10. Provided that such changes are consistent with
insurance required to be carried by tenants in first-class office projects in
the Washington, D.C. - Northern Virginia area, the Tenant shall comply with the
requested change in character and/or amount within sixty (60) days of
Landlord's request therefor.
Section 10.4. Indemnities by Tenant and Landlord.
(a) Notwithstanding any policy or policies of insurance required of
Tenant, Tenant, for itself and its successors and assigns, to the extent
permitted by law, shall defend, indemnify and hold harmless Landlord,
Landlord's Management Agent, and any Mortgagee against and from any and all
liability or claims of liability asserted against or incurred by Landlord in
connection with (i) the use, occupancy, conduct, operation or management of the
Premises by Tenant or any of its agents, contractors, servants, employees,
licensees, concessionaires, suppliers or materialmen during the Term; or (ii)
any breach or default in performing any of the obligations under the provisions
of this Lease and/or applicable law by Tenant or any of its agents,
contractors, servants, employees, licensees, concessionaires, suppliers or
materialmen during the Term; or (iii) any negligent, intentionally tortious or
other act or omission by Tenant or any of its agents, contractors, servants,
employees, licensees, concessionaires, suppliers, materialmen or invitees
during the Term unless caused by the negligence or willful misconduct of
Landlord, its agents or employees.
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(b) Notwithstanding any policy or policies of insurance required of
Landlord, Landlord, for itself, and its successors and assigns, to the extent
permitted by law, shall defend, indemnify and hold harmless Tenant against and
from any and all liability or claims of liability asserted against or incurred
by Tenant in connection with (i) the use, occupancy, conduct, operation or
management of the Project by Landlord or any of its agents, contractors,
servants, employees, licensees, concessionaires, suppliers or materialmen
during the Term; or (ii) any breach or default in performing any of the
obligations under the provisions of this Lease and/or applicable law by
Landlord or any of its agents, contractors, servants, employees, licensees,
concessionaires, suppliers or materialmen during the Term; or (iii) any
negligent, intentionally tortious or other act or omission by Landlord or any
of its agents, contractors, servants, employees, licensees, concessionaires,
suppliers, materialmen or invitees during the Term, unless caused by the
negligence or willful misconduct of Tenant, its agents or employees.
(c) If any such claim, action or proceeding is brought against
Landlord and/or any Mortgagee, Tenant shall promptly if requested by Landlord
or such Mortgagee, and at Tenant's expense, resist or defend such claim, action
or proceeding or cause it to be resisted or defended by an insurer. Landlord
shall, at its option, be entitled to participate in the selection of counsel,
settlement and all other matters pertaining to such claim, action or
proceeding, all of which shall be subject, in any case, to the prior written
approval of Landlord.
Section 10.5. Landlord Not Responsible for Acts of Others.
Landlord shall not be responsible or liable to Tenant, or to those
claiming by, through or under Tenant, for any loss or damage which may be
occasioned by or through the acts or omissions of persons occupying or using
space adjoining the Premises or any part of the premises adjacent to or
connecting with the Premises or any other part of the Building, or for any loss
or damage resulting to Tenant (or those claiming by, through or under Tenant),
or its or their property, from the breaking, bursting, stoppage or leaking of
electrical cable and wires, and water, gas, sewer or steam pipes. To the
maximum extent permitted by law, Tenant agrees to use and occupy the Premises,
and to use such other portions of the Building as Tenant is herein given the
right to use, at Tenant's own risk (provided, that this sentence shall not be
deemed to negate Landlord's indemnification contained in Section 10.4(b)).
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Section 10.6. Landlord's Insurance.
During the Term, to the extent deemed reasonable or necessary in
Landlord's sole discretion, Landlord shall maintain (a) insurance on the
Building against loss or caused by all risks perils on a replacement cost
valuation basis in an amount deemed reasonable by Landlord, (b) commercial
liability insurance including property damage insurance against claims for
personal injury or death, or property damage suffered by others occurring in,
on or about the Building, such public liability insurance to afford protection
in limits deemed reasonable by Landlord but in no event less than $10,000,000
in the aggregate for this location, and (c) any other insurance, in such form
and in such amounts as are deemed reasonable by Landlord, including, without
limitation, rent continuation and business interruption insurance for up to
twelve (12) months in each instance, theft insurance and worker's compensation,
flood and earthquake, and boiler and machinery insurance. Landlord's insurance
shall be written with companies licensed to do business in the Commonwealth of
Virginia having a Best rate of at least A-VII. The costs and expenses of any
and all insurance carried by Landlord pursuant to the provisions of this
Section 10.6 shall be deemed a part of Operating Costs.
Section 10.7. Increase in Insurance Premiums.
Tenant shall not do or suffer to be done, or keep or suffer to be
kept, anything in, upon or about the Premises which will contravene Landlord's
policies of hazard or liability insurance or which will prevent Landlord from
procuring such policies from companies acceptable to Landlord. If anything
done, omitted to be done or suffered by Tenant to be kept in, upon or about the
Premises shall cause the rate of fire or other insurance on the Premises or on
other property of Landlord or of others within the Building to be increased
beyond the average rate from time to time applicable to the Premises or to any
such other property for the use or uses made thereof, Tenant shall pay to
Landlord, as Additional Rent, the amount of any such increase upon Landlord's
demand therefor.
Section 10.8. Mutual Waiver.
All policies covering real or personal property which either party
obtains affecting the Premises or the Building shall include a clause or
endorsement denying the insurer any rights of subrogation against the other
party to the extent rights have been waived by the insured before the
occurrence of injury or loss. Notwithstanding anything herein contained to the
contrary, Landlord and Tenant waive any rights of subrogation or recovery
against the other for damage or loss to their respective property due to
hazards covered or which should be covered by policies of
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insurance obtained or which should be or have been obtained pursuant to this
Lease, to the extent of the injury or loss covered or which should have been
covered thereby, assuming that any deductible shall be deemed to be insurance
coverage.
ARTICLE 11
CASUALTY
Section 11.1. Obligation to Repair and Reconstruct.
If the Building shall be damaged by fire, the elements, accident or
other casualty (collectively, "Casualty"), but the Premises shall not thereby
be rendered wholly or partially untenantable, then, subject to the provisions
of Section 11.2, Landlord shall promptly cause such damage to be repaired and
there shall be no abatement of Rent unless Tenant cannot use the Premises
during such repair period, or if the Premises are not reasonably accessible, in
which event Rent shall be abated retroactive to the date of the occurrence. If
as the result of Casualty, the Premises shall be rendered wholly or partially
untenantable or not reasonably accessible, or the parking area was damaged to
the extent that Tenant could not use the same (and no proximate comparable
alternate facility in the Fairfax County, Virginia area was offered), then,
subject to the provisions of Section 11.2, Landlord shall cause such damage to
be repaired to the condition which existed immediately prior to such Casualty,
provided that Tenant provides Landlord with all insurance proceeds applicable
to Tenant's improvements within the Premises received by Tenant as a result of
such Casualty, and all Rent (other than any Additional Rent due Landlord by
reason of Tenant's prior failure to perform any of its obligations hereunder)
shall be abated proportionately as to the portion of the Premises rendered
untenantable during the period of such untenantability. All such repairs shall
be made at the expense of Landlord. In performing its rebuilding obligations
hereunder, Landlord shall have the right to make modifications to the
structures comprising the Building and the Premises provided that such
modifications do not materially adversely affect Tenant's use and occupancy of
the same. Landlord shall not be liable for interruption to Tenant's business
or for damage to or replacement or repair of Tenant's Property, all of which
damage, replacement or repair shall be undertaken and completed promptly by
Tenant at Tenant's expense.
In addition to the foregoing, if the Premises or the Building are
totally destroyed by fire or any other casualty, this Lease shall automatically
terminate as of the date of such destruction. If the Building or any portion
of the Common Areas or Premises are damaged by fire, casualty, or any other
cause, and such damage is repairable, then Landlord, at Landlord's sole
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cost and expense (except for Tenant's personal property), shall commence
repairs within sixty (60) days of the date of the casualty, and shall
thereafter diligently complete the repairs in accordance with the requirements
of this Article 11. Until such repairs and restoration are completed, the
Rent, as defined herein, and any other sums due to Landlord, shall be abated.
If the damage cannot be repaired, or if such damage is in fact not repaired,
within nine (9) months from the date of such casualty (in the reasonable
judgment of an independent architect), due to any reason within or outside of
the Landlord's control, then Tenant shall have the option to terminate this
Lease, without penalty or default, by giving Landlord written notice of such
termination; provided, however, that if Landlord, within thirty (30) days of
the expiration of the nine (9) month period, shall notify Tenant that the
repairs and restoration shall be complete within thirty (30) days after the
expiration of the nine (9) month period and the repairs and restoration are, in
fact, so completed, Tenant shall have no termination right under this section.
Tenant shall vacate the Premises within thirty (30) days after the date of such
termination.
Section 11.2. Landlord's Option to Terminate Lease.
If (a) the Premises or Building or Project are rendered wholly
untenantable and cannot be repaired within nine (9) months, or (b) the Premises
are damaged as a result of any cause which is not covered by Landlord's
insurance and the cost to repair the Premises would reasonably exceed $500,000,
or (c) the Premises are damaged or destroyed in whole or in part during the
last twelve (12) months of the Term (unless Tenant exercises its renewal
option, if applicable), or (d) the Building is so substantially damaged that
Landlord determines, in Landlord's sole judgment, to demolish the Building,
then and in any of such events, Landlord may elect to terminate this Lease by
giving Tenant notice of such election within sixty (60) days after the
occurrence of such event. If such notice is given, the rights and obligations
of the parties shall cease as of the date of such notice, and Rent (other than
any Additional Rent due Landlord by reason of Tenant's failure to perform any
of its obligations hereunder) shall be adjusted as of the date of such
termination. Tenant shall vacate the Premises within thirty (30) days after
the date of such termination.
Section 11.3. Insurance Proceeds.
If Landlord does not elect to terminate this Lease pursuant to Section
11.2, then, subject to the prior rights of any Mortgagee, Landlord shall
disburse and apply any net insurance proceeds received by Landlord to the
restoration and rebuilding of the Building in accordance with Section 11.1.
All insurance proceeds payable with respect to the Premises (excluding proceeds
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payable to Tenant pursuant to Section 10.1), shall belong to and shall be
payable to Landlord.
ARTICLE 12
CONDEMNATION
Section 12.1. Effect of Taking.
If the whole or any part of the Premises shall be taken pursuant to
the power of eminent domain, whether by condemnation or deed in lieu thereof,
this Lease shall terminate as to the part so taken as of the date of such
taking. Landlord shall make such repairs and alterations as may be necessary
in order to restore the part of the Premises not taken to a useful condition
and all Rent (other than any Additional Rent due Landlord by reason of Tenant's
prior failure to perform any of its obligations hereunder) shall be reduced in
the same proportion as the portion of the Premises so taken. If any partial
taking renders the remainder of the Premises unusable for the Permitted Use,
either party may terminate this Lease as of the date of such taking by giving
notice to the other party within thirty (30) days after such date. If ten
percent (10%) or more of the Building is taken as aforesaid, Landlord may elect
to terminate this Lease as of the date of such taking by giving notice of such
election to Tenant within ninety (90) days after such date. If twenty-five
percent (25%) or more of the Premises is taken (and in Tenant's good faith
judgment the balance is not suitable for Tenant's business operations), Tenant
may elect to terminate this Lease as of the date of such taking by giving
notice of that election to Landlord within ninety (90) days after the date of
the taking. If any notice of termination is given pursuant to this Section,
this Lease and the rights and obligations of the parties hereunder shall cease
on the date specified in such notice and all Rent (other than any Additional
Rent due Landlord by reason of Tenant's prior failure to perform any of its
obligations hereunder) shall be adjusted as of the date of such termination.
Section 12.2. Condemnation Awards.
All compensation awarded for any taking of the Premises or any portion
of the Building or any interest in any of them shall belong to and be the
property of Landlord or any Mortgagee, and Tenant hereby assigns to Landlord
all rights with respect thereto; provided, however, nothing contained herein
shall prevent Tenant from seeking in a separate action reimbursement from the
condemning authority (if permitted by law) for moving expenses, expenses for
removal of Tenant's Property or loss of Tenant's business good will, but if and
only if such action shall not reduce the amount of the award or other
compensation
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otherwise recoverable from the condemning authority by Landlord or any
Mortgagee.
ARTICLE 13
ASSIGNMENT AND SUBLETTING
Section 13.1. Landlord's Consent Required.
(a) Tenant shall not assign this Lease, in whole or in part, nor
sublet all or any part of the Premises, nor license concessions or lease
departments therein, nor otherwise permit any other person to occupy or use any
portion of the Premises (collectively, "a Transfer"), without in each instance
first obtaining the written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed. This prohibition includes any
subletting or assignment to or by a receiver or trustee in any Federal or State
bankruptcy, insolvency, or other similar proceedings. Consent by Landlord to
any assignment, subletting, licensing or other transfer shall not constitute a
waiver of the requirement for consent to any subsequent assignment, subletting,
licensing or other Transfer or relieve Tenant from its duties, responsibilities
and obligations under this Lease.
(b) Notwithstanding any provision herein to the contrary, Tenant
shall have the right, without Landlord's consent, to assign the Lease or to
sublet all or any part of the Premises to an entity which controls, is
controlled by, or is under common control with, Tenant or to an entity with
which Tenant merges or consolidates or which acquires all or substantially all
of Tenant's assets. In addition, Tenant shall have the right without the
consent of Landlord to allow any affiliate of Tenant to use or occupy any
portion of the Premises, provided that such use or occupancy is pursuant to a
written agreement between Tenant and its applicable affiliate.
Section 13.2. Transfer; Issuance of Corporate Shares.
INTENTIONALLY DELETED.
Section 13.3. Acceptance of Rent from Transferee.
The acceptance by Landlord of the payment of Rent from any person
following any act, assignment or other Transfer prohibited by this Article
other Transfer, nor shall the same be deemed to be a waiver of any right or
remedy of Landlord's hereunder.
Section 13.4. Conditions of Consent.
(a) If Tenant receives consent to a Transfer other than a sublet
under Section 13.1 above, then, in addition to any other
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terms and conditions imposed by Landlord in the giving of such consent, Tenant
and the transferee shall execute and deliver, on demand, an agreement prepared
by Landlord agreeing that the transferee shall be directly bound to Landlord to
perform all obligations of Tenant hereunder including, without limitation, the
obligation to pay all Rent and other amounts provided for therein;
acknowledging and agreeing that there shall be no subsequent Transfer other
than a sublet of this Lease or of the Premises or of any interest therein
without the prior consent of Landlord pursuant to Section 13.1 above;
acknowledging that Tenant as originally named herein shall remain fully liable
for all obligations of Tenant hereunder, jointly and severally with the
transferee; and such other provisions as Landlord shall reasonably require.
(b) All reasonable costs incurred by Landlord in connection with
any request for consent to a Transfer, including costs of investigation and the
fees of Landlord's counsel, shall be paid by Tenant on demand as a further
condition of any consent which may be given.
Section 13.5. Profits from Use or Transfer.
(a) Neither the Tenant nor by any other person having an interest
in the use, occupancy or other utilization of space in the Premises shall enter
into any lease, sublease, license, concession or other Transfer which provides
for rent or other payment for such use, occupancy or utilization based in whole
or in part on the net income or profits derived from the Premises (other than
an amount based on a fixed percentage of receipts or sales), and any such
purported lease, sublease, license, concession or other Transfer shall be
absolutely void and ineffective as a conveyance or creation of any right or
interest in the possession, use, occupancy or utilization of any part of the
Premises.
(b) Tenant agrees that in the event of a Transfer, Tenant shall
pay Landlord thirty percent (30%) of any and all consideration, money or thing
of value received by Tenant or payable to Tenant in connection with such
Transfer and in excess of the rent payable by Tenant under the Lease (but not
including any consideration for the sale of any personal property of Tenant).
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ARTICLE 14
DEFAULT
Section 14.1. "Event of Default" Defined.
Any one or more of the following events shall constitute a default
under the terms of this Lease ("Event of Default"):
(a) failure of Tenant to pay any Rent or other sum of money
due hereunder to Landlord or any other person within five (5) days after
written notice that the same is due;
(b) sale of Tenant's interest in the Premises under
attachment, execution or similar legal process;
(c) filing of a petition proposing the adjudication of Tenant
as a bankrupt or insolvent, or the reorganization of Tenant, or an arrangement
by Tenant with its creditors, whether pursuant to the Federal Bankruptcy Act or
any similar Federal or state proceeding, unless such petition is filed by a
party other than Tenant or any such guarantor and is withdrawn or dismissed
within ninety (90) days after the date of its filing;
(d) admission in writing by Tenant of its inability to pay
its debts when due;
(e) appointment of a receiver or trustee for the business or
property of Tenant unless such appointment shall be vacated within thirty (30)
days of its entry;
(f) making by Tenant of an assignment for the benefit of its creditors; and
(g) default by Tenant in the performance or observance of any
covenant or agreement of this Lease to be performed or observed by Tenant
(other than as set forth in clauses (a) through (f) above), which default is
not cured within thirty (30) days after the giving of written notice thereof by
Landlord, unless such default is of such nature that it cannot be cured within
said thirty (30) day period, in which event an Event of Default shall not be
deemed to have occurred if Tenant institutes a cure within the thirty (30) day
period and thereafter diligently and continuously prosecutes the same until
completion.
Notwithstanding the foregoing, if Tenant shall default in the
performance of any covenant or agreement two (2) or more times in any twelve
(12) month period, then, unless such default(s) shall have been cured within
the applicable notice and grace period, any further similar defaults shall be
deemed an Event of Default without the ability to cure.
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Section 14.2. Remedies.
Upon the occurrence of an Event of Default, Landlord, without
additional notice to Tenant in any instance (except where expressly provided
for below), may do any one or more of the following:
(a) Landlord may accelerate the Rent and any other charges,
whether or not stated to be Additional Rent hereunder as more particularly
described in Section 14.3(a) below; and/or
(b) Landlord may elect to terminate this Lease and the
tenancy created hereby by giving notice of such election to Tenant without any
right on the part of Tenant to save the forfeiture by payment of any sum due or
by other performance of condition, term, agreement or covenant broken.
Landlord may also elect to terminate Tenant's possessory rights and all other
rights of Tenant without thereby terminating this Lease, and Landlord may
without notice reenter the Premises, breaking open locked doors, if necessary,
to effect entrance, for the purpose of recovering possession of the Premises,
and may proceed to recover possession of the Premises by process of law, any
notice to quit or of intention to re-enter the Premises being expressly waived
by Tenant. Landlord may remove Tenant and, for the purpose of exercising
Landlord's lien against Tenant's property, remove all other persons and
property from the Premises, and store such property in a public warehouse or
elsewhere at the cost of and for the account of Tenant without resort to legal
process and without Landlord being deemed guilty of trespass or becoming liable
in any way for any loss or damage occasioned thereby, and take possession of
and sell under such lien the goods and chattels found in the Premises; and/or
(c) When this Lease shall be terminated by covenant or
condition broken, either during the original Term or any renewal or extension
thereof, and, also when and after the Term shall have expired, any attorney for
Landlord may proceed in any competent court for judgment in ejectment against
Tenant and all persons claiming under Tenant for the recovery by Landlord of
possession of the Premises. If for any reason after such action shall have
been commenced, it shall be cancelled or suspended and possession of the
Premises remains in or is restored to Tenant, Landlord shall have the right
upon any subsequent default or upon the expiration or termination of this
Lease, or any renewal or extension hereof, to bring one or more actions to
recover possession of the Premises; and/or
(d) If a true copy of this Lease (and of the truth of the
copy, an affidavit shall be sufficient proof) is required to be filed in any
action for possession or enforcement or monetary damages, it shall not be
necessary to file the original,
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notwithstanding any law, rule of court, custom or practice to the contrary.
Tenant hereby waives all procedural errors in any proceedings taken by
Landlord, other than service of process, whether by virtue of the powers of
attorney contained in this Lease or not, and all liability therefor; and/or
(e) Landlord may perform, on behalf and at the expense of
Tenant, any obligation of Tenant under this Lease which Tenant has failed to
perform and of which Landlord shall have given Tenant notice, the cost of which
performance by Landlord, together with interest thereon at the Default Rate
from the date of such expenditure, shall be deemed Additional Rent and shall be
payable by Tenant to Landlord upon demand therefor. Notwithstanding anything
to the contrary contained herein, regardless of whether an Event of Default
shall have occurred, Landlord may exercise the remedy described in this clause
(f) without any notice to Tenant if Landlord, in its good faith judgment,
believes it would be materially injured by failure to take rapid action or if
the unperformed obligation of Tenant constitutes an emergency.
(f) Landlord may exercise any other legal or equitable right
or remedy which it may have at law or in equity, including rights of specific
performance and/or injunctive relief, where appropriate.
Section 14.3. Damages.
(a) If this Lease is terminated by Landlord pursuant to Section 14.2,
Tenant nevertheless shall remain liable for any Rent and damages which may be
due or sustained prior to such termination, and all reasonable costs, fees and
expenses, including, without limitation, sheriffs' or other officers
commissions whether chargeable to Landlord or Tenant, watchmen's wages,
brokers' and reasonable attorneys' fees, and repair and renovation costs
incurred by Landlord in pursuit of its remedies hereunder, and/or in connection
with any bankruptcy proceedings of Tenant, and/or in connection with renting
the Premises to others from time to time (which costs and expenses shall be
prorated based on the term of the new lease and the then remaining term of this
Lease) (all such Rent, damages, costs, fees and expenses being referred to
herein as "Termination Damages"), plus additional damages for all Rent treated
as in arrears ("Liquidated Damages") which, at the election of Landlord, shall
be an amount equal to either:
(i) the Rent which, but for the termination of this Lease,
would have become due during the remainder of the Term, less the amount or
amounts of rent, if any, which Landlord shall receive during such period from
others to whom the Premises may be rented (other than any additional rent
received by Landlord as
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a result of any failure of such other person to perform any of its obligations
to Landlord), in which case Liquidated Damages shall be computed and payable in
monthly installments, in advance, on the first day of each calendar month
following the termination of this Lease and shall continue until the date on
which the Term would have expired but for such termination, and any action or
suit brought to collect any such Liquidated Damages for any month shall not in
any manner prejudice the right of Landlord to collect any Liquidated Damages
for any subsequent months by similar preceding, or
(ii) the amount, if any, by which (i) the present worth (as
of the date of such termination) of the Rent which, but for the termination of
this Lease, would have become due during the remainder of the Term, exceeds
(ii) the present worth (as of the date of such termination) of the fair rental
value of the Premises, as reasonably determined by an independent real estate
appraiser selected by Landlord, in which case such Liquidated Damages shall be
payable to Landlord in one lump sum on demand and shall bear interest at the
Default Rate until paid. "Present worth" shall be computed by discounting such
amount to present worth at a rate equal to one percentage point above the
discount rate then in effect at the Federal Reserve Bank. In no event shall
Landlord be required to account to Tenant for any amounts by which the fair
rental value shall have exceeded the stipulated Rent at the time of such
termination.
(b) If this Lease is terminated pursuant to Section 14.2, Landlord
shall make reasonable efforts to relet the Premises or any part thereof
(provided that Landlord shall not be obligated to relet the Premises in
preference to any other available space within the Project or within other
projects owned by Landlord's shareholder), alone or together with other
premises, for such term or terms (which may be greater or less than the period
which otherwise would have constituted the balance of the Term) and on such
terms and conditions (which may include concessions or free rent and
alterations of the Premises) as Landlord may determine, in its sole discretion,
but, so long as Landlord makes reasonable efforts to relet the Premises,
Landlord shall not be liable for, nor shall Tenant's obligations hereunder be
diminished by reason of, any failure by Landlord to relet the Premises or any
failure by Landlord to collect any rent due upon such reletting.
(c) Notwithstanding anything to the contrary set forth in this
subsection 14.3, in the event following and during the continuance of an Event
of Default, (i) Landlord must initiate legal action to enforce any one or more
of the provisions of this Lease against Tenant, its successors or assigns, or
(ii) Landlord must consult with and/or engage an attorney(s) in order (A) to
enforce any one or more of the provisions of this Lease against Tenant, any
guarantor of Tenant, their successors or assigns, or
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(B) in connection with any bankruptcy proceeding of Tenant or any guarantor of
Tenant, whether or not such consultation and/or engagement results in the
initiation of any judicial action or termination of this Lease, then and in any
of such events, Tenant, its successors and assigns, undertakes and agrees to
pay any and all costs incurred by Landlord in connection therewith, including,
by way of illustration and not of limitation, all reasonable attorneys' fees
(inclusive of consultation fees, research costs, and correspondence fees),
court costs (if awarded post-judgment) and any similar professional fees or
costs associated therewith, which costs shall accrue interest at the Default
Rate until paid in full.
ARTICLE 15
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
Section 15.1. Subordination.
(a) Unless a Mortgagee shall otherwise elect as provided in Section
15.2, Tenant's rights under this Lease are and shall remain subject and
subordinate to the operation and effect of any mortgage, deed of trust or other
security instrument constituting a lien upon the Building, whether the same
shall be in existence at the date hereof or created hereafter (any such lease,
mortgage, deed of trust or other security instrument being referred to herein
as a "Mortgage," and the party or parties having the benefit of the same,
whether as mortgagee, beneficiary or noteholder, being referred to hereinafter
collectively as a "Mortgagee"). Landlord and all existing Mortgagees shall
execute and deliver the Subordination, Non-Disturbance and Attornment Agreement
in the form attached as Schedule G at the time of the execution of this Lease.
For any future Mortgage, as a condition to Tenant's obligation to subordinate
the Lease to any future Mortgage, such Mortgagee shall execute, acknowledge and
deliver to Tenant a similar non-disturbance agreement as part of such
subordination. Upon receipt of such non-disturbance agreement for such future
Mortgage, Tenant's acknowledgment and agreement of subordination as provided
for in this Section shall be self-operative and no further instrument of
subordination shall be required. Tenant shall execute, within ten (10) days
after request therefor, such further assurances thereof as shall be requisite
or as may be requested from time to time by Landlord or any Mortgagee. On the
date hereof, the only Mortgagee is Teachers Insurance and Annuity Association
of America.
(b) Landlord hereby directs Tenant, upon (i) the occurrence of an
event of default by Landlord, as mortgagor under any Mortgage, (ii) the receipt
by Tenant of a notice of the occurrence of such event of default under such
Mortgage from Landlord or such Mortgagee, and (iii) a direction by the
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Mortgagee under such Mortgage to Tenant to pay all Rent thereafter to such
Mortgagee, to make such payments to such Mortgagee, and Landlord agrees that in
the event that Tenant makes such payments to such Mortgagee, as aforesaid,
Tenant shall not be liable to Landlord for the same.
Section 15.2. Mortgagee's Unilateral Subordination.
If a Mortgagee shall so elect by notice to Tenant or by the recording
of a unilateral declaration of subordination, this Lease and Tenant's rights
hereunder shall be superior and prior in right to the Mortgage of which such
Mortgagee has the benefit, with the same force and effect as if this Lease had
been executed, delivered and recorded prior to the execution, delivery and
recording of such Mortgage, subject, nevertheless, to such conditions as may be
set forth in any such notice or declaration.
Section 15.3. Attornment and Non-disturbance.
If any person shall succeed to all or any part of Landlord's interest
in the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease, or otherwise, and if such
successor-in-interest requests or requires, Tenant shall attorn to such
successor-in-interest and shall execute within ten (10) days after receipt
thereof such agreement in confirmation of such attornment as is reasonably
acceptable to such successor-in-interest. Failure to respond within such (10)
day period shall be deemed to be a confirmation by Tenant of the facts and
matters set forth therein. Tenant hereby agrees that any suit, action or other
proceeding commenced by any Mortgagee in order to realize upon Landlord's
interest in, under and to this Lease, or any part of the Building shall not, by
operation of law or otherwise, result in the cancellation or termination of
this Lease or of the obligations of Tenant hereunder.
ARTICLE 16
QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that, except as otherwise
provided in this Lease, upon the continuing compliance by Tenant with all of
the terms, covenants and provisions of this Lease to be performed by Tenant,
Tenant shall and may peaceably and quietly have, hold and enjoy the Premises
for the Term, free from any interference whatsoever by, from or through
Landlord or anyone claiming by, from or through Landlord, except as may be
otherwise provided herein.
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ARTICLE 17
NOTICES
Section 17.1. Sending of Notices.
Any notice or other communication given or required to be given under
this Lease shall be in writing and shall be deemed to have been given (i) on
the third (3rd) day following the day on which the same shall have been mailed
by United States registered or certified mail, return receipt requested, with
all postal charges prepaid, or (ii) the next day if sent by national overnight
courier service with receipt acknowledged in writing, or (iii) on the day
received if sent by facsimile with printed confirmation of receipt (and with a
hard copy sent by U.S. mail) in either case addressed to Landlord or Tenant to
the respective notice addresses set forth in the preamble paragraph of this
Lease and/or such other addresses as either party may designate to the other by
notice in accordance with this Section.
Section 17.2. Notices to Mortgagees.
If any Mortgagee shall notify Tenant that it is the holder of a
Mortgage affecting the Premises, and shall thereby request copies of all
notices from Tenant, no default notice or demand thereafter sent by Tenant to
Landlord shall be effective unless and until a copy of the same shall also be
sent to such Mortgagee in the manner prescribed in Section 17.1 and to such
address as such Mortgagee shall designate.
Section 17.3. Estoppel Certificate.
Tenant agrees from time to time, upon not less than ten (10) days'
prior written request by Landlord, to execute, acknowledge and deliver to
Landlord a statement in writing, in the form attached as Schedule H, certifying
that this Lease is unmodified and in full force and effect and that Tenant has
no defenses, offsets or counterclaims against its obligations to pay the Base
Rent, and Additional Rent and to perform its other obligations under this
Lease, and that there are no uncured defaults of Landlord or Tenant under this
Lease, and the dates through which all Rent has been paid, and all such other
or further matters as are set forth therein. The statement delivered pursuant
to this Section 17.3 may be relied upon by any purchaser or Mortgagee, or
prospective Purchaser or Mortgagee, of the Building. Landlord agrees to
provide a similar certificate to Tenant on the same terms.
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ARTICLE 18
MISCELLANEOUS
Section 18.1. Modification.
It is a condition that this Lease is subject to the approval of
Teachers Insurance and Annuity Association of America. In addition, if in the
future and in connection with obtaining any financing for the Building, a
Lender shall request reasonable modifications in this Lease as a condition to
such financing, Tenant will not on unreasonably withhold, delay or defer
Tenant's consent thereto; provided, that the modification would not increase
the obligations of Tenant hereunder or materially adversely affect the
leasehold interest hereby created or Tenant's rights granted hereunder.
Section 18.2. Memorandum of Lease.
(a) Landlord and Tenant shall, at the request of either party,
execute, acknowledge and deliver to the other party a memorandum of this Lease
(the "Lease Memorandum") in recordable form, setting forth the date of this
Lease, the names of the parties hereto, the Rent Commencement Date and
describing the Premises and Tenant's expansion options, Tenant's rights to
renew this Lease and the Project. Said Lease Memorandum shall not in any
circumstances be deemed to modify or to change any of the provisions of this
Lease. Tenant may elect, at its sole expense, to record the Lease Memorandum.
(b) In the event that Landlord and Tenant execute such Lease
Memorandum, each party shall after the expiration or termination of the Term,
at the request of the other party, execute, acknowledge and deliver a
memorandum in recordable form evidencing the expiration or termination of this
Lease, and if such party fails to execute such memorandum within fifteen (15)
days after the date of such request, such party hereby irrevocably appoints the
requesting party as its attorney-in-fact to execute and deliver such memorandum
on behalf of such party. The memorandum of termination shall be recorded at
Tenant's expense.
Section 18.3. Remedies Cumulative.
No reference to any specified right or remedy shall preclude either
party from exercising any other right or from having any other remedy or from
maintaining any action to which it may otherwise be entitled at law or in
equity. No failure by either party to insist upon the strict performance of
any agreement, term, covenant or condition hereof, or to exercise any right
remedy consequent upon a breach hereof, and no acceptance of full
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or partial Rent during the continuance of any such breach, shall constitute a
waiver of any such breach, agreement, term, covenant or condition. No waiver
by either party any breach by the other party under this Lease (or any waiver
by Landlord of any breach by any other tenant under any other lease of any
portion of the Building) shall affect or alter this Lease in any way
whatsoever.
Section 18.4. Successors and Assigns.
Landlord may, at any time, assign collaterally or otherwise transfer
any or all of its right, title and interest in the Building, or any portion
thereof, and this Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon Landlord, its successors and
assigns, and shall be binding upon Tenant, its successors and assigns and shall
inure to the benefit of Tenant, and, subject to the provisions of Article 13,
only such assigns of Tenant to whom the assignment of this Lease by Tenant has
been consented to by Landlord. Upon any sale or other transfer by Landlord of
its interest in the premises, Landlord shall be relieved of any obligations
under this Lease accruing thereafter.
Section 18.5. Compliance with Laws and Regulations.
(a) Tenant, at its expense, shall comply with and shall cause the
Premises to comply with all federal, state, municipal and other governmental
statutes, laws, rules, orders, regulations and ordinances (including, without
limitation, environmental laws, rules, orders, regulations and ordinances)
relating to Tenant's particular use and occupancy of the Premises or any part
thereof, or the use thereof, including those which require the making of any
unforeseen or extraordinary changes, whether or not any such statutes, laws,
rules, orders, regulations or ordinances which may be hereafter enacted involve
a change of policy on the part of the governmental body enacting the same.
Tenant's construction and design of the improvements (as described in Article
2) shall be in compliance with, inter alia the ADA. Tenant shall also, at its
expense, comply and cause the Premises to comply with all rules, orders and
regulations of the National Board of Fire Underwriters or Landlord's fire
insurance rating organization or other bodies exercising similar functions in
connection with the prevention of fire or the correction of hazardous
conditions, which apply to the Premises. In addition, subject to Section
2.5(a) above, Tenant shall be solely responsible for obtaining, at its sole
cost and expense, all occupational or business licenses or permits necessary to
operate the Premises for the Permitted Use, and the inability to obtain the
same shall not relieve Tenant from liability hereunder.
(b) Landlord, at its expense, shall comply with and shall cause
the Common Areas to comply with all federal, state,
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municipal and other governmental statutes, laws, rules, orders, regulations and
ordinances (including, without limitation, environmental laws, rules, orders,
regulations and ordinances) affecting the Common Areas or any part thereof, or
the use thereof, including those which require the making of any unforeseen or
extraordinary changes whether or not any such statutes, laws, rules, orders,
regulations or ordinances which may be hereafter enacted involve a change of
policy on the part of the governmental body enacting the same. Landlord shall
also, at its expense, comply with all rules, orders and regulations of the
National Board of Fire Underwriters or the Landlord's fire insurance rating
organization or other bodies exercising similar functions in connection with
the prevention of fire or correction of hazardous conditions, which apply to
the Building.
Section 18.6. Captions and Headings.
The Table of Contents, the Table of Defined Terms and the Article and
Section captions and headings are for convenience of reference only and in no
way shall be used to construe or modify the provisions set forth in this Lease.
Section 18.7. Joint and Several Liability.
If two or more individuals, corporations, limited liability companies,
partnerships or other business associations (or any combination of two or more
thereof) shall sign this Lease as Tenant, the liability of each individual,
corporation, limited liability company, partnership or other business
association to pay Rent and perform all other obligations hereunder shall be
deemed to be joint and several, and all notices, payments and agreements given
or made by, with or to any one of such individuals, corporations, limited
liability companies, partnerships or other business associations shall be
deemed to have been given or made by, with or to all of them. In like manner,
if Tenant shall be a partnership or other business association, the members of
which are, by virtue of any statute or federal law, subject to personal
liability, the liability of each such member shall be joint and several.
Section 18.8. Broker's Commissions.
Tenant represents and warrants to Landlord that it has dealt directly
with and only with Grubb & Ellis of Metropolitan Washington, D.C. ("G&E") as
Tenant's authorized representative, and Landlord and Landlord's leasing agent
recognize G&E as Tenant's authorized representative. Landlord shall pay G&E
for its services in connection with this Lease pursuant to a separate
agreement. Landlord represents that Landlord has dealt directly with and only
with Faison & Associates, Inc. ("Faison") as its authorized representative, and
Tenant and G&E recognize Faison as
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Landlord's authorized representative. Landlord shall pay Faison for its
services in connection with this Lease pursuant to a separate agreement. Each
party further represents to the other that it has dealt with no other broker,
finder or other person who may be entitled to brokerage commissions or finders
fees in connection with the execution of this Lease other than as specifically
set forth above. Each party hereby agrees to defend, indemnify and hold
harmless the other against and from all liability arising from any breach of
such representation or obligation by the indemnifying party, including without
limitation the costs of reasonable attorneys' fees in connection therewith.
Section 18.9. No Discrimination.
It is intended that the Building shall be developed so that all
prospective tenants thereof and all customers, employees, licensees and
invitees of all tenants hereof shall have the opportunity to obtain all of the
goods, services, accommodations, advantages, facilities and privileges of the
Building without discrimination because of race, color, religion, sex or
national origin. To that end, Tenant shall not discriminate in the conduct and
operation of its business in the Premises against any person or group of
persons because of the race, color, religion, sex or national origin of such
person or group of persons.
Section 18.10. No Joint Venture.
Any intention to create a joint venture or partnership relationship
between the parties hereto is expressly disclaimed.
Section 18.11. Schedules.
Any documents attached hereto as Schedules, together with all drawings
and documents prepared pursuant thereto or referred to therein are hereby
incorporated herein and made a part hereof.
Section 18.12. Severability.
If any term or provisions, or any portion thereof, of this Lease, or
the application thereof to any person or circumstances shall, to any extent, be
rendered invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held specifically invalid or unenforceable, shall not
be affected thereby, and each term and provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
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Section 18.13. No Third Party Beneficiary.
Nothing contained in this Lease shall be construed so as to confer
upon any other party the rights of a third party beneficiary, except rights
contained herein for the benefit of any Mortgagee.
Section 18.14. Corporate Tenants.
In the event Tenant is a corporation, the person executing this Lease
on behalf of Tenant hereby covenants and warrants that: (a) Tenant is a duly
constituted corporation qualified to do business in the Commonwealth of
Virginia; (b) all of Tenant's franchise and corporate taxes have been paid to
date; (c) all future forms, reports, fees and other documents necessary for
Tenant to comply with applicable laws shall be filed by Tenant when due; and
(d) such persons are duly authorized by the board of directors of such
corporation to execute and deliver this Lease on behalf of the corporation.
Section 18.15. Applicable Law.
This Lease and the rights and obligations of the parties hereunder
shall be construed in accordance with the laws of the Commonwealth of Virginia,
and any action or proceeding arising hereunder shall be brought in the United
States District Court for the Commonwealth of Virginia or any successor court
thereto.
Section 18.16 Waiver of Jury Trial.
With respect to any and all issues arising under or in any manner
connected with the entry into or performance under this Lease, Tenant and
Landlord, on behalf of themselves and their successors and assigns, hereby
mutually waive the right to request a trial by jury, in any action or
proceeding between the parties or in which the parties hereto and other persons
have been joined.
Section 18.17 Limitation of Liability.
(a) Anything contained in any provisions of this Lease to the
contrary notwithstanding, in consideration of the benefits accruing hereunder,
Tenant, for itself, and its successors and assigns, covenants and agrees that
in the event of any actual or alleged failure, breach or default hereunder by
Landlord, its successors or assigns (and with respect to items (ii) through
(vii), except in each instance for any act or omission taken by any below-named
person in an individual capacity, acting outside of the scope of such person's
corporate authority where such act or omission would subject such person to
personal liability under applicable law):
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(i) the sole and exclusive remedy shall be against the
entity then constituting Landlord and shall be limited to Landlord's equity
interest in and to the Building;
(ii) no partner, officer, director or stockholder of
Landlord, or partner, trustee, officer, director or stockholder of any entity
having a direct or indirect financial interest in Landlord, and no employees or
agents of any such entities, shall be sued or named as a party in any suit or
action (except when required for procedural purposes);
(iii) no service of process shall be made against any
partner, officer, director or stockholder of Landlord, or partner, trustee,
officer, director or stockholder of any entity having a direct or indirect
financial interest in Landlord (except when required for procedural purposes);
(iv) no partner, officer, director or stockholder of
Landlord, or partner, trustee, officer, director or stockholder of any entity
having a direct or indirect financial interest in Landlord, and no employees or
agents of any such entities, shall be required to answer or otherwise plead to
any service of process (except when required for procedural purposes);
(v) no judgment shall be taken against any partner,
officer, director or stockholder of Landlord, or partner, trustee, officer,
director or stockholder of any entity having a direct or indirect financial
interest in Landlord, or against any employee or agent of any such entities;
(vi) any judgment taken against any partner, officer,
director, or stockholder of Landlord, or partner, trustee, officer, director or
stockholder of any entity having a direct or indirect financial interest in
Landlord, or against any employee or agent of any such entities, may be vacated
and set aside at any time nunc pro tunc;
(vii) no writ of execution shall ever be levied against the
assets of any partner, officer, director or stockholder of Landlord or any
assets of Landlord, or of any partner, trustee, officer, director or
stockholder of any entity having a direct or indirect financial interest in
Landlord, or against the assets of any trustee, employee or agent of any such
entities, other than as specified in clause (i) of this Section 18.17(a); and
Landlord shall, in no event, be in default in the performance of its
obligations hereunder unless and until Landlord shall have failed to perform
such obligations within thirty (30) days, or such additional time as is
reasonably required to correct any default, after notice to Landlord specifying
the notice of such alleged default.
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(b) Anything contained in any provision of this Lease to the
contrary notwithstanding, in consideration of the benefits accruing hereunder,
Landlord, for itself and its successors and assigns, covenants and agrees that
in the event of any actual or alleged failure, breach, or default hereunder by
Tenant, its successors or assigns (and except in each instance for any act or
omission taken by any below-named person in an individual capacity, acting
outside of the scope of such person's corporate authority where such act or
omission would subject such person to personal liability under applicable law):
(i) no partner, officer, director, or stockholder of
Tenant or partner, trustee, officer, director, or stockholder of any entity
having a direct or indirect financial interest in Tenant, and no employees or
agents of any such entities, shall be sued or named as a party in any suit or
action (except when required for procedural purposes);
(ii) no service of process shall be made against any
partner, officer, director, or stockHolder of Tenant or against any partner,
trustee, officer, director, or stockholder of any entity having a direct or
indirect financial interest in Tenant (except when required for procedural
purposes);
(iii) no partner, officer, director, or stockholder of
Tenant or partner, trustee, officer, director, or stockholder of any entity
having a direct or indirect financial interest in Tenant, and no employees or
agents of any such entities, shall be required to answer or otherwise plead to
any service of process (except when required for procedural purposes);
(iv) no judgment shall be taken against any partner,
officer, director, or stockholder of Tenant or against any partner, trustee,
officer, director, or stockholder of any entity having a direct or indirect
financial interest in Tenant or any employee or agent of any such entities;
(v) any judgment taken against any partner, officer,
director, or stockholder of Tenant, or against any partner, trustee, officer,
director, or stockholder of any entity having a direct or indirect financial
interest in Tenant, or against any employee or agent of any such entities, may
be vacated and set aside at any time nunc pro tunc; and
(vi) no writ of execution shall ever be levied against the
assets of any partner, officer, director, or stockholder of Tenant, or against
the assets of any partner, trustee, officer, director, or stockholder of any
entity having a direct or indirect financial interest in Tenant, or against the
assets of any trustee, employee, or agent of any such entities.
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Section 18.18 No Accord and Satisfaction.
The acceptance by Landlord of any sums from Tenant (whether as Rent or
otherwise) in amounts which are less than the amounts due and payable by Tenant
hereunder is not intended, nor shall be construed, to constitute an accord and
satisfaction of any dispute between Landlord and Tenant regarding sums due and
payable by Tenant hereunder, unless Landlord specifically deems it as such in
writing.
Section 18.19 Time of Essence.
Time is of the essence in each and every instance hereunder with
respect to the covenants, undertakings and conditions to be performed hereunder
by Tenant.
Section 18.20 "Person(s)" Defined.
The words "person" or "persons" as used herein, shall mean
individual(s), corporation(s), limited liability company(ies) partnership(s),
firm(s), other business association(s), or governmental entity or entities,
whichever is required by the context, or all of the foregoing if the context so
requires.
Section 18.21 Net Lease. INTENTIONALLY DELETED.
Section 18.22 Consents. In any instance in which either Landlord
or Tenant shall be requested to consent or approve any matter with respect to
which such party's consent or approval is required by any of the provisions of
this Lease, such consent or approval shall not be unreasonably withheld,
conditioned, delayed, or exercised except as may otherwise be expressly set
forth to the contrary in this Lease.
Section 18.23 Unilateral Amendment.
Landlord shall have the right at any time, and from time to time,
during the Term of this Lease, to unilaterally amend the provisions of this
Lease if Landlord is advised by its counsel that all or any portion of the
monies paid by Tenant to Landlord hereunder are, or may be deemed to be,
unrelated business income within the meaning of the United States Internal
Revenue Code or regulations issued thereunder, and Tenant agrees that it will
execute all documents or instruments necessary to effect such amendment or
amendments, provided that no such amendment shall result in Tenant having to
pay in the aggregate a larger sum of money on account of its occupancy of the
Premises under the terms of this Lease as so amended, and provided further that
no such amendment or amendments shall result in Tenant receiving under the
provisions of this Lease less services than it is entitled to receive, nor
services of a lesser quality; provided, however,
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that Tenant shall suffer no material or adverse effect as a result of any such
amendment.
Section 18.24 Integration of all Prior Agreements and Execution of
Lease.
THIS WRITING IS INTENDED BY THE PARTIES AS A FINAL EXPRESSION OF THEIR
AGREEMENT AND AS A COMPLETE AND EXCLUSIVE STATEMENT OF THE TERMS THEREOF, WITH
ALL NEGOTIATIONS, CONSIDERATIONS AND REPRESENTATIONS BETWEEN THE PARTIES HAVING
BEEN INCORPORATED HEREIN. NO COURSE OF PRIOR DEALINGS BETWEEN THE PARTIES OR
THEIR OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES SHALL BE RELEVANT OR ADMISSIBLE
TO SUPPLEMENT, EXPLAIN, OR VARY ANY OF THE TERMS OF THIS LEASE. ACCEPTANCE OF,
OR ACQUIESCENCE IN, A COURSE OF PERFORMANCE RENDERED UNDER THIS LEASE OR ANY
PRIOR AGREEMENT BETWEEN THE PARTIES OR THEIR AFFILIATES SHALL NOT BE RELEVANT
OR ADMISSIBLE TO DETERMINE THE MEANING OF ANY OF THE TERMS OF THIS LEASE. NO
REPRESENTATIONS, UNDERSTANDINGS OR AGREEMENTS HAVE BEEN MADE OR RELIED UPON IN
THE MAKING OF THIS LEASE OTHER THAN THOSE SPECIFICALLY SET FORTH HEREIN. ALL
PRIOR COMMUNICATIONS FROM LANDLORD WITH RESPECT TO ESTIMATED CHARGES PAYABLE BY
TENANT HEREUNDER ARE FOR INFORMATION ONLY AND ARE NOT TO BE CONSTRUED AS
REPRESENTATIONS OF THE ACTUAL CHARGES WHICH TENANT IS REQUIRED TO PAY
HEREUNDER, OR AS BINDING UPON LANDLORD IN ANY MANNER WHATSOEVER. THIS LEASE
CAN BE MODIFIED ONLY BY A WRITING SIGNED BY EACH OF THE PARTIES HERETO.
THE SUBMISSION OF THIS LEASE FOR EXAMINATION DOES NOT CONSTITUTE A
RESERVATION OF OR OPTION FOR THE PREMISES OR ANY OTHER SPACE WITHIN THE
BUILDING. THIS LEASE SHALL BECOME EFFECTIVE ONLY UPON EXECUTION AND LEGAL
DELIVERY THEREOF BY THE PARTIES HERETO. THIS LEASE MAY BE EXECUTED IN MORE
THAN ONE COUNTERPART, AND EACH SUCH COUNTERPART SHALL BE DEEMED AN ORIGINAL
DOCUMENT.
If Tenant is a corporation, the authorized officers must sign on
behalf of the corporation, and by doing so such officers make the covenants and
warranties contained in Section 19.14. This Lease must be executed for Tenant,
if a corporation, by the president or a vice-president and by the secretary or
an assistant secretary, unless the by-laws or a resolution of the board of
directors shall provide that other officers are authorized to execute this
Lease, in which event, a certified copy of the by-laws and resolutions must be
furnished.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto, by their duly authorized representatives, have executed this Lease as
of the day and year first above written.
ATTEST OR WITNESS: LANDLORD:
FAIRFAX SQUARE ASSOCIATES II,
A VIRGINIA GENERAL PARTNERSHIP
By: MAV Properties, Inc., a
general partner
[SIG] By:/s/ JAMES M. FITZPATRICK (SEAL)
- --------------------------- ------------------------
JAMES M. FITZPATRICK
VICE-PRESIDENT
ATTEST OR WITNESS: TENANT:
NHP INCORPORATED, A DELAWARE
CORPORATION
[SIG] By: [SIG] (SEAL)
- ----------------------------- -----------------------------
SECRETARY PRESIDENT AND CHIEF EXECUTIVE
OFFICER
APPROVED, THIS 8th DAY OF December, 1995, AS MORTGAGEE HEREUNDER, PURSUANT
TO SECTION 18.1 OF THIS LEASE.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: [SIG] (SEAL)
------------------------
DIRECTOR
[ACKNOWLEDGMENTS ON NEXT PAGE]
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ACKNOWLEDGMENTS
STATE OF ___________________ )
) TO WIT:
CITY/COUNTY OF _____________ )
I HEREBY CERTIFY that on this 8th day of December, 1995, before me,
the subscriber, a Notary Public in and for the State referenced above,
personally appeared JAMES FITZPATRICK, who acknowledged himself to be the
Vice-President of MAV Properties, Inc., a general partner of Fairfax Square
Associates II, a Virginia general partnership, and did acknowledge that he as
such Vice-President of MAV Properties, Inc., a general partner of Fairfax
Square Associates II, executed the foregoing Office Lease Agreement for the
purposes therein contained, and further acknowledged the foregoing Office Lease
Agreement to be the act of the said MAV Properties, Inc., a general partner of
Fairfax Square Associates II.
AS WITNESS my hand and notarial seal.
/s/ Carmen Lowmark
-----------------------------------
Notary Public
My Commission Expires: CARMEN LOWMARK
-----------------------
Notary Public, State of N.Y.
No. 43-5011109
Qualified in Richmond County
Comm. Expires April 12, 1997
City of Washington )
) TO WIT:
District of Columbia )
I HEREBY CERTIFY that on this 6th day of December, 1995, before me, the
subscriber, a Notary Public in and for the jurisdiction referenced above,
personally appeared J. Roderick Heller, III, who acknowledged himself/herself to
be the President and CEO of NHP Incorporated, a Delaware corporation, and did
acknowledge that he as such President and CEO of NHP Incorporated executed the
foregoing Office Lease Agreement for the purposes therein contained, and further
acknowledged the foregoing Office Lease Agreement to be the act of the said NHP
Incorporated.
AS WITNESS my hand and notarial seal.
[SIG]
-----------------------------------
Notary Public
My Commission Expires: September 30, 1997
-----------------------
70
<PAGE> 81
SCHEDULE A
DRAWING SHOWING APPROXIMATE
LOCATION OF THE PREMISES
[FIGURE 1]
<PAGE> 82
FAIRFAX SQUARE
SCHEDULE A-1
LEGAL DESCRIPTION OF PROJECT
ALL of that certain property located in Fairfax County, Virginia,
described as follows, subject to a Deed of Trust:
Beginning at a point on the Southeasterly side of Aline Avenue (Route
3402) said point marking the P.C. of a return at the Southeasterly corner of
the intersection of Aline Avenue and Leesburg Pike (Route #7) as recorded among
the land records of Fairfax County, Virginia, in Deed Book 3578 at page 478;
thence with the Southwesterly side of Leesburg Pike the following courses: with
a curve to the right whose radius is 25.00 feet (and whose chord is N 88
degrees 58'57" E, 36.27 feet) an arc distance of 40.58 feet; S 44 degrees
30'41" E, 111.47 feet; with a curve to the left whose radius is 1945.08 feet
(and whose chord is S 46 degrees 17'41"E, 121.06 feet) an arc distance of
121.08 feet and S 48 degrees 04'41" E, 316.79 feet to a point on the Westerly
line of Builder of Northern Virginia, Inc.; thence with the Westerly and
Southerly lines of Builders of Northern Virginia, Inc., S 30 degrees 57'53" W,
431.98 feet and S 56 degrees 22'15" E, 20.74 feet to a point; thence running
through the property Freedom Hill Limited Partnership S 42 degrees 28'33" W,
295.93 feet N 47 degrees 31' 27" W, 682.15 feet to a point on the
aforementioned Southeasterly side of Aline Avenue; thence with the
Southeasterly side of Aline Avenue N 42 degrees 28'33" E, 696.46 feet to the
point of beginning, containing 10.58441 acres of land.
<PAGE> 83
FAIRFAX SQUARE
SCHEDULE B
LANDLORD'S SERVICES
I. CLEANING
A. Office Area
Daily: (Monday through Friday, inclusive, Saturdays, Sundays
and holidays excepted.)
1. Empty and clean all waste receptacles and ash trays and remove
waste material from the Premises; wash receptacles as
necessary.
2. Sweep and dust mop all uncarpeted areas using a dust-treated
mop.
3. Vacuum all rugs and carpeted areas.
4. Hand dust and wipe clean with treated cloths all horizontal
surfaces including furniture, office equipment, window sills,
file, telephones within normal reach.
5. Wash clean all water fountains.
6. Remove and dust under all desk equipment and telephone and
replace same.
7. Wipe clean all brass and other bright work.
8. Hand dust all grill work within normal reach.
9. Spot clean walls around light switches, door frame and glass
partitions.
10. Upon completion of cleaning, all lights will be turned off and
doors locked, leaving the Premises in an orderly condition.
<PAGE> 84
Weekly:
1. Dust coat racks, and the like.
2. Remove all finger marks from private entrance doors, light
switches and doorways.
3. Damp mop all hard surface floors.
Quarterly:
Render high dusting not reached in daily cleaning to include:
1. Dusting all pictures, frames, charts, graph, and similar wall
hangings.
2. Dusting all vertical surfaces, such as walls, partitions,
doors and ducts.
3. Dusting of all pipes, ducts, and high molding.
4. Dusting of all venetian blinds.
B. Lavatories
Daily: (Monday through Friday, inclusive; Saturdays, Sundays
and holidays, excepted).
1. Sweep and damp mop floors.
2. Clean all mirrors, powder shelves, dispensers and receptacles,
bright work, flushometers, piping, and toilet seat hinges.
3. Wash both sides of all toilet seats.
4. Wash all basins, bowls and urinals.
5. Dust and clean all powder room fixtures.
6. Empty and clean paper towel and sanitary disposal receptacles.
7. Remove waste paper and refuse.
8. Refill tissue holders, soap dispensers, towel dispensers,
vending sanitary dispensers; materials to be furnished by
Landlord.
2
<PAGE> 85
9. Spot clean walls, partitions and entry doors.
10. A sanitizing solution will be used in all lavatory cleaning.
Monthly:
1. Machine scrub lavatory floors. Reseal if needed.
2. Wash all partitions and tile walls in lavatories.
C. Main Lobby, Elevators, Building Exterior and Corridors
Daily: (Monday through Friday, inclusive; Saturdays,
Sundays and holidays expected).
1. Sweep and wash all floors.
2. Vacuum all rugs and carpeted areas.
3. Wash all rubber mats.
4. Wash, clean and empty all ashtrays.
5. Wash or vacuum floors, wipe down walls and doors.
6. Spot clean any metal work inside lobby.
7. Spot clean any metal work surrounding Building Entrance doors.
Monthly: All resilient tile floors in public areas to be treated
equivalent to spray buffing.
Semi-annually: 1. Shampoo (dry or wet as needed) all carpeting in
public areas including walk off-mats.
2. Strip and refinish all hard surface flooring.
D. Window Cleaning
Windows of exterior walls will be washed quarterly inside and
outside.
E. Tenant requiring services in excess of those described above
shall request same through Landlord, at Tenant's expense
3
<PAGE> 86
II. HEATING, VENTILATING, AIR CONDITIONING
A. Landlord shall, as part of the Operating Expenses for the
Property, furnish space heating and cooling as normal seasonal
changes may require to provide reasonable comfortable space
temperature and ventilation for occupants of the Premises
under normal business operation, daily from 8:00 A.M. to 6:00
P.M., Saturdays, 8:00 A.M. to 1:00 P.M.; Sundays and holidays
excepted. No credit shall be given to Tenant for any periods
during these hours when HVAC service is not required by
Tenant.
If Tenant shall require air conditioning or heating or
ventilation outside the hours and days specified above,
Landlord shall furnish such service at Tenant's expense.
B. The air conditioning system is based upon an occupancy of not
more than one person per 150 square feet of floor area, and
upon a combined lighting and standard electrical load not to
exceed 6.0 watts per square foot of usable area, unless as
otherwise set forth in the Lease or the Addendum. In the
event Tenant exceeds this condition or introduces ont the
Premises equipment which overloads the system, and/or in any
other way causes the system to not adequately perform to their
proper functions, supplementary systems may, at Landlord's
option, be provided by Landlord at Tenant's expense.
III. WATER
A. Cold water at temperatures supplied by the City of Falls
Church water mains for drinking, lavatory, kitchen, restaurant
and toilet purposes and hot water for lavatory purposes only
from regular building supply at prevailing temperatures;
provided, however, that Landlord may, at Landlord's expense,
install a meter or meters to measure the water supplied to any
kitchen(including dishwashing) and restaurant areas in the
Premises, in which case Tenant shall, upon Landlord's request,
reimburse Landlord for the cost of the water (including
heating thereof) consumed in such areas and the sewer use
charges resulting therefrom.
4
<PAGE> 87
IV. ELEVATORS
A. The passenger elevator system shall be in automatic operation
and available to Tenant at all times. The use of the service
elevator will be scheduled with the Landlord and coordinated
with the needs of the other tenant.
V. ELECTRICAL SERVICE
A. Landlord shall provide electric power for up to 1.8 watts per
square foot of usable area for lighting plus 0.5 watts per
square foot of usable area for office machines through
standard receptacles for the typical office space. Landlord
will furnish and install at Tenant's expense all replacement
lighting tubes, lamps, and ballasts required by Tenant.
Landlord will clean lighting fixtures on a regularly scheduled
basis at Tenant's expense.
VI. SECURITY AND ACCESS
A. Landlord shall provide a security card system at the first
floor entry lobby of both buildings and at no less than one
entrance of the garage for after hours tenant entry. Tenant
shall have access to the building and garage 24 hours per day,
three hundred and sixty-five days per year. The cost for
security entry cards shall be paid for by Tenant.
VII. COMMON AREAS; LANDSCAPING
A. Landlord shall:
(i) keep the sidewalks, plazas and landscaped areas
adjoining the Building and any other horizontal structural surfaces adjoining
or forming any part of the Project (other than horizontal surfaces above the
ground floor) free of accumulation of snow and ice, direct, refuse, rubbish and
unlawful obstructions:
(ii) keep the lobbies and the common and public areas of
the Building clean and presentable;
(iii) care for and maintain the shrubbery, planting and
landscaping if any, on the plaza or plazas adjacent to the Building or other
public areas of the Property.
5
<PAGE> 88
FAIRFAX SQUARE
SCHEDULE C
TENANT PLAN REQUIREMENTS
1. Floor plan indicating location of partitions and doors (details
required of partition and door types).
2. Location of standard electrical convenience outlets
and telephone outlets.
3. Location and details of all special electrical outlets; e.g., Xerox,
word processing, computer, including voltage, amperage, phase, and
NEMA outlet configuration.
4. Reflected ceiling plan showing layout of standard ceiling and lighting
fixtures fully coordinated with mechanical. Partitions to be shown
with switches located indicating fixtures to be controlled.
5. Locations and details of special ceiling conditions, lighting
fixtures, speakers, exit signs, etc.
6. Location and details of all plumbing fixtures, sinks drinking
fountains, etc.
7. Location and specifications of floorcovering, paint or paneling
with paint colors referenced to standard color system.
8. Finish schedule plan indicating wallcovering, paint, or paneling with
paint colors referenced to standard color system.
9. Details and specifications of special millwork, glass partitions,
rolling doors, blackboards, shelves, etc.
10. Hardware schedule indicating door number keyed to plan, size, hardware
required including butts, latchsets or locksets, closures, stops, and
any special items such as thresholds, soundproofing, etc. Keying
schedule is required.
11. Verified dimensions of all built-in equipment (file cabinets, kitchen
equipment, plan files, etc.)
12. Location and weights of storage files.
13. Location and details of any special soundproofing
requirements.
<PAGE> 89
14. Location and details of special floor areas exceeding 80 pounds of
live load per square foot.
15. Location and details of special air conditioning requirements such as
kitchens computer rooms, specifying the number of persons using the
room and the BTU/Hr heat rejection into the room for kitchen
equipment, computers, and other heat generating equipment.
16. All specific dimensions shall be from established reference points.
17. All drawings to be uniform size (30" x 42") and shall incorporate the
standard project electrical and plumbing symbols and be at a scale of
1/8" - 1' or larger.
18. Drawing submittal shall include one sepia and three blue
line prints of each drawing.
19. Specifications.
<PAGE> 90
FAIRFAX SQUARE
SCHEDULE D
TENANT INTERIOR FINISH
BUILDING STANDARDS
Drywall: 5/8" gypsum board either side of 2-2-1/2' wide 25
gauge metal studs spaces 24" on center. Partition is
to the underside of suspended ceiling tile. Taped
and bedded at drywall joints, ready for painted
finish.
Doors: Second floor corridor doors will match building standard only:
3'-0" x full height x 1-3/4" thick solid core doors with
premium grade, cherry hardwood veneer finish (both sides).
Frames: Second floor corridor doors will match building standard only:
3'-0" full height extruded aluminum frame to accommodate 3'-0"
full height door. Full length door silencer strips included.
Factory prefinished.
Hardware: Building standard keyway will be used at all doors
and frames.
Lockset: To be compatible with the Building's key system.
Ceiling Tile: Flush mounted 2'x2'x 5/8" Minatone by Armstrong acoustical
ceiling tile and Donn Fineline exposed stylized narrow
suspended ceiling grid.
Lighting: 2'x4' parabolic fixtures with three 40-watt lamps.
Energy saving ballast with air handling (return air)
capability.
Perimeter HVAC Flush mounted 4'-0" long, combination supply and Diffusers:
return air slot diffusers, as required per design.
Interior 24" x 24" perforated supply diffusers with flex
Diffusers: connections as required per design.
Thermostats: One thermostat for each HVAC zone per floor. Brushed metal
finish cover.
Sprinklers: Concealed sprinkler head with white cover plate to match
ceiling finish.
Fire Extin- Recessed with painted metal finish in color to
quisher match surrounding wall, equipped as required by
Cabinet: Code.
<PAGE> 91
Exit Lights: Ceiling mounted exit sign.
Fire Alarm Round 12" diameter white speaker mounted flush Speakers:
with ceiling tile, located as required by Code.
Smoke White 6" diameter ion detector, as required by
Detectors: Code.
Any deviation from the building standard items outlined herein must be
specifically approved in advance by Landlord. Landlord's approval of any plans
shall be deemed to evidence Landlord's approval.
<PAGE> 92
FAIRFAX SQUARE
SCHEDULE E
FORM OF COMMENCEMENT DATE NOTICE
THIS COMMENCEMENT DATE NOTICE is entered into this _______ day of
____________________ 199__, by FAIRFAX SQUARE ASSOCIATES II, a Virginia general
partnership ("Landlord"), and __________________________, a
_______________________ ("Tenant"), pursuant to the provisions of a certain
lease dated _____________________, 199__, by and between Landlord and Tenant
("Lease") covering certain space in the office/retail complex known as Fairfax
Square ("Building") located in Fairfax County, Virginia and more particularly
described in the Lease ("Premises"). All terms used herein shall have the
meaning assigned to such terms in the Lease.
W I T N E S S E T H:
1. The Building, the Premises, the parking facilities and all
other improvements required to be constructed and furnished by
Landlord in accordance with the terms of the Lease have been
satisfactorily completed by the Landlord and accepted by the
Tenant, subject to the completion of "punch list" items.
2. The Premises have been delivered to, and accepted by, the
Tenant.
3. The Commencement Date of the Lease is the _____ day of
___________________ 199__, and the Expiration Date is the
_____ day of _________________________ 199__.
4. The total GLA of the Tenant's Premises consists of ________
rentable square feet on the ____________ (_____) floor(s) of
the Building, subject to the provision of the Lease regarding
determination of the rentable square footage of the Premises.
<PAGE> 93
IN WITNESS THEREOF, Landlord and Tenant have executed and sealed this
Commencement Date Notice as of the day and year first above-written.
LANDLORD:
FAIRFAX SQUARE ASSOCIATES II
A VIRGINIA GENERAL PARTNERSHIP
By: MAV Properties, Inc.
its general partner
By:
---------------------------
Name:
Title:
TENANT:
-----------------------------------
By:
-------------------------------
Name:
Title:
2
<PAGE> 94
FAIRFAX SQUARE
SCHEDULE F
CURRENT RULES AND REGULATIONS
1. The sidewalks, lobbies, passages, elevators and stairways
shall not be obstructed by the Tenant and used by the Tenant for any purposes
other than ingress and egress from and to the Tenant's offices. The Landlord
shall in all cases retain the right to control or prevent access thereto by any
person whose presence, in the Landlord's reasonable judgment, would be
prejudicial to the safety, peace, character or reputation of the Building or of
any tenant of the Property.
2. The toilet rooms, water closets, sinks, faucets, plumbing and
other service apparatus of any kind shall not be used by the Tenant for any
purpose other than those for which they were installed, and no sweepings,
rubbish, rags, ashes, chemicals or other refuse or injurious substances shall
be placed therein or used in connection therewith by the Tenant, or left by the
Tenant in the lobbies, passages, or stairways of the Building.
3. No skylight, window, door or transom of the Building shall be
covered or obstructed by the Tenant, and no window shade, blind, curtain,
screen, storm window, awning or other material shall be installed or placed on
any window or in any window space, except as approved in writing by the
Landlord. If the Landlord has installed or hereafter installs any shade, blind
or curtain in the Premises, the Tenant shall not remove it without first
obtaining the Landlord's written approval thereto.
4. No sign, lettering, insignia, advertisement, notice or other
thing shall be inscribed, painted, installed, erected or placed in any portion
of the Premises which may be seen from outside the Building, or on any window,
window space or other part of the exterior or interior of the Building, unless
first approved in writing by the Landlord. Names on suite entrances shall be
provided by and only by the Landlord in accordance with the Lease, using in
each instance lettering of a design and in a form consistent with the other
lettering in the Building, and first approved in writing by the Landlord. The
Tenant shall/will not erect any stand, booth or showcase or other article or
matter in or upon the Premises and/or the Building without first obtaining the
Landlord's written approval thereto.
<PAGE> 95
5. The Tenant shall not place any additional lock, security
devises, or graphics upon any door or wall within or outside the Premises or
elsewhere upon the Property without Landlord's approval, and shall surrender
all keys for all such locks at the end of the Term. The Landlord shall provide
the Tenant with one set of keys to the Premises when the Tenant assumes
possession thereof.
6. The Tenant shall not do or permit to be done anything which
obstructs or interferes with the rights of any other tenant of the Property.
The Tenant shall not keep anywhere within the Property any matter having an
offensive odor, or any kerosene, gasoline, benzine, camphene, fuel or other
explosive or highly flammable material. No bird, fish or other animal shall be
brought into or kept in or about the Premises.
7. So that the Premises may be kept in a good state of
preservation and cleanliness, the Tenant shall, while in the possession of the
Premises, permit only the Landlord's employees and contractors to clean the
Premises unless prior thereto the Landlord otherwise consents in writing. The
Landlord shall not be responsible to the Tenant for any damage done to any
furniture or other property of the Tenant or any other person caused by any of
the Landlord's employees or any other person, for any loss sustained by any of
the Tenant's employees, or for any loss of property of any kind in or from the
Premises except where caused by the negligence, gross negligence or willful
misconduct of Landlord or those for whom Landlord is legally responsible. The
Tenant shall make reasonable efforts to see each day that the windows are
closed and the doors securely locked before leaving the Premises, and that all
lights and standard office equipment within the Premises are turned off.
8. If the Tenant desires to install signalling, telegraphic,
telephonic, protective alarm or other wires, apparatus or devices within the
Premises, the Landlord shall approve where and how they are to be installed
and, except as so directed, no installation, boring or cutting shall be
permitted. The Landlord shall have the right (a) to prevent or interrupt the
transmission of excessive, dangerous current of electricity or otherwise into
or through the Building or the Premises, (b) to require the changing of wiring
connections or layout, at the Tenant's expense, to the extent that the Landlord
may reasonably deem necessary, (c) to require compliance with such reasonable
rules as the Landlord may establish relating thereto, and (d) in the event of
noncompliance with such requirements or rules, immediately to cut wiring to do
whatever else it considers necessary to remove the danger, annoyance or
electrical interference with apparatus
2
<PAGE> 96
in any part of the Building. Each wire installed by the Tenant must be clearly
tagged at each distributing board and junction box and elsewhere where required
by Landlord, with the number of the office to such wire leads and the purpose
for which it is used, together with the name of the Tenant or other concern, if
any, operating or using it.
9. A main lobby directory will be provided by the Landlord at
Landlord's expense on which the Tenant's name may be placed.
10. No furniture or large equipment may be received in the
Building, except during such hours as are designated for such purpose by the
Landlord, and only after Tenant gives notice thereof to the Landlord. The
Landlord shall have exclusive right to prescribe the method and manner in which
any of the same is brought into or taken out of the Building, and the right to
exclude from the Building any heavy furniture, safe or other article which may
create a hazard and to require it to be located at a designated place in the
Premises. The Tenant shall not place any weight anywhere beyond the safe
carrying capacity of the Building. The cost of repairing any damage to the
Building or any other part of the Property caused by taking any of the same in
or out of the premises, or any damage caused while it is in the Premises or the
rest of the Building, shall be borne by the Tenant as Additional Rent.
11. Without the Landlord's prior written consent, (a) no
connection shall be made to any electrical wire for running any fan, motor or
other apparatus, device or equipment, (b) no large machinery of any kind other
than customary small business machinery shall be allowed in the Premises, (c)
no switchboard or telephone wiring or equipment shall be placed anywhere other
than were designated by the Landlord, and (d) no mechanic shall be allowed to
work in areas that may affect the base building systems in or about the
Building other than one employed by the Landlord, unless approved in writing by
Landlord.
12. The Landlord shall in no event be responsible for admitting or
excluding any person from the Premises. In case of invasion, hostile attack,
insurrection, mob violence, riot, public excitement or other commotion,
explosion, fire or any casualty, the Landlord shall have the right to bar or
limit access to the Building to protect the safety of occupants of the
Property, or any property within the Property.
3
<PAGE> 97
13. The Landlord shall as prescribed in the Lease have the right
to rescind, suspend or modify the Rules and Regulations and to promulgate such
other Rules or Regulations as, in the Landlord's reasonable judgment, are from
time to time needed for the safety, care, maintenance, operation and
cleanliness of the Building, or for the preservation of good order therein.
Upon the Tenant's having been given notice of the taking of any such action,
the Rules and Regulations as so rescinded, suspended, modified, or promulgated
shall have the same force and effect as if in effect at the time at which the
Tenant's lease was entered into (except that nothing in the Rules and
Regulations shall be deemed in any way to alter or impair any provisions of
such lease).
14. The use of any room within the Building as sleeping quarters
is strictly prohibited at all times.
15. The Tenant shall keep the windows and doors of the Premises
(including those opening on corridors and all doors between rooms entitled to
receive heating or air conditioning service and rooms not entitled to receive
such service), closed while the heating or air conditioning system is
operating, in order to minimize the energy used by, and to conserve the
effectiveness of, such system. The Tenant shall comply with all reasonable
Rules and Regulations from time to time promulgated by the landlord with
respect to such system or their use.
16. Nothing in these Rules and Regulations shall give Tenant any
right or claim against the Landlord or any other person if the Landlord does
not enforce any of them against any other tenant or person (whether or not the
Landlord has the right to enforce them against such tenant or person), and no
such nonenforcement with respect to any tenant shall constitute a waiver of the
right to enforce them as to the Tenant or any other tenant or person.
4
<PAGE> 98
FAIRFAX SQUARE
SCHEDULE G
AGREEMENT OF SUBORDINATION
NON-DISTURBANCE AND ATTORNMENT
Attached to and made part of Lease dated December 8, 1995
Between
FAIRFAX SQUARE ASSOCIATES II, Landlord
and
NHP INCORPORATED, Tenant
THIS AGREEMENT MADE AS OF THE 8th day of December, 1995, by and among
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation,
having its principal office and post office address at 730 Third Avenue, New
York, New York 10017 ("Teachers") and NHP INCORPORATED, having its principle
office and post office address at 1225 Eye Street, N.W., Suite 601, Washington,
D.C. 20005 ("Tenant"),
W I T N E S S E T H:
WHEREAS, FAIRFAX SQUARE ASSOCIATES II, a Virginia general partnership
("Landlord") is the owner in fee simple of those certain premises situate,
lying and being in Fairfax County, Virginia, as more particularly described in
Exhibit A attached hereto (the "Property"); and
WHEREAS, Teachers is the holder of and payee under certain promissory
notes dated September 29, 1989, April 3, 1991, and February 18, 1992, secured
by a Deed of Trust of even date therewith, recorded in Book 7439 at Page 524,
in the Office of the Land Records, Fairfax County, Virginia, with amendments
recorded therein in Book 7781 at Page 547, and in Book 8025 at Page 1836 (as
amended, the "Deed of Trust") constituting a first lien upon the fee simple
estate of Landlord;
WHEREAS under the terms of a certain lease dated December 8, 1995
("Lease"), Landlord did lease, let and demise, subject to the Deed of Trust, a
portion of the Property as therein more particularly described ("Premises");
WHEREAS, the parties hereto desire to establish additional rights of
quiet and peaceful possession for the benefit of Tenant under the Lease and
further to define the terms, covenants and conditions precedent for such
additional rights.
NOW, THEREFORE, in consideration of the respective demises and of the
sum of One Dollar ($1.00) and other good and valuable consideration, each to
the other in hand paid, it is hereby mutually covenanted and agreed as follows:
<PAGE> 99
1. That Teachers (in its capacity as the beneficiary
under the Deed of Trust) does hereby represent, covenant and warrant:
(a) That the Deed of Trust is in full force and effect
and unmodified.
(b) That there is no existing default under the
provisions of the Deed of Trust or in the performance
of any of the terms, covenants, conditions or
warranties thereof on the part of either Teachers or
Landlord to be observed and performed thereunder.
2. That Teachers (in its capacity as beneficiary under the Deed
of Trust) consents to and approves the Lease.
3. That Teachers (in its capacity as beneficiary under the Deed
of Trust) and Tenant do hereby covenant and agree that the Deed of Trust shall
be and the same is hereby made SUBORDINATE to the Lease with the same force and
effect as if the Lease had been executed, delivered and recorded prior to the
execution, delivery and recordation of the Deed of Trust,
EXCEPT, HOWEVER, that this Subordination shall not affect nor
be applicable to and does hereby expressly exclude:
(a) The prior right and claim under and the prior lien of
the Deed of Trust in, to and upon any award or other
compensation heretofore or hereafter to be made for
any taking by eminent domain of any part of the
Premises, and as to the right of disposition thereof
in accordance with the provisions of the Deed of
Trust, and
(b) Any lien, right, power or interest, if any, which may
have arisen or intervened in the period between the
recording of the Deed of Trust and the execution of
the Lease.
2
<PAGE> 100
4. That in the event of foreclosure under the Deed of Trust or
sale in lieu thereof, or the exercise of any other rights thereunder or under
the note which it secures or any related documents prior to the expiration date
of the Lease, including any extensions and renewals of the Lease now provided
thereunder, and subject to the observance and performance by Tenant of all of
the terms, covenants and conditions of the Lease on the part of Tenant to be
observed and performed, Teachers does hereby covenant and warrant as follows:
(a) The quiet and peaceful possession by Tenant of the
Premises under the Lease.
(b) That the Lease shall continue in full force and
effect and Teachers shall recognize the Lease and the
Tenant's rights thereunder and will thereby establish
direct privity of estate and contract as between
Teachers and Tenant, with the same force and effect
and with the same relative priority in time and right
as though the Lease were originally made directly
from Teachers in favor of Tenant, but not in respect
of any amendment to such Lease not previously
approved in writing by Teachers.
(c) To assume such of the obligations on the part of the
Landlord under the Lease which are deemed to run with
the land and for so long as Teachers shall be the
owner in fee of the Premises; provided, however,
Teachers shall not in any way or to any extent be
liable to Tenant:
(1) For restoration of improvements following any
casualty not required to be insured under the
Lease or for the costs of any restoration in
excess of the proceeds recovered under any
insurance required to be carried under the
Lease;
(2) For any prepayment of rent or deposit, rental
security or any other sums deposited with the
original or any prior landlord under the
Lease and not delivered to Teachers; or
(3) For any restrictions on competition beyond
the Premises.
5. That in the event of default under the Deed of Trust and upon
notice from Teachers to Tenant, prior to the expiration date of the Lease,
including any extensions and renewals of the Lease now provided thereunder,
Tenant hereby covenants and agrees to make full and complete attornment to
Teachers, for the balance of the term of the Lease, including any extensions
and renewals thereof, now provided thereunder,
3
<PAGE> 101
upon the same terms, covenants and conditions as therein provided, so as to
establish direct privity of estate and contract as between Teachers and Tenant
and with the same force and effect and relative priority in time and right as
though the Lease were originally made directly from Teachers to Tenant, and
Tenant will thereafter make all rent payments thereafter directly to Teachers.
6. That the terms, covenants and conditions hereof shall inure to
the benefit of and be binding upon the respective parties hereto, their
respective heirs, executors, administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this writing to be
signed, sealed and delivered in their respective names and behalf, and, if a
corporation, by its officers duly authorized, the day and year first above
written.
Very truly yours,
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
STATE OF NEW YORK )
) To Wit:
COUNTY OF )
------------
I HEREBY CERTIFY that on this ______ day of _______________ 1995,
before me, the undersigned, a Notary Public of said State, personally appeared
_____________________ known to me to be the person whose name is subscribed to
the within instrument, and acknowledged that he executed the same for the
purposes contained therein.
WITNESS my hand and Notarial Seal.
------------------------------
Notary Public
My Commission Expires:
- ----------------------------
4
<PAGE> 102
TENANT'S AGREEMENT
The undersigned, as Tenant under the Lease herein described, does
hereby accept and agree to the terms of the foregoing Subordination, which
shall inure to the benefit of and be binding upon the undersigned and the
heirs, executors, administrators, legal representatives, successors and assigns
of the undersigned.
NHP INCORPORATED
By: [SEAL]
-------------------------------
Name:
-----------------------------
Title:
----------------------------
CITY OF WASHINGTON )
) To Wit:
DISTRICT OF COLUMBIA )
I HEREBY CERTIFY that on this _____ day of ___________ 1995, before
me, the undersigned, a Notary Public of said State, personally appeared
_____________________ known to me to be the person whose name is subscribed to
the within instrument, and acknowledged that he executed the same for the
purposes contained therein.
WITNESS my hand and Notarial Seal.
------------------------------
Notary Public
My Commission Expires:
- ----------------------------
5
<PAGE> 103
FAIRFAX SQUARE
SCHEDULE H
STATEMENT OF TENANT IN RE: LEASE
Teachers Insurance and Annuity Date:_____________
Association of America
730 Third Avenue
New York, NY 10017
Re: Address:_________________________
Your Appl. No.:_______________________
Gentlemen:
It is our understanding that you have committed to place a mortgage
upon the subject premises and as a condition precedent thereof have required
this certification by the undersigned.
The undersigned, as Lessee, under that certain lease dated
____________________, made with FAIRFAX SQUARE ASSOCIATES II, as Lessor, hereby
certifies that:
1. the undersigned has entered into occupancy of the premises
described in said lease on ________________; and
2. the undersigned is presently open and conducting business with
the public in the premises; and
3. the base rental in the annual amount of $___________ was
payable from the date of occupancy;
4. said lease is in full force and effect and has not been
assigned, modified, supplemented or amended in any way (except
by agreement(s) dated ____________), and neither party thereto
is in default thereunder; and
5. the same represents the entire agreement between the parties
as to this leasing; and
6. the Term of said lease expires on _______________; and
<PAGE> 104
7. all conditions under said lease to be performed by the Lessor
have been satisfied, including but without limitation, all co-
tenancy requirements thereunder; and,
8. all required contributions by Lessor to Lessee on account of
Lessee's improvements have been received; and,
9. on this date there are no existing defenses or offsets which
the undersigned has against the enforcement of said lease by
the Lessor; and,
10. norental has been paid through ___________, 19___, and no
security (or in the amount of $____________) has been deposited
with the lessor; and,
11. rental for ___________, 19___, has been paid.
Very truly yours,
(Tenant)_____________________________
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 105
FAIRFAX SQUARE
SCHEDULE I
BASE BUILDING DESCRIPTION
"Base Building" shall mean the condition of the Building with the following
improvements completed and substantially in accordance with Base Building
Plans:
1. Complete building and site, including all public spaces, main building
lobbies (first floor only), parking garage, and elevators;
2. All central engineering systems (such as life safety, HVAC, electrical
and plumbing), including those components required for vertical and
horizontal distribution of the central engineering systems sized for
normal office occupancy;
3. Men's and ladies' bathroom facilities, with doors, lighting, fixtures,
and finishes located on each office floor;
4. Drinking fountains installed and operational;
5. Fire extinguisher as required by county codes for an open floor plan,
installed in stairways or core;
6. Building fire stairs installed, and surrounding walls installed,
taped, and floated;
7. Building core installed, with walls installed, taped, and floated, and
with elevator shaft doors and frames completed;
8. Electrical and telephone distribution rooms installed on each level;
9. Unfinished interior of exterior walls (with wall board portions of
exterior walls taped and floated ready for surface treatments) and
glass windows and frames installed;
10. Broom-cleaned unfinished concrete floors; leveled and smoothed
according to base building specifications;
11. 120-volt power for typical office receptacle use supplied to the
electrical closet on each floor of the leased premises;
12. Main heating, ventilating and air-conditioning duct work completed to
the mixing boxes;
<PAGE> 106
13. 277/480 volt power for typical office fluorescent lighting supplied to
the electrical closet on each floor of the leased premises;
14. Sprinkler risers and main loop installed on each floor with capacity
based on an open floor plan with runouts and heads as required by
county codes.
2
<PAGE> 107
NHP
[FIGURE 2]
<PAGE> 108
FAIRFAX SQUARE
SCHEDULE K
DUTIES OF CONSTRUCTION MANAGER
As Construction Manager, Landlord (or its affiliate) will:
PRECONSTRUCTION
1. Identify the responsibilities of each of the team members and
participate in the development and execution of these responsibilities.
2. Establish a schedule of critical dates and coordinate the
implementation of all tasks required for maintaining the
project schedule.
3. Develop and maintain a project schedule for design and construction
based on the executed Lease.
4. Review the development of the Tenant's Plans and the Construction
Documents for Lease compliance as well as adherence to Project schedule
and budget.
5. Develop budget pricing and/or obtain pricing from contractors for
construction costs.
6. Assist in pre-qualifying potential contractors for bid with Tenant.
7. Prepare bid analysis and make recommendations as to award of
contract(s).
8. Negotiate and administrate contracts for construction.
9. Assist General Contractor in obtaining building permit and special
permits as may be required, except for permits to be obtained
directly by contractors.
10. Develop and maintain job cost system for tracking Project costs.
11. Provide regular status reports as to the progress of the Project.
CONSTRUCTION
1. Provide administration of the contract(s) for construction.
2. Revise and refine Project budget and schedule to reflect contractor,
Tenant and Tenant's architect input.
<PAGE> 109
3. Collect necessary documentation from contractor(s) prior to
commencement of construction, i.e., insurance certificates, bonds, etc.
4. Schedule, conduct, and record regular progress meetings with Tenant,
contractor(s), and architect to review and resolve potential
outstanding items.
5. Monitor Project cost control system identifying variances between
actual and budget costs. This system will also track Allowance
expenditures.
6. Identify costs recoverable from Tenant and Landlord under the Lease.
7. Obtain Tenant's approvals and issue Tenant notifications as they relate
to the design and construction.
8. Review and approve in conjunction with the architect the contractor's
Certificates for Payment.
9. Review request for changes, assist in negotiating contractor's
proposals, and submit recommendations as to their acceptability.
10. Assist the architect in the review, evaluation and documentation of
claims.
11. Assist Tenant and architect in conducting inspections to determine
whether the work is substantially complete.
12. Obtain the Certificates of Occupancy.
13. Assist the Tenant and Tenant's architect in the preparation of a
punchlist of incomplete or unsatisfactory items and obtain from the
contractor a schedule for their completion. Assist in determining
value of punchlist items to be held as retainage.
14. Monitor completion of punchlist items and schedule final inspection.
15. Coordinate turnover of Premises and Storage Space to Tenant with
delivery of warranties, keys, manuals, record drawings, balance
reports, etc.
16. Review final application for payment, and assure all required
documentation has been submitted including final lien waivers.
- 2 -
<PAGE> 110
FAIRFAX SQUARE
SCHEDULE L
PRIOR RIGHTS OF CURRENT TENANTS
As to both the Recurring ROFO and the Secondary ROFO, Informix Software, Inc.
has a right of first refusal on the sixth floor, and a right of first offer on
the balance of the Building.
<PAGE> 1
EXHIBIT 10.25
PHG/JLK/kk
3/13/96
K E Y S T O N E O F F I C E
L E A S E
(9200 Building)
THIS LEASE is made this 14 day of March, 1996, by and between WRC
PROPERTIES, INC., a Delaware corporation with offices at 730 Third Avenue, New
York, New York 10017 ("Landlord"), and NHP INCORPORATED, a Delaware corporation
("Tenant").
W I T N E S S E T H:
ARTICLE 1 - LEASE OF PREMISES
SECTION 1.01. LEASE OF PREMISES. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord, subject to all matters affecting title and all of
the terms and conditions hereinafter set forth, office space in the office
building described below which is commonly known as 9200 Keystone Crossing,
Indianapolis, Marion County, Indiana, and which is situated on the tract of
land described in Exhibit A-1 attached hereto (the "Building") for the term
hereinafter specified. The space in the Building hereby leased to Tenant is
set forth in Item A of the Basic Lease Provisions and is outlined in red on
Exhibit A-2 attached hereto (the "Leased Premises"). Common areas and areas
rented to or available for rental by other tenants are not within the Leased
Premises and Tenant has no rights or interests in or to the same except as
herein expressly provided. Elevators shall not be leased to Tenant and shall
remain under Landlord's control.
SECTION 1.02. BASIC LEASE PROVISIONS.
A. Building Name: Keystone Crossing Office Park;
Floors: 5th, 6th, 7th; Address: 9200 Keystone Crossing,
Indianapolis, Indiana, 46240; Suite: 500;
*B. Rentable Area: commencing August 1, 1996 - approximately 50,007
rentable square feet [comprised of 19,893 rentable square feet on the
5th floor, 19,891 rentable square feet on the 6th floor, and 10,223
rentable square feet on the 7th floor (the "Original Premises")];
commencing April 1, 1997 - an additional 596 rentable square feet
located on the 7th floor (the "Additional Space") for a total of
approximately 50,603 rentable square feet (collectively, the Original
Premises and the Additional Space shall be referred to as the "Leased
Premises");
- --------------------------------------------------------------------------------
* Commencement and expiration dates and rental amounts shall be adjusted, if
necessary, to reflect date of substantial completion of the Original Premises
and Additional Space in accordance with Article 2.
<PAGE> 2
Landlord shall use commercially reasonable standards, in accordance
with Exhibit A-3 attached hereto, consistently applied, in determining
the Rentable Area and the Rentable Area of the Building. The Rentable
Area of the Leased Premises shall include the area within the Leased
Premises plus a pro rata portion of the area covered by the common
areas within the Building, as reasonably determined by Landlord.
Landlord and Tenant agree that the Rentable Area of the Leased
Premises and the Building are as set forth herein.
*C. Building Expense Percentage: commencing August 1, 1996 - 33.48%
(50,007/149,350); commencing April 1, 1997 - 33.88% (50,603/149,350);
*D. Minimum Annual Rent:
Year 1 $708,991.63
Year 2 $779,286.24
Year 3 $779,286.24
Year 4 $779,286.24
Year 5 $779,286.24
Year 6 $779,286.24
*E. Monthly Rental Installments:
Month 1 $ 0.00
Months 2-8 $ 64,175.65
Months 9-72 $ 64,940.52
F. Term: Six (6) years and zero (0) months;
*G. Target Commencement Date: July 15, 1996 for the Original Premises;
April 1, 1997 for the Additional Space;
H. Security Deposit: N/A;
I. Brokers: Duke Realty Services Limited Partnership representing
Landlord and Bremner & Wiley, Inc. and Grubb & Ellis representing
Tenant;
J. Permitted Use: General office purposes;
K. Space Plan Approval Date: March 15, 1996 (See Exhibit B);
L. Options: One option to extend for 5 years (See Section 18.24);
*M. Target Expiration Date: July 31, 2002;
- --------------------------------------------------------------------------------
* Commencement and expiration dates and rental amounts shall be adjusted, if
necessary, to reflect date of substantial completion of the Original Premises
and Additional Space in accordance with Article 2.
-2-
<PAGE> 3
N. Address for payments and notices:
Landlord: WRC Properties, Inc.
c/o Teachers Insurance & Annuity
Association of America
Attn: Real Estate Department
730 Third Avenue
New York, New York 10017
With Rental
Payments to: Duke Realty Services Limited
Partnership
Teachers Realty Corp. - WRC 1400
P.O. Box 66122
Indianapolis, Indiana 46266
Tenant: NHP Incorporated
9200 Keystone Crossing, Suite 500
Indianapolis, IN 46240
With a Copy to:
Before 5/20/96: NHP Incorporated
Attn: Arthur R. Dochterman
12355 Sunrise Valley Drive
Suite 300
Reston, VA 22091
After 5/20/96: NHP Incorporated
Attn: Arthur R. Dochterman
8065 Leesburg Pike
Vienna, VA 22182
SECTION 1.03. STATUS OF LANDLORD. Landlord has good and marketable fee simple
title to the Building. As of the date of execution of this Lease, the Building
is unencumbered by a mortgage or ground lease. Landlord is a corporation duly
organized and in good standing in the state of Delaware, has full right, power,
and authority to execute, deliver, and perform this Lease, and the person
signing on behalf of Landlord is authorized to do so by any and all necessary
corporate actions.
No litigation has been initiated or, to the knowledge of Landlord, threatened
against Landlord or against the Building which, if adversely determined, would
impair Landlord's ability to execute, deliver, and perform this Lease. Neither
Landlord, any affiliate of Landlord, nor the Building is subject to or
otherwise bound by any legal requirements or agreement (written or oral) which
would be breached, or which would result in the creation or imposition of any
title exception applicable to the Building, by Landlord's execution, delivery,
or performance of this Lease.
- --------------------------------------------------------------------------------
* Commencement and expiration dates and rental amounts shall be adjusted, if
necessary, to reflect date of substantial completion of the Original Premises
and Additional Space in accordance with Article 2.
-3-
<PAGE> 4
ARTICLE 2 - TERM AND POSSESSION
SECTION 2.01. TERM. The term of this Lease shall be the period of time
specified in Item F of the Basic Lease Provisions and shall commence on: (i)
the Target Commencement Date as provided in Item G of the Basic Lease
Provisions; or (ii) such earlier date as Tenant takes possession of the Leased
Premises for the normal conduct of its business; or (iii) such later date which
is fifteen (15) days after substantial completion of any work to be performed
by Landlord in the Leased Premises in accordance with Section 2.02, provided,
however, that the commencement date shall not be extended as a result of any
Tenant Caused Delay. "Tenant Caused Delay" shall mean any delay caused by or
resulting from: (1) failure of Tenant to deliver the space plan to Landlord
and Landlord's architect by March 15, 1996; (2) any change orders requested by
Tenant, provided that Landlord shall promptly notify Tenant if Landlord
anticipates that any such requested change order will cause a delay; (3)
failure of Tenant to timely or properly arrange its furnishings or be present
for any scheduled walk-through of the Original Premises or Additional Space, as
applicable, in order to obtain the architect's certificate of substantial
completion once the Original Premises or Additional Space, as applicable, are
otherwise substantially complete (as defined in Section 2.02); or (4) failure
of Tenant to cooperate with Landlord and respond promptly to any reasonably
request of Landlord.
The date of commencement as defined above, hereinafter called the "Commencement
Date," and the "Expiration Date" shall be confirmed by Tenant as provided in
Section 2.03.
SECTION 2.02. CONSTRUCTION OF TENANT FINISH IMPROVEMENTS AND POSSESSION.
Landlord agrees to perform and complete the work on the tenant finish
improvements in the Leased Premises in a good and workmanlike manner using new
materials, in accordance with Tenant's construction drawings which shall be
mutually agreed upon by both Landlord and Tenant (the "Tenant
Finish Improvements"), in an amount not to exceed Five Hundred Eighteen Thousand
Six Hundred Eighty Dollars and Seventy-five Cents ($518,680.75) (the
"Allowance"), subject to events and delays due to causes beyond its reasonable
control. A copy of Tenant's space plan for the Leased Premises is attached
hereto as Exhibit B. Upon completion and approval of the construction
drawings, on or before April 12, 1996, the construction drawings shall be
attached hereto as Exhibit B in lieu of the space plan. Landlord shall give
Tenant thirty (30) days prior written notice of the anticipated day on which
its work shall be substantially completed. "Substantial completion" and
"substantially complete" mean that date on which (i) all Tenant Finish
Improvements to the Original Premises or Additional Space, as applicable, have
been completed in accordance with Exhibit B, subject only to minor punchlist
items of work which do not substantially interfere with Tenant and Tenant's use
of the Original Premises or Additional Space, as applicable, (ii) all
governmental or quasi-governmental requirements applicable to the construction
and occupancy of the Original Premises or Additional Space, as applicable, are
satisfied (it being understood that the obligation to obtain the architect's
certificate of substantial completion shall be borne by Landlord, provided that
Tenant shall timely and properly arrange its furnishings and be available for
walk-throughs of the Original Premises or Additional Space, as applicable, and
shall otherwise cooperate with Landlord in obtaining such
-4-
<PAGE> 5
certificate), (iii) all major equipment and mechanical systems in the Original
Premises or Additional Space, as applicable, are in good working order, and
(iv) the Original Premises or Additional Space, as applicable, are broom clean.
Landlord shall use commercially reasonable efforts to substantially complete
the Tenant Finish Improvements in the Original Premises on or before July 15,
1996, and to substantially complete the Tenant Finish Improvements in the
Additional Space on or before April 1, 1997. Attached hereto as Exhibit E is
the proposed schedule for occupancy. Tenant shall have the right to terminate
this Lease if the Tenant Finish Improvements in the Original Premises are not
substantially completed by October 31, 1996.
Prior to the Commencement Date, Tenant, Landlord, and Tenant's architect shall
inspect the Original Premises and the Common Areas and Landlord, Tenant and
Tenant's architect shall prepare and execute a punch-list. Landlord shall
complete all punch-list items as soon as conditions practically permit, and
within sixty (60) days of substantial completion, provided, however, that in
the event one or more punch-list items cannot reasonably be completed within
such sixty-day period, and Landlord has diligently commenced completion thereof
within such period, the time for completion of such items shall be extended
until such items can reasonably be completed. Tenant shall reasonably
cooperate with Landlord in connection with the completion of any punch-list
items.
The Allowance shall be available for the cost of construction of Tenant Finish
Improvements, Tenant signage costs, voice and data cabling, telephone and
computer equipment relocation and the possible acquisition of a Liebert unit,
raised computer floor and security system from Roadway Global Air, Inc.
("Roadway"). Landlord shall use commercially reasonable efforts to make said
acquisition on behalf of Tenant. Tenant shall have the right and privilege of
going onto the Leased Premises from and after the date of substantial
completion of the Tenant Finish Improvements to complete interior decoration
work and to prepare the Leased Premises for its occupancy, provided, however,
that its schedule in so doing shall be communicated to Landlord and the
approval of Landlord secured, which approval shall not be unreasonably
withheld, delayed or conditioned, so as not to interfere with other work of
Landlord being carried on at the time; and provided further that Landlord shall
have no responsibility or liability whatsoever for any loss or damage to any of
Tenant's leasehold improvements, fixtures, equipment or any other materials
installed or left in the Leased Premises prior to the Commencement Date, except
for Landlord's gross negligence or willful misconduct. Landlord has no
construction or improvement obligations in connection with the Leased Premises
except as expressly set forth herein and in Exhibit B.
Notwithstanding anything contained herein to the contrary, Tenant shall be
required to allocate a minimum of Four Hundred Thirty Thousand One Hundred
Twenty-five Dollars and Fifty Cents ($430,125.50) of the Allowance for the cost
of construction of the Tenant Finish Improvements in the Leased Premises and,
to the extent Tenant purchases Roadway's Liebert unit, raised computer floor
and security system, to the acquisition thereof. The Allowance shall be
applied first to the cost of all Tenant Finish Improvements in the Leased
Premises and the aforementioned acquisition, and any remaining balance of the
Allowance, in excess of Four Hundred Thirty Thousand One Hundred Twenty-five
Dollars and Fifty Cents ($430,125.50), shall be
-5-
<PAGE> 6
available for other costs in accordance with the preceding paragraph. The
Minimum Annual Rent will be reduced by any unused balance of the Allowance
based on a straight-line amortization over the Lease Term.
Landlord shall provide Tenant with an additional tenant finish improvement
allowance to be used for tenant finish improvements in the Leased Premises, not
to exceed Eighty-eight Thousand Five Hundred Fifty-five Dollars and Twenty-five
Cents ($88,555.25), to be amortized over the term of the Lease at twelve
percent (12%) interest per annum and payable in equal monthly installments of
principal and interest (the "Additional Allowance"). Any costs in excess of
the Allowance and the Additional Allowance shall be Tenant's sole
responsibility and shall be paid by Tenant within thirty (30) days following
receipt of an invoice therefor.
Duke Construction Management, Inc. ("DCM") shall act as the Landlord's general
contractor. DCM will competitively bid all Tenant Finish Improvements and
manage the entire construction process. DCM will provide Tenant with a cost
summary breakdown for the scope of the project which will include a minimum of
two (2) estimates for each trade. Landlord agrees to review such estimates
with Tenant and to work with Tenant to mutually agree upon the selection of
subcontractors. Landlord reserves the right to select subcontractors based on
price, quality and delivery. As the general contractor, DCM will receive a
seven percent (7%) construction fee based on the total project cost.
Landlord shall contribute an amount not to exceed Twelve Thousand One Hundred
Dollars ($12,100.00) for costs incurred by Tenant for space plan/design,
selection of finishes, and review of final construction documents. Landlord
shall also pay for an architect to finalize and convert the space plan into
construction documents. Tenant shall have the right to review and approve the
construction documents prior to substituting them in place of the floor plan as
Exhibit B.
Landlord also agrees to upgrade and repair the seventh (7th) floor elevator
lobby and common area hallways prior to August 1, 1996. Such lobby and
hallways shall contain finishes which are comparable to those in other recently
upgraded elevator lobbies and common area hallways in other buildings owned by
Landlord in the area. Landlord shall also investigate and, if necessary,
repair the window seals in the Leased Premises.
SECTION 2.03. TENANT'S ACCEPTANCE OF THE LEASED PREMISES. Upon delivery of
possession of the Leased Premises to Tenant with the Tenant Finish Improvements
substantially completed as hereinbefore provided, Tenant shall execute a letter
of understanding acknowledging (i) the Commencement Date and Expiration Date of
this Lease, and (ii) that Tenant has accepted the Leased Premises for occupancy
and that the condition of the Leased Premises, including the Tenant Finish
Improvements constructed thereon, and the Building was at the time satisfactory
and in conformity with the provisions of this Lease in all respects, except for
any defects as to which Tenant shall give written notice to Landlord within one
(1) year after such delivery (the "Warranty Period"). Landlord shall promptly
thereafter, at its cost and expense, repair or replace all materials,
workmanship, fixtures or equipment incorporated by Landlord in the Leased
Premises which shall prove to be defective during the Warranty Period.
Landlord shall assign to Tenant all warranties (if assignable) from
subcontractors and
-6-
<PAGE> 7
material suppliers for such materials, workmanship, fixtures, or equipment in
effect after the expiration of the Warranty Period; provided, however, that if
any such warranties are not assignable, Landlord shall, at Tenant's request,
use commercially reasonable efforts to enforce for the benefit of Tenant, at
Tenant's expense, such non-assignable warranties. In performing any warranty
work pursuant to this Section, Landlord shall use commercially reasonable
efforts to minimize any interference with Tenant's business operations. Such
letter of understanding shall become a part of this Lease. If Tenant takes
possession of and occupies the Leased Premises for the normal conduct of its
business, Tenant shall be deemed to have accepted the Leased Premises in the
manner described in this Section 2.03, even though the letter of understanding
provided for herein may not have been executed by Tenant.
SECTION 2.04. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of this Lease, or upon the exercise by Landlord of its right to
re-enter the Leased Premises without terminating this Lease following an event
of default under Section 15.01, Tenant shall immediately surrender the Leased
Premises to Landlord, together with all alterations, improvements and other
property (except as otherwise provided in Section 7.03), in broom-clean
condition and in good order, condition and repair, failing which Landlord may
restore the Leased Premises to such condition at Tenant's expense. Upon such
expiration or termination, Tenant shall have the right to remove its personal
property (as described in Article 7), and shall, upon Landlord's request,
remove all wiring and cabling in the Leased Premises, at its sole cost and
expense. Tenant shall promptly repair any damage caused by any such removal,
and shall restore the Leased Premises to the condition existing prior to the
installation of the items so removed. This provision shall survive the
expiration or earlier termination of this Lease.
SECTION 2.05. HOLDING OVER. If Tenant retains possession of the Leased
Premises after the expiration or earlier termination of this Lease, Tenant
shall become a tenant from month to month at One Hundred Fifty Percent (150%)
of the then prevailing market rate (as determined by Landlord in its sole and
absolute discretion) for the Leased Premises in effect upon the date of such
expiration or earlier termination, provided, however, that such rental rate
shall not be less than the rent then payable under the terms of the Lease
(subject to adjustment as provided in Article 3 hereof and prorated on a daily
basis), and otherwise upon the terms, covenants and conditions herein
specified, so far as applicable. Acceptance by Landlord of rent after such
expiration or earlier termination shall not result in a renewal of this Lease.
Notwithstanding the foregoing provision, no holding over by Tenant shall
operate to extend this Lease, and Tenant shall vacate and surrender the Leased
Premises to Landlord upon Tenant being given thirty (30) days prior written
notice from Landlord to vacate. The foregoing provisions of this Section 2.05
are in addition to and do not affect Landlord's right of re-entry or any other
rights of Landlord hereunder or as otherwise provided by law.
-7-
<PAGE> 8
ARTICLE 3 - RENT
SECTION 3.01. BASE RENT. Tenant shall pay to Landlord as Minimum Annual Rent
for the Leased Premises the sum specified in Item D of the Basic Lease
Provisions, payable in equal consecutive Monthly Rental Installments as
specified in Item E of the Basic Lease Provisions, in advance, without
deduction or offset except as provided under the terms of this Lease, on or
before the first day of each and every calendar month during the term of this
Lease; provided, however, that if the Commencement Date shall be a day other
than the first day of a calendar month or the Expiration Date shall be a day
other than the last day of a calendar month, the Monthly Rental Installment for
such first or last fractional month shall be prorated. Any portion of the
Monthly Rental Installments or any other sums or charges required to be paid by
Tenant to Landlord under this Lease that are not paid within ten (10) days of
their due date shall be assessed a delinquency service charge equal to one and
one-half percent (1 1/2%) of the rental or other sums or charges due and unpaid
multiplied by the number of months, or fraction thereof, during which such
amounts remain overdue.
SECTION 3.02. ANNUAL RENTAL ADJUSTMENT.
A. DEFINITIONS. For purposes of this Section 3.02, the following
definitions shall apply:
1. "ANNUAL RENTAL ADJUSTMENT" - shall mean the amount of Tenant's
Proportionate Share of Operating Expenses for a particular
calendar year.
2. "OPERATING EXPENSES" - shall mean the total of all of
Landlord's costs and expenses paid or incurred in operating
and maintaining the Building and improvements (including the
Common Areas as defined in Section 18.03 and the land
described in Exhibit A-1) for a particular calendar year
(including calendar year 1996) as determined by Landlord in
accordance with generally accepted accounting principles,
consistently applied, including by way of illustration and
not limitation: all general real estate taxes and all special
assessments levied against the land, Building and improvements
(hereinafter called "real estate taxes"), excluding penalties
for late payment; costs and expenses of contesting the
validity or amount of real estate taxes; all Keystone Crossing
Owners' Association charges, expenses and assessments
including all general real estate taxes and all special
assessments levied against the Association; insurance
premiums, water, sewer, electrical and other utility charges
other than the separately billed electrical and other charges
paid by Tenant as provided in this Lease or paid by other
tenants; service and other charges incurred in the operation
and maintenance of the elevators and the heating, ventilation
and air-conditioning system; cleaning and other janitorial
services; rubbish removal; snow removal; tools and supplies;
repair costs; landscape maintenance costs; security services;
license, permit and inspection fees; reasonable management
fees (comparable to those charged in other first class office
buildings); wages and related employee benefits payable for
the maintenance and operation of the Building; amortization of
capital
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improvements that produce a net reduction in operating costs
together with interest at the rate of twelve percent (12%) per
annum on the unamortized balance thereof; and in general all
other costs and expenses which would, under generally accepted
accounting principles, be regarded as operating and
maintenance costs and expenses, including those which would
normally be amortized over a period not to exceed five (5)
years. There shall also be included in Operating Expenses the
cost, or portion thereof reasonably allocable to the Building,
amortized in accordance with generally accepted accounting
principles, together with interest at the rate of twelve
percent (12%) per annum on the unamortized balance, of any
capital improvements made to the Building by Landlord after
the date of this Lease which are required under any
governmental law or regulation that was not applicable to the
Building at the time of lease execution. Notwithstanding the
foregoing, Landlord hereby agrees that any and all costs of
compliance of the Building common areas with the Americans
with Disabilities Act ("ADA"), as it exists at the time of
execution of this Lease, shall be Landlord's responsibility
and that such costs shall not be passed through to Tenant as
an Operating Expense.
If at any time during the Lease Term, including calendar year
1996, less than 95% of the total Rentable Area of the Building
is occupied by tenants, or the Landlord is not supplying
services to 95% of the total Rentable Area of the Building at
any time during the calendar year, the Operating Expenses for
such calendar year shall be an amount equal to the expenses
that would normally be expected to be incurred had such
occupancy been 95% of the total Rentable Area of the Building
and had Landlord been supplying services to 95% of the total
Rentable Area of the Building throughout the calendar year.
The only costs which shall be adjusted in this manner shall be
variable expenses where the amount is directly related to the
level of occupancy or square foot area receiving a particular
service. Landlord will indicate which expenses were adjusted
in this manner in the statement showing Tenant's actual Annual
Rental Adjustment.
Taxes shall not include, nor shall Tenant be obligated to pay
pursuant to this Section, such taxes as capital gains,
corporation, unincorporated business, income, profit, excess
profit, inheritance, transfer, recordation, estate, gift or
franchise taxes, or license fees, or any taxes, fees or
charges imposed, assessed, levied or charged which are
directly associated with construction of improvements on the
Building or any vault rental or other vault charges, or any
fines, penalties and interest on late payments of any taxes,
or any personal property taxes of Landlord for equipment or
items not used directly in the operation or maintenance of the
Building or any withholding tax in the event the Building is
sold to a non-United States entity.
Notwithstanding anything to the contrary herein, if any taxes
paid by Landlord and previously included in payments made by
Tenant pursuant to this Section are refunded, Landlord shall
promptly pay to Tenant
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Tenant's proportionate share of such refund (less the
reasonable expenses incurred by Landlord in obtaining such
refund to the extent not otherwise included in taxes) based
upon the proportion that the taxes paid by Tenant as part of
Tenant's share of taxes for the period to which such refund
relates bears to the total amount of taxes paid by Tenant
during the calendar year to which such refund relates.
Notwithstanding anything contained herein to the contrary,
Operating Expenses shall not include any expenses or costs
incurred or paid by Landlord for the following items:
(a) Capital expenditures, including any capital replacement,
capital repair or capital improvement made to the Building,
the Common Areas, the land or the Project and any other
expense which would be deemed to be a capital expenditure
under generally accepted accounting principles, consistently
applied, unless such capital expenditures are required by laws
which are not in effect as of the Commencement Date of this
Lease or result in a reduction in Operating Expenses.
Notwithstanding the foregoing sentence, capital expenditures
of $1,000 or less may be included in Operating Expenses. For
purposes of the foregoing sentence, a group of expenditures
related to the same capital project shall be considered a
single expenditure;
(b) Depreciation or amortization of the Building or its
contents or components;
(c) Expenses for the preparation of space or other work
which Landlord performs for any tenant or prospective tenant
of the Building;
(d) Expenses incurred in leasing or obtaining new tenants
or retaining existing tenants, including leasing commissions,
legal expenses, advertising or promotion;
(e) Interest, amortization or other costs, including
legal fees, associated with any mortgage, loan or refinancing
of the land, the Building or the Common Areas;
(f) The cost of any item or service which Tenant
separately reimburses Landlord, or that Landlord provides
selectively to one or more tenants of the Building, other
than Tenant, whether or not Landlord is reimbursed by such
other tenant(s);
(g) Any amount paid to an entity or individual related to
Landlord which exceeds the amount which would be paid for
similar quality goods or services on an arms-length basis
between unrelated parties or for which Landlord is reimbursed
by other tenants or third parties, including insurance
proceeds;
(h) The cost of any penalty or fine incurred for non-
compliance with any applicable building or fire code
violation(s) or violations of any other applicable law
relating to the Building, the Common Areas or the land;
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<PAGE> 11
(i) Any personal property taxes of Landlord for equipment
or items not used directly in the operation or maintenance of
the Building;
(j) All bad debt loss, rent loss, or reserve for bad debt or
rent loss;
(k) Costs incurred in connection with the sale, financing,
refinancing, mortgaging, selling, or change of ownership of
the Building;
(l) Rentals and other related expenses incurred in
leasing air conditioning systems, elevators, or other
equipment ordinarily considered to be of a capital nature,
except equipment not affixed to the Building which is used
in providing janitorial or similar services;
(m) Costs, other than those incurred in ordinary
maintenance (for such objects as may be located within the
Common Areas), for sculptures, paintings or other objects of
art;
(n) Costs incurred in connection with disputes with
tenants, other occupants or prospective tenants, or costs and
expenses incurred in connection with negotiations or disputes
with employees, consultants, management agents, purchasers or
mortgagees of the Building;
(o) Costs incurred by Landlord which are associated with
the operation of the business of the legal entity which
constitutes Landlord as the same is separate and apart from
the cost of the operation of the Building, including legal
entity formation and legal entity accounting (including the
incremental accounting fees relating to the operation of the
Building to the extent incurred separately in reporting
operating results to the Building's owners or lenders);
(p) Any compensation paid to clerks, attendants or other
persons in commercial concessions operated for profit by
Landlord;
(q) Costs incurred for any items to the extent covered by
a manufacturer's, materialman's, vendor's or contractor's
warranty;
(r) Any costs associated with retail space, unless such
space is not separately metered, including without limitation,
electricity, HVAC and other utilities;
(s) Any costs incurred to test, survey, cleanup, contain,
abate, remove or otherwise remedy Hazardous Materials,
as defined herein, or asbestos containing materials, from the
Building, the Common Areas, or the land (provided, that this
exclusion from Operating Expenses shall not affect the
provisions of this Lease or any other lease for space in the
Building with respect to Tenant's or any other tenant's
possible liability for all or a portion of such costs); and
(t) Any other cost or expense which, under generally
accepted accounting principles consistently applied,
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would not be considered to be an Operating Expense of the
Building.
3. "BUILDING EXPENSE PERCENTAGE" - shall mean the percentage
specified in Item C of the Basic Lease Provisions. This
percentage was determined by dividing the rentable area in
the Leased Premises as specified in Item B of the Basic Lease
Provisions by the total rentable area in the Building of
149,350 square feet.
4. "LANDLORD'S SHARE OF OPERATING EXPENSES" - shall be an amount
equal to the product of Tenant's Building Expense Percentage
as provided in Item C of the Basic Lease Provisions times the
Building Operating Expenses for calendar year 1996.
5. "TENANT'S PROPORTIONATE SHARE OF OPERATING EXPENSES" - shall
be an amount equal to the remainder of (i) the product of
Tenant's Building Expense Percentage as provided in Item C of
the Basic Lease Provisions times the Building Operating
Expenses for calendar year 1996.
B. PAYMENT OBLIGATION. In addition to the Minimum Annual Rent specified
in this Lease, Tenant shall pay to Landlord as additional rent for the
Leased Premises, in each calendar year or partial calendar year during
the term of this Lease, commencing January 1, 1997, an amount equal to
Tenant's Proportionate Share of Operating Expenses for each such
calendar year.
1. TENANT'S ANNUAL PROPORTIONATE SHARE OF BUILDING OPERATING
EXPENSES - The amount of Tenant's Proportionate Share of
Operating Expenses for each calendar year (herein referred to
as the "Annual Rental Adjustment") shall be reasonably
estimated annually by Landlord. Tenant shall pay to Landlord
each month, at the same time the Monthly Rental Installment is
due, an amount equal to one-twelfth (1/12) of the estimated
Annual Rental Adjustment.
2. INCREASES IN ESTIMATED ANNUAL RENTAL ADJUSTMENT - If real
estate taxes, the cost of utility or janitorial services or
any other Operating Expenses increase during a calendar year,
Landlord may increase the estimated Annual Rental Adjustment
during such year by giving Tenant written notice to that
effect, and thereafter Tenant shall pay to Landlord, in each
of the remaining months of such year, an amount equal to the
amount of such increase in the estimated Annual Rental
Adjustment divided by the number of months remaining in such
year.
3. ADJUSTMENT TO ACTUAL ANNUAL RENTAL ADJUSTMENT - Within one
hundred twenty (120) days (or such additional time as is
reasonable under the circumstances) after the end of each
calendar year, Landlord shall prepare and deliver to Tenant a
statement showing Tenant's actual Annual Rental Adjustment.
Within thirty (30) days after receipt of the aforementioned
statement, Tenant shall pay to Landlord, or Landlord shall
credit against the next rent payment or payments due from
Tenant, as the case may be, the difference between the actual
amount of Tenant's Annual Rental Adjustment for the preceding
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<PAGE> 13
calendar year and the estimated amount paid by Tenant during
such year. If this Lease shall commence, expire or be
terminated on any date other than the last day of a calendar
year, then the actual amount of Tenant's Proportionate Share
of Operating Expenses for such partial calendar year shall be
prorated on the basis of the number of days during the year
this Lease was in effect in relation to the total number of
days in such year. Notwithstanding anything to the contrary
herein, Landlord's statement of Tenant's actual Annual Rental
Adjustment shall be delivered to Tenant within two (2) years
of the date Landlord incurs such Operating Expenses. In the
event Landlord fails to deliver such statement to Tenant
within said two (2) year period, Tenant shall not be obligated
to pay any Annual Rental Adjustment with respect thereto.
Notwithstanding the foregoing, if a prior year's taxes have
been appealed or are under appeal, Tenant shall remain
responsible for any tax increase once the appeal is resolved.
4. TENANT VERIFICATION - If Tenant does not agree with Landlord's
determination of the Operating Expenses, then Tenant shall
have the right to inspect such of Landlord's books and records
which contain the Operating Expense information, if written
notice of the nature of such disagreement is given to Landlord
not later than one (1) year following receipt of such
statement by Tenant. Upon receipt by Landlord of such notice
from Tenant, Landlord shall make such books and records
available for Tenant's inspection. If the parties are unable
to resolve such disagreement by negotiation within thirty (30)
days after Landlord makes such books and records available to
Tenant, Tenant may, at Tenant's sole cost and expense, cause a
qualified independent certified public accountant selected by
Tenant from a Big Six accounting firm and reasonably
acceptable to Landlord (to be paid on an hourly and not a
contingency fee basis) to audit Landlord's records with
respect to the Operating Expenses. Such audit shall include
but not be limited to costs and expenses relating to real
estate taxes, insurance premiums and Building expenses. In
the event the first audit within each five (5) year period of
the Lease Term discloses (i) errors made during the prior
calendar year which, when totaled, clearly indicate that the
sum overcharged to and paid by Tenant, exceeds three percent
(3%) of the Annual Rental Adjustment amount plus Landlord's
Share of Operating Expenses (the "Total Fees"), the audit
shall be at the expense of Landlord, not to exceed Two
Thousand Five Hundred Dollars ($2,500.00), or (ii) no errors
or an error which equals or is less than three percent (3%) of
the Total Fees, the audit shall be at the expense of Tenant.
For each subsequent audit during each five (5) year period,
where the audit discloses errors exceeding three percent (3%)
of the Total Fees, Landlord shall pay for such audit and, if
the audit discloses errors equal to or less than three percent
(3%) of the Total Fees, Tenant shall pay the costs of the
audit. If Landlord spends more than twelve (12) hours to
accommodate Tenant's right to audit hereunder, Tenant shall
also pay to Landlord as additional rent One
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<PAGE> 14
Hundred Dollars ($100.00) per hour for each hour that Tenant's
audit takes of Landlord's property manager's or asset
manager's time in excess of twelve (12) hours, provided such
audit discloses no error or an error which equals or is less
than three percent (3%) of the Total Fees. The results of the
audit (regardless of the degree of the error, if any) shall be
binding upon Landlord and Tenant and Landlord shall
thereafter, if appropriate, change its method of calculating
the Operating Expenses consistent with the results of the
audit. In the event Tenant conducts an audit pursuant to this
Section, Tenant agrees to keep all of Landlord's books and
records with respect to the Operating Expense information
confidential.
If no such notice of disagreement is received by Landlord
within one (1) year following receipt by Tenant of Landlord's
statement of the actual amount of Tenant's Annual Rental
Adjustment, or if Tenant shall not elect to cause an audit by
written notice to Landlord within thirty (30) days after
Landlord makes the books and records available to Tenant, then
Landlord's statement shall be conclusively deemed to have been
approved and accepted by Tenant and Landlord. Pending
resolution of any dispute with respect to statements of
Tenant's Annual Rental Adjustment, Tenant shall pay its Annual
Rental Adjustment as shown on such statement, and upon final
determination of the amount of Tenant's Annual Rental
Adjustment, Landlord shall promptly refund any overpayment to
Tenant or Tenant shall promptly pay any amount due to
Landlord, as applicable.
5. LIMIT ON INCREASE IN ANNUAL RENTAL ADJUSTMENT - For purposes
of this subpart, "Capped Operating Expenses" shall mean all
Operating Expenses except real estate taxes and assessments
(including all reasonable costs and expenses of contesting the
validity or amount thereof), fees and charges imposed by any
governmental entity, insurance premiums, utility charges, snow
removal charges, janitorial expenses, and costs imposed by
covenants or easements. The portion of the Annual Rental
Adjustment relating to the Capped Operating Expenses shall be
called the "Capped Portion." Notwithstanding the provisions
of this Section, Tenant shall not be obligated to pay that
portion of the Capped Portion which exceeds 107% of the
greater of (i) the amount of the Capped Portion for the
immediately preceding calendar year, or (ii) the amount the
Capped Portion for the immediately preceding calendar year
would have been had the Capped Portion increased at the rate
of 107% per annum in all previous years.
SECTION 3.03. CONTRIBUTION FOR CERTAIN TENANT FINISH IMPROVEMENTS. Tenant
shall pay to Landlord the cost of Tenant's Tenant Finish Improvements as
provided in Exhibit B in excess of Six Hundred Seven Thousand Two Hundred
Thirty-six Dollars ($607,236.00).
SECTION 3.04. INDEPENDENT COVENANTS. The covenants to pay rent and other
charges and payments under the terms of this Lease, including Minimum Annual
Rent, Annual Rental Adjustment, and other charges, are independent covenants.
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<PAGE> 15
ARTICLE 4 - SECURITY DEPOSIT - Intentionally Omitted
ARTICLE 5 - OCCUPANCY AND USE
SECTION 5.01. OCCUPANCY. Tenant shall use and occupy the Leased Premises for
the purposes set forth in Item J of the Basic Lease Provisions and shall not
use the Leased Premises for any other purpose except with the prior written
consent of Landlord.
SECTION 5.02. COVENANTS OF TENANT REGARDING USE. In connection with its use
of the Leased Premises, Tenant agrees to do the following:
A. Tenant shall use the Leased Premises and conduct its business thereon
in a safe, careful, reputable and lawful manner.
B. Tenant shall not use the Leased Premises for any unlawful purpose or
act; shall not commit or permit any waste or damage to the Leased
Premises or do or permit any act or thing to be done in or to the
Leased Premises which is contrary to any law, regulation or order of
any governmental authority, agency, department, or commission; shall
at its cost and expense comply with and obey all present and future
laws, regulations and orders of any governmental authority, agency,
department or commission, all reasonable directions of the Landlord,
including the Building Rules and Regulations, attached hereto as
Exhibit C, as may be reasonably modified from time to time by
Landlord, which Building Rules and Regulations shall be applied
uniformly to all tenants; shall not do or permit anything to be done
in or about the Leased Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of the
Building or injure or annoy them. Landlord shall not be responsible
to Tenant for the nonperformance by any other tenant or occupant of
the Building of any of the Building Rules and Regulations. In the
event another tenant or occupant of the Building fails to comply with
the Building Rules and Regulations and such non-compliance is
adversely affecting Tenant's occupancy in the Building, Landlord
agrees to use commercially reasonable efforts to ensure such
compliance.
C. Tenant shall not overload the floors of the Leased Premises beyond
their designed weight-bearing capacity, which Landlord has determined
to be eighty (80) pounds per square foot live load, including an
allowance for partition load. Landlord reserves the right to
reasonably direct the positioning of all heavy equipment, furniture
and fixtures which Tenant desires to place in the Leased Premises so
as to distribute properly the weight thereof, and to require the
removal of any equipment or furniture which exceeds the weight limit
specified herein.
D. Tenant shall not use the Leased Premises, or allow the Leased Premises
to be used, for any purpose or in any manner which would, in
Landlord's reasonable opinion, invalidate any commercially reasonable
policy of insurance now or hereafter carried on the Building or
increase the rate of premiums payable on any such insurance policy.
Should Tenant fail to comply with this covenant, Landlord may, at its
option, require Tenant to stop engaging in such activity or to
reimburse Landlord as additional rent for any increase in premiums
charged during the term of this Lease on the
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<PAGE> 16
insurance carried by Landlord on the Leased Premises and attributable
to the use being made of the Leased Premises by Tenant.
E. Tenant shall not inscribe, paint, affix or display any signs,
advertisements or notices on the Building, except for such tenant
identification information as Landlord permits to be included or shown
on the directory board in the main lobby and on or adjacent to the
access door or doors to the Leased Premises, and except as provided in
Section 18.24 of this Lease.
F. Tenant shall promptly notify Landlord of any notice it receives of the
violation of any law or requirement of any public authority.
G. If permitted by applicable local and state laws and regulations,
Tenant shall have the right, at Tenant's sole cost, to install
security key locks and readers on the inside of both stairwells on the
fifth (5th) and sixth (6th) floors so that Tenant's employees will be
able to use the stairs for internal access. If permitted, all such
systems shall be installed and maintained in compliance with
applicable Marion County and/or Indiana law; provided, however, that
Tenant shall furnish Landlord with all keys or cards necessary to
provide Landlord with access to the Leased Premises.
SECTION 5.03. LANDLORD'S RIGHTS REGARDING USE. In addition to the rights
specified elsewhere in this Lease, Landlord shall have the following rights
regarding the use of the Leased Premises or the Common Areas by Tenant, its
employees, agents, customers and invitees, each of which may be exercised
without notice or liability to Tenant:
A. Landlord may install such signs, advertisements or notices or tenant
identification information on the directory board or tenant access
doors as it shall deem necessary or proper. Landlord agrees that
Tenant shall be entitled to five directory strips in the lobby
directory for the Building.
B. Landlord shall approve or disapprove, prior to installation, all types
of drapes, shades and other window coverings used in the Leased
Premises, and may control all internal lighting that may be visible
from outside the Leased Premises.
C. Landlord shall reasonably approve or disapprove all sign painting and
lettering used on the Leased Premises and the Building, including the
suppliers thereof. Landlord agrees that Tenant shall be allowed to
install a sign on the Building in accordance with the provisions of
Section 18.24.
Tenant shall also be entitled to install, at its cost, signage
identifying its business, including its corporate logo and colors, on
the fifth (5th) and sixth (6th) floors of the Building, the size,
style and location of which shall be subject to Landlord's prior
written approval, which approval shall not be unreasonably withheld,
conditioned or delayed.
D. Landlord may grant to any person the exclusive right to conduct any
business or render any service in the Building in a manner consistent
with first class office buildings in the vicinity, provided that such
exclusive right shall not
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<PAGE> 17
operate to limit Tenant from using the Leased Premises for the use
permitted in Item J of the Basic Lease Provisions.
E. Landlord may control the Common Areas in such manner as it reasonably
deems necessary or proper, including by way of illustration and not
limitation: requiring all persons entering or leaving the Building to
identify themselves and their business in the Building; excluding or
expelling any peddler, solicitor or loud or unruly person from the
Building; and closing or limiting access to the Building or any part
thereof, including entrances, corridors, doors, and elevators, during
times of emergency repairs or after regular business hours.
SECTION 5.04. ACCESS TO AND INSPECTION OF THE LEASED PREMISES.
Landlord, its employees and agents and any mortgagee of the Building shall have
the right to enter any part of the Leased Premises at reasonable times and upon
reasonable advance notice, except in the event of an emergency, in which case
no notice shall be required, for the purposes of examining or inspecting the
same, showing the same to prospective purchasers or mortgagees, and, during the
last twelve (12) months of the Lease Term, showing the same to prospective
tenants, and making such repairs, alterations or improvements to the Leased
Premises or the Building as Landlord may deem necessary or desirable. If
representatives of Tenant shall not be present to open and permit such entry
into the Leased Premises at any time when such entry is necessary or permitted
hereunder, Landlord and its employees and agents may enter the Leased Premises
by means of a master or pass key or otherwise. Landlord shall incur no
liability to Tenant for such entry, nor shall such entry constitute an eviction
of Tenant or a termination of this Lease, or entitle Tenant to any abatement of
rent therefor. Landlord shall use commercially reasonable efforts to minimize
any interference with Tenant's business resulting from Landlord's exercise of
its rights hereunder.
ARTICLE 6 - UTILITIES AND OTHER BUILDING SERVICES
SECTION 6.01. SERVICES TO BE PROVIDED. Landlord hereby agrees to operate and
maintain the Building in a manner consistent with other first class office
buildings located in the Indianapolis area. Provided Tenant is not in default,
Landlord shall furnish to Tenant, except as noted below, the following
utilities and other building services to the extent reasonably necessary for
Tenant's comfortable use and occupancy of the Leased Premises for general
office use or as may be required by law or directed by governmental authority:
A. Heating, ventilation and air-conditioning (at temperatures not above
approximately 72 degrees based on an outside air temperature of
94 degrees or less, and not below approximately 72 degrees based on an
outside air temperature of 0 degrees or higher) between the hours of
7:00 a.m. and 6:00 p.m. on Monday through Friday and 8:00 a.m. to
12:00 p.m. on Saturday of each week except on legal holidays.
Landlord agrees that Tenant shall not be separately billed for
occasional after-hours HVAC operation, provided, however, that in the
event Tenant's after-hours usage becomes excessive or disproportionate
to other tenants in the Building, Landlord reserves the right to
separately bill Tenant, as additional rent hereunder, for the normal
and reasonable costs of such after-hours HVAC operation, which cost is
currently Thirty Dollars ($30.00)
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<PAGE> 18
per hour per floor and which is subject to change from time to time.
B. Subject to interruptions beyond Landlord's control, electrical current
not to exceed six (6) watts per square foot (connected load). At all
times Tenant's use of electric current shall never exceed the capacity
of the feeders to the Building or the risers or wiring installation;
Tenant shall not install or use or permit the installation or use of
any computer or electronic data processing equipment in the Leased
Premises requiring greater electrical current than set forth above
without the prior written consent of Landlord.
C. Water in the Common Areas for lavatory and drinking purposes;
D. Automatic elevator service consisting of three (3) elevators available
twenty-four (24) hours a day, seven (7) days a week, three hundred
sixty-five (365) days a year;
E. Cleaning and janitorial service, including the supplying and
installing of paper towels, toilet tissue and soap in the Common Areas
on Monday through Friday of each week except legal holidays; provided,
however, Tenant shall be responsible for carpet cleaning other than
routine vacuuming;
F. Washing of windows at intervals reasonably established by Landlord;
G. Replacement of all lamps, bulbs, starters and ballasts in Building
standard lighting as required from time to time as a result of normal
usage;
H. Cleaning and maintenance of the Common Areas, including the removal of
rubbish and snow; and
I. Repair and maintenance to the extent specified elsewhere in this
Lease.
SECTION 6.02. ADDITIONAL SERVICES. If Tenant requests any other utilities or
building services in addition to those identified above or any of the above
utilities or building services in frequency, scope, quality or quantity
substantially greater than those which Landlord reasonably determines are
normally required by other tenants in the Building for general office use, then
Landlord shall use reasonable efforts to attempt to furnish Tenant with such
additional utilities or building services. In the event Landlord is able to
and does furnish such additional utilities or building services, the costs
thereof shall be determined solely by Landlord, exercising its reasonable
business judgment, and shall be borne by Tenant, who shall reimburse Landlord
monthly for the same as additional rent at the same time Monthly Rental
Installments and other additional rent is due.
If any lights, machines or equipment (including but not limited to computers)
used by Tenant in the Leased Premises materially affect the temperature
otherwise maintained by the Building's air-conditioning system or generate
substantially more heat in the Leased Premises than that which would normally
be generated by the lights and business machines typically used by other
tenants in the Building or by tenants in comparable office
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<PAGE> 19
buildings, then Landlord shall have the right to install any machinery or
equipment which Landlord considers reasonably necessary in order to restore the
temperature balance between the Leased Premises and the rest of the Building,
including equipment which modifies the Building's air-conditioning system. All
costs expended by Landlord to install any such machinery and equipment and any
additional costs of operation and maintenance occasioned thereby shall be borne
by Tenant, who shall reimburse Landlord for the same as provided in this
Section 6.02.
Tenant shall not install or connect any electrical equipment which requires or
uses electrical current in excess of 6 watts per square foot (connected load)
without Landlord's prior written consent. If Landlord determines that the
electricity used by the equipment to be so installed or connected exceeds the
designed load capacity of the Building's electrical system or is in any way
incompatible therewith, then Landlord shall have the right, as a condition to
granting its consent, to make such modifications to the electrical system or
other parts of the Building or Leased Premises, or to require Tenant to make
such modifications to the equipment to be installed or connected, as Landlord
considers to be reasonably necessary before such equipment may be so installed
or connected. The cost of any such modifications shall be borne by Tenant, who
shall reimburse Landlord for the same (or any portion thereof paid by Landlord)
as provided in this Section 6.02.
SECTION 6.03. INTERRUPTION OF SERVICES. Tenant understands, acknowledges and
agrees that any one or more of the utilities or other building services
identified in Section 6.01 may be interrupted by reason of accident, emergency
or other causes beyond Landlord's control, or may be discontinued or diminished
temporarily by Landlord or other persons until certain repairs, alterations or
improvements can be made; that Landlord does not represent or warrant the
uninterrupted availability of such utilities or building services, and that any
such interruption shall not be deemed an eviction or disturbance of Tenant's
right to possession, occupancy and use of the Leased Premises or any part
thereof, or render Landlord liable to Tenant for damages by abatement of rent
or otherwise, or relieve Tenant from the obligation to perform its covenants
under this Lease.
Landlord shall have no liability to Tenant, including, without limitation,
liability for consequential damages arising out of, resulting from, or related
to any such interruption of utility service or building services.
Notwithstanding anything in this Lease to the contrary, Landlord shall use
commercially reasonable efforts to promptly restore utility service. If the
Leased Premises are rendered untenantable (meaning that Tenant is unable to use
such space in the normal course of its business) for more than five (5)
consecutive business days after notice from Tenant to Landlord that such
service has been interrupted, and provided that such restoration of service is
within Landlord's reasonable control, Minimum Annual Rent and Annual Rental
Adjustment shall abate on a per diem basis for each day after such five (5) day
period during which the Leased Premises remain untenantable. In the event the
Leased Premises are rendered untenantable for more than thirty (30) consecutive
days after notice from Tenant to Landlord, and provided that such restoration
of service is within Landlord's reasonable control, Tenant shall have the right
to terminate this Lease. Upon such termination, Tenant shall surrender the
Leased Premises to Landlord in accordance with the terms of this Lease
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and each party shall be released from further liability hereunder; provided,
however, that such termination shall not affect any right or obligation arising
prior to termination or which survives termination of the Lease.
ARTICLE 7 - REPAIRS, MAINTENANCE, ALTERATIONS, IMPROVEMENTS AND FIXTURES
SECTION 7.01. REPAIR AND MAINTENANCE OF BUILDING. Subject to Section 7.02,
Landlord shall maintain or cause to be maintained the structure of the Building
and shall be responsible for: (a) repairs to any mechanical, electrical,
plumbing, sprinkler system or other life saving systems or HVAC system
installed by or on behalf of Landlord and serving the Leased Premises and
Common Areas, and (b) structural repairs to the exterior walls, structural
columns and structural floors which collectively enclose the Leased Premises
(excluding, however, all doors, door frames, sliding doors, windows and any
glass therein); provided Tenant shall give Landlord notice of, or Landlord has
actual knowledge of, the necessity for such repairs (which notice may be given
telephonically to Landlord's on-site management agent). If the necessity for
such repairs shall have arisen, in whole or in part, from the negligent or
willful acts or omissions of Tenant or entities for which Tenant is responsible
and the insurance that Landlord is required to carry excludes from coverage any
casualty negligently or willfully caused by Tenant or entities for which Tenant
is responsible, then Tenant shall pay any amount not covered by Landlord's
insurance. Except as provided in Article 8 and Article 10 hereof, there shall
be no abatement of rent and no liability of Landlord by reason of any injury to
or interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Leased
Premises or in or to any fixtures, appurtenances and equipment therein or
thereon.
SECTION 7.02. REPAIR AND MAINTENANCE OF LEASED PREMISES. Landlord shall keep
and maintain the Leased Premises in good order, condition and repair. Except
for ordinary wear and tear and damage which Tenant is not obligated to repair
as provided elsewhere in this Lease, the cost of all repairs and maintenance to
the Leased Premises shall be borne by Tenant, who shall be separately billed
and shall reimburse Landlord for the same as additional rent, or as a part of
Operating Expenses.
SECTION 7.03. ALTERATIONS OR IMPROVEMENTS. Tenant may not make, or permit to
be made, alterations to the Leased Premises without the prior written consent
of Landlord in each instance, which consent shall not be unreasonably withheld,
conditioned or delayed. If Landlord allows Tenant to make any such
alterations, Tenant shall make the same in accordance with all applicable laws
and building codes, in a good and workmanlike manner and in quality equal to or
better than the original construction of the Building and shall comply with
such requirements as Landlord reasonably considers necessary or desirable,
including without limitation, requirements as to the manner in which and the
times at which such work shall be done and the contractor or subcontractors to
be selected to perform such work. Tenant's alterations shall be non-structural
and shall be made only to the interior of the Leased Premises, and said
alterations shall not affect utility services or plumbing or electrical lines
in or to the Leased Premises. Before making any alterations, Tenant shall, at
its expense (a) provide Landlord with lien waivers from each contractor,
subcontractor,
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materialman and laborer for all work, labor and services to be performed and
materials to be furnished in connection with such work, and (b) obtain all
permits, approvals and certificates required by any governmental or
quasi-governmental bodies and promptly deliver duplicates of all such permits,
approvals and certificates to Landlord. Upon completion of such construction,
Tenant shall obtain certificates of final approvals and shall promptly deliver
duplicates of the same to Landlord. In addition, Tenant shall provide Landlord
with evidence of insurance coverage for such alterations and detailed plans,
reasonably satisfactory to Landlord, prior to construction of such
improvements. Tenant shall promptly pay all costs attributable to such
alterations. Tenant shall promptly repair any damage to the Leased Premises or
the Building caused by any such alterations. Any such alterations and
additions shall remain for the benefit of Landlord, provided, however, that
Landlord may elect upon fifteen (15) days prior written notice to Tenant to
require that Tenant, at its expense, remove at the expiration or earlier
termination of this Lease all or a portion of the alterations or additions made
by Tenant and repair any damage caused by such removal. Tenant's obligations
under this Section shall survive the expiration or earlier termination of this
Lease. Notwithstanding the foregoing, Tenant shall have the right, without
Landlord's consent, and in compliance with all other provisions of this
Section, to (i) recarpet, (ii) paint or (iii) make any non-structural
alteration to the Leased Premises, the aggregate cost of which does not exceed
Ten Thousand Dollars ($10,000.00) for any such alteration project, provided,
however, that Tenant may not exercise this right more than four (4) times
during any Lease year and further provided that Tenant shall give Landlord
prior written notice of any such alteration, along with copies of all plans and
specifications relating thereto.
SECTION 7.04. TRADE FIXTURES. Any trade fixtures installed on the Leased
Premises by Tenant at its own expense, such as movable partitions, counters,
shelving, showcases, mirrors and the like, may, and, at the request of
Landlord, shall be removed on the expiration or earlier termination of this
Lease, provided that Tenant is not then in default, that Tenant bears the cost
of such removal, and further that Tenant repairs at its own expense any and all
damage to the Leased Premises resulting from such removal. Any trade fixtures
or other items of Tenant's property that remain in the Leased Premises on the
expiration or earlier termination of this Lease shall be deemed abandoned by
Tenant and such items may be retained by Landlord, without accountability, in
such manner as Landlord shall determine at Tenant's expense. This provision
shall survive the expiration or earlier termination of this Lease.
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ARTICLE 8 - FIRE OR OTHER CASUALTY; CASUALTY INSURANCE
SECTION 8.01. SUBSTANTIAL DESTRUCTION OF THE BUILDING OR THE LEASED PREMISES.
If either the Building or the Leased Premises should be substantially destroyed
or damaged (which as used herein, means destruction or material damage to at
least one-third (1/3) of the Building or the Leased Premises) by fire or other
casualty, then Landlord may, at its option, terminate this Lease by giving
written notice of such termination to Tenant within thirty (30) days after the
date of such casualty. In such event, rent shall be apportioned to and shall
cease as of the date of such casualty. If Landlord does not exercise this
option, then the Leased Premises shall be reconstructed and restored, at
Landlord's expense, to substantially the same condition as prior to the
casualty subject to the availability of insurance proceeds; provided however,
that Landlord's obligation hereunder shall be limited to the reconstruction of
such of the Tenant Finish Improvements as were originally required to be made
by Landlord in accordance with Exhibit B, and any additional improvements
pursuant to Section 7.03. In the event of such reconstruction, rent shall be
abated in accordance with Section 8.03 below; and this Lease shall continue in
full force and effect for the balance of the term. Notwithstanding the
foregoing, in the event Landlord shall fail to substantially complete such
reconstruction within six (6) months from the date of the casualty, Tenant
shall be entitled to terminate this Lease upon ten (10) days prior written
notice to Landlord. Upon such termination, both parties shall be released from
all liability hereunder, except for any liability arising prior to the date of
termination or which survives termination hereof.
SECTION 8.02. PARTIAL DESTRUCTION OF THE LEASED PREMISES. If the Leased
Premises should be damaged by fire or other casualty, but not substantially
destroyed or damaged to the extent provided in Section 8.01, then so long as
insurance proceeds are available for Landlord's use in reconstruction and
restoration such damaged part of the Leased Premises shall be reconstructed and
restored, at Landlord's expense, to substantially the same condition as it was
prior to the casualty; provided however, that Landlord's obligation hereunder
shall be limited to the reconstruction of such of the Tenant Finish
Improvements as were originally required to be made by Landlord in accordance
with Exhibit B, and any additional improvements pursuant to Section 7.03. In
such event, if the damage is expected to prevent Tenant from carrying on its
business in the Leased Premises to a material extent, rent shall be abated in
the proportion which the approximate area of the damaged part and any part
rendered uninhabitable or inaccessible thereby bears to the total area in the
Leased Premises in accordance with Section 8.03 below; and this Lease shall
continue in full force and effect for the balance of the term.
SECTION 8.03. ABATEMENT OF RENT. Any abatement of rent under this Article 8
shall be for the period from the date of the casualty to the date of
substantial completion of the reconstruction repairs; provided, however, that
should Tenant reoccupy a portion of the Leased Premises during the period the
repair work is taking place and prior to the date of substantial completion of
said repair work, the rent allocable to such reoccupied portion, based upon the
proportion which the reoccupied area bears to the total area of the Leased
Premises, shall be payable by Tenant from the date of such occupancy.
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SECTION 8.04. CASUALTY INSURANCE. Landlord shall at all times during the term
of this Lease carry, at its own expense, a policy of insurance which insures
the Building, including without limitation the Leased Premises and improvements
therein, against loss or damage by all risks or special form perils for full
replacement cost; provided, however, that Landlord shall not be responsible
for, and shall not be obligated to insure against, any loss of or damage to any
personal property of Tenant or which Tenant may have in the Building or the
Leased Premises or any trade fixtures installed by or paid for by Tenant on the
Leased Premises, and Landlord shall not be liable for any loss or damage to
such property, regardless of cause, including the negligence of Landlord and
its employees, agents, customers and invitees. If any alterations or
improvements made by Tenant pursuant to Section 7.03, or any act or omission of
Tenant which is not in the ordinary course of Tenant's business, result in an
increase in the premiums charged during the term of this Lease on the casualty
insurance carried by Landlord on the Building, then the cost of such increase
in insurance premiums shall be borne by Tenant, who shall reimburse Landlord
for the same as additional rent after being separately billed therefor. In
addition, Tenant shall reimburse Landlord as additional rent, after being
separately billed, for any cost or expense incurred by Landlord and not
reimbursed by the proceeds of said policy of insurance in connection with any
loss or damage by fire or other casualty arising from any willful misconduct or
negligence of Tenant or any of its subtenants or licensees or its or their
partners, directors, officers, agents, employees or contractors.
ARTICLE 9 - GENERAL PUBLIC LIABILITY, INDEMNIFICATION AND INSURANCE
SECTION 9.01. TENANT'S RESPONSIBILITY. Tenant shall assume the risk of, be
responsible for, have the obligation to insure against, and indemnify Landlord
and hold it harmless from any and all liability for any loss of or damage or
injury to any person (including death resulting therefrom) or property
occurring in, on or about the Leased Premises, regardless of cause, except for
any loss or damage from fire or casualty as provided in Section 8.04 and except
for that caused by the sole negligence of Landlord and its employees and
agents; and Tenant hereby releases Landlord from any and all liability for the
same. Tenant's obligation to indemnify Landlord hereunder shall include the
duty to defend against any claims asserted by reason of such loss, damage or
injury and to pay any judgments, settlements, costs, fees and expenses,
including reasonable attorneys' fees, incurred in connection therewith.
Notwithstanding anything herein to the contrary, Tenant shall bear the risk of
any loss or damage to its property as provided in Section 8.04. This provision
shall survive the expiration or earlier termination of this Lease.
SECTION 9.02. TENANT'S INSURANCE. Tenant, in order to enable it to meet its
obligation to insure against the liabilities specified in this Lease, shall at
all times during the term of this Lease carry, at its own expense, for the
protection of Tenant and Landlord, as their interests may appear, one or more
policies of general public liability and property damage insurance, issued by
one or more insurance companies licensed to do business in the state of
operations having an AM Best Rating of A- X1 or better, with the following
minimum coverages:
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A. Worker's Compensation -- minimum statutory amount.
B. Commercial General - Not less than $1,000,000
Liability Insurance, including Combined Single Limit for
Blanket, Contractual Liability, both bodily injury and
Broad Form Property Damage, property damage, with
Personal Injury, Completed excess Liability umbrella
Operations, Products Liability, coverage of not less than
Fire Damage $5,000,000.
C. All risks or special form for the full cost of replacement of Tenant's
property.
The insurance policy or policies for the insurance required in B and C above
shall name Landlord as an additional insured and shall provide that they may
not be cancelled on less than thirty (30) days prior written notice to
Landlord. Tenant shall furnish Landlord with Certificates of Insurance
evidencing all required coverage. Should Tenant fail to carry such insurance
and furnish Landlord with such Certificates of Insurance within twenty (20)
days after a request to do so, Landlord shall have the right to obtain such
insurance and collect the cost thereof from Tenant as additional rent.
SECTION 9.03. LANDLORD'S RESPONSIBILITY. Landlord shall assume the risk of,
be responsible for, have the obligation to insure against, and indemnify Tenant
and hold it harmless from any and all liability for any loss of or damage or
injury to any person (including death resulting therefrom) or property (other
than Tenant's property as provided in Section 8.04) occurring in, on or about
the Common Areas, regardless of cause, except for that caused by the sole
negligence of Tenant and its employees, agents, representatives, customers and
invitees; and Landlord hereby releases Tenant from any and all liability for
the same. Landlord's obligation to indemnify Tenant hereunder shall include
the duty to defend against any claims asserted by reason of such loss, damage
or injury and to pay any judgments, settlements, costs, fees and expenses,
including reasonable attorneys' fees, incurred in connection therewith. This
provision shall survive the expiration or early termination of this Lease.
SECTION 9.04. MUTUAL WAIVER. All policies covering real or personal property
which either party obtains affecting the Leased Premises or the Building shall
include a clause or endorsement denying the insurer any rights of subrogation
against the other party to the extent rights have been waived by the insured
before the occurrence of injury or loss. Notwithstanding anything herein
contained to the contrary, Landlord and Tenant waive any rights of subrogation
or recovery against the other for damage or loss to their respective property
due to hazards covered or which should be covered by policies of insurance
obtained or which should be or have been obtained pursuant to this Lease, to
the extent of the injury or loss covered or which should have been covered
thereby, assuming that any deductible shall be deemed to be insurance coverage.
ARTICLE 10 - EMINENT DOMAIN
If the whole or any part of the Leased Premises shall be taken for public or
quasi-public use by a governmental or other authority having the power of
eminent domain or shall be conveyed to such authority in lieu of such taking,
and if such
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taking or conveyance shall cause the remaining part of the Leased Premises to
be untenantable and inadequate for use by Tenant for the purpose for which they
were leased, then Tenant may, at its option, terminate this Lease. If a part
of the Leased Premises shall be taken or conveyed but the remaining part is
tenantable and adequate (conforms to other leased space in the Building) for
Tenant's use, then this Lease shall be terminated as to the part taken or
conveyed as of the date Tenant surrenders possession; Landlord shall make such
repairs, alterations and improvements as may be necessary to render the part
not taken or conveyed tenantable, the cost of which will not exceed what is
customary for tenant finish costs in other space in the Building. The rent
shall be reduced in proportion to the part of the Leased Premises so taken or
conveyed. All compensation awarded for such taking or conveyance shall be the
property of Landlord without any deduction therefrom for any present or future
estate of Tenant, and Tenant hereby assigns to Landlord all its right, title
and interest in and to any such award. Notwithstanding the foregoing, nothing
contained herein shall prevent Tenant from seeking in a separate action
reimbursement from the condemning authority (if permitted by law) for moving
expenses, expenses for removal of Tenant's personal property, or loss of
Tenant's business good will, but if and only if such action shall not reduce
the amount of the award or other compensation otherwise recoverable from the
condemning authority by Landlord or any mortgagee.
ARTICLE 11 - LIENS
If any mechanic's lien or other lien is filed because of any act or omission of
Tenant, or any person claiming by, through, or under Tenant, against the Leased
Premises or the Building or against other property of Landlord (whether or not
such lien is valid or enforceable as such), Tenant shall, at its own expense,
cause the same to be discharged of record or bonded or insured over within
thirty-five (35) days after the date of filing thereof, and shall also
indemnify Landlord and hold it harmless from any and all claims, losses,
damages, judgments, settlements, costs and expenses, including attorneys' fees,
resulting therefrom or by reason thereof. If Tenant fails to do so, Landlord
may, but shall not be obligated to, pay the claim upon which such lien is based
so as to have such lien released of record; and, if Landlord does so, then
Tenant shall pay to Landlord, as additional rent, upon demand, the amount of
such claim, plus all other costs and expenses incurred in connection therewith.
This section shall survive the expiration or earlier termination of this Lease.
ARTICLE 12 - RENTAL, PERSONAL PROPERTY AND OTHER TAXES
Tenant shall pay before delinquency any and all taxes, assessments, fees or
charges, including any sales, gross income, rental, business occupation or
other taxes, levied or imposed upon Tenant's business operations in the Leased
Premises and any personal property or similar taxes levied or imposed upon
Tenant's trade fixtures, leasehold improvements or personal property located
within the Leased Premises. In the event any such taxes, assessments, fees or
charges are charged to the account of, or are levied or imposed upon the
property of Landlord, Tenant shall reimburse Landlord for the same as
additional rent.
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If any tenant finish improvements, trade fixtures, alterations or improvements
or business machines and equipment located in, on or about the Leased Premises,
regardless of whether they are installed or paid for by Landlord or Tenant and
whether or not they are affixed to and become a part of the realty and the
property of Landlord, are assessed for real property tax purposes at a
valuation higher than that at which other such property in other leased space
in the Building is assessed, then Tenant shall reimburse Landlord as additional
rent for the amount of real property taxes shown on the appropriate county
official's records as having been levied upon the Building or other property of
Landlord by reason of such excess assessed valuation.
ARTICLE 13 - ASSIGNMENT AND SUBLETTING
Tenant shall not, whether voluntarily, involuntarily or by operation of law or
otherwise (a) assign or otherwise transfer this Lease or the term and estate
hereby granted, (b) sublet the Leased Premises or any part thereof or allow the
same to be used, occupied or utilized by anyone other than the Tenant, or (c)
mortgage, pledge, encumber, or otherwise hypothecate this Lease or the Leased
Premises or any part thereof in any manner whatsoever, without Landlord's prior
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed. Any attempted assignment, subletting or mortgage without such
consent shall be invalid. Tenant shall also provide, at Landlord's request
any information on the proposed assignee or subtenant that Landlord may
reasonably require to make a determination of the quality of such proposed
assignee or subtenant. In the event of a permitted assignment or subletting,
Tenant shall nevertheless at all times remain fully responsible and liable for
the payment of rent and the performance and observance of all of Tenant's other
obligations under the terms, conditions and covenants of this Lease. No
assignment or subletting of the Leased Premises or any part thereof shall be
binding upon Landlord unless such assignee or subtenant shall deliver to
Landlord an instrument (in recordable form, if requested) containing an
agreement of assumption of all of Tenant's obligations under this Lease. Upon
the occurrence of an event of default, if all or any part of the Leased
Premises are then assigned or sublet, Landlord, in addition to any other
remedies provided by this Lease or by law, may, at its option, collect directly
from the assignee or subtenant all rent becoming due to Landlord by reason of
the assignment or subletting. Any collection by Landlord from the assignee or
subtenant shall not be construed to constitute a waiver or release of Tenant
from the further performance of its obligations under this Lease or the making
of a new lease with such assignee or subtenant. If Tenant shall make any
assignment or sublease of the original Leased Premises, with Landlord's
consent, for a rental in excess of the rent payable under this Lease (including
any applicable escalations), Tenant shall pay to Landlord fifty percent (50%)
of any such excess rental upon receipt. If Tenant shall make any assignment or
sublease of any expansion space, with Landlord's consent, for a rental in
excess of the rent payable under this Lease (including any applicable
escalations), Tenant shall not be entitled to keep such excess and Tenant shall
pay to Landlord one hundred percent (100%) of any such excess rental upon
receipt.
Landlord may, in its reasonable discretion, refuse to give its consent to any
proposed assignment or subletting for, among other reasons,Landlord's
reasonable determination that its
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interest in the Lease or the Leased Premises would be adversely affected by (i)
the financial condition, creditworthiness or business reputation of the
proposed assignee or subtenant, (ii) the proposed use of the Leased Premises
by, or business of, the proposed assignee or subtenant. If Landlord reasonably
refuses to give its consent to any proposed assignment or subletting of fifty
percent (50%) or more of the Leased Premises and Tenant is insolvent, Landlord
may, at its option, within thirty (30) days after receiving notice of the
proposal, terminate this Lease by giving Tenant thirty (30) days prior written
notice of such termination, whereupon this Lease shall terminate.
All reasonable costs incurred by Landlord in connection with any request for
consent to a proposed assignment or sublease, including costs of investigation
and attorneys' fees, shall be paid by Tenant upon demand as a further condition
of any consent which may be given.
Notwithstanding the foregoing, Tenant may assign this Lease or sublease all or
part of the Leased Premises, without Landlord's consent, to any entity which
acquires all or part of Tenant, or which is acquired in whole or in part by
Tenant, or is an affiliate, subsidiary or parent of Tenant, provided that the
financial condition, creditworthiness and business reputation of the proposed
assignee or subtenant are equal to or exceed those of Tenant (except with
respect to an affiliate or subsidiary) and further provided that Tenant gives
Landlord thirty (30) days prior written notice of such assignment or sublease.
Tenant shall nevertheless at all times remain fully responsible and liable for
the payment of rent and the performance and observance of all of Tenant's other
obligations under the terms, conditions and covenants of this Lease.
ARTICLE 14 - SUBORDINATION: NOTICE TO SUPERIOR LESSORS AND MORTGAGEES
SECTION 14.01. SUBORDINATION. This Lease, and all rights of Tenant hereunder,
are and shall be subject and subordinate to all ground leases, overriding
leases and underlying leases of the tract of land described in Exhibit A-1
hereto (the "Land") and/or the Building now or hereafter existing and to all
mortgages which may now or hereafter affect the Land and/or the Building and/or
any of such leases, whether or not such mortgages shall also cover other lands
and/or buildings and/or leases, to each and every advance made or hereafter to
be made under such mortgages, and to all renewals, modifications, replacements
and extensions of such leases and such mortgages and spreaders and
consolidations of such mortgages. This Section shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, the lessor under any such lease or the holder of any
such mortgage or any of their respective successors in interest may reasonably
request to evidence such subordination. No default by Landlord under any such
mortgage or ground lease shall affect Tenant's rights hereunder as long as
Tenant is not in default under the Lease. Any lease to which this lease is, at
the time referred to, subject and subordinate is herein called a "Superior
Lease" and the lessor of a Superior Lease or its successor in interest, at the
time referred to, is herein called a "Superior Lessor"; and any mortgage to
which this lease is, at the time referred to, subject and subordinate is herein
called "Superior Mortgage" and
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the holder of a Superior Mortgage is herein called a "Superior Mortgagee." The
term "mortgage" and "mortgagee" shall refer to any mortgage affecting the Land
and/or the Building and any holder of said mortgage, whether or not said
mortgage is prior or subordinate to this Lease. Notwithstanding anything in
the foregoing to the contrary, any mortgagee may elect unilaterally to
subordinate its mortgage to this Lease and such subordination shall be binding
upon Tenant upon the recording of a mortgage containing a declaration of such
subordination. Tenant agrees to execute any documents deemed necessary or
desirable by said mortgagee to evidence said subordination of mortgage within
ten (10) days after written demand. Notwithstanding anything contained herein
to the contrary, as a condition to Tenant's obligation to subordinate this
Lease to any future mortgage, ground lease, overriding lease or underlying
lease, Landlord shall obtain from any such future mortgagee or lessor a
subordination, non-disturbance and attornment agreement in favor of Tenant, in
a form reasonably acceptable to the parties thereto.
SECTION 14.02. NOTICE. If any act or omission of Landlord would give Tenant
the right, immediately or after lapse of a period of time, to cancel or
terminate this Lease, or to claim a partial or total eviction, Tenant shall not
exercise such right (a) until it has given written notice of such act or
omission to each mortgagee and each Superior Lessor whose name and address
previously shall have been furnished to Tenant, and (b) until a reasonable
period for remedying such act or omission shall have elapsed following the
receipt of such notice and following the time when such mortgagee or Superior
Lessor shall have become entitled under such mortgage or Superior Lease, as the
case may be, to remedy the same (which reasonable period shall in no event be
less than the period to which Landlord would be entitled under this Lease or
otherwise, after similar notice, to effect such remedy), provided such
mortgagee or Superior Lessor shall with due diligence give Tenant notice of its
intention to remedy such act or omission.
SECTION 14.03. ATTORNMENT AND NON-DISTURBANCE. If any Superior Lessor or
Superior Mortgagee shall succeed to the rights of Landlord under this Lease,
whether through possession or foreclosure action or delivery of a new lease or
deed, then at the request of such party so succeeding to Landlord's rights
(herein called "Successor Landlord") and upon such Successor Landlord's written
agreement to accept Tenant's attornment, Tenant shall attorn to and recognize
such Successor Landlord as Tenant's landlord under this Lease and shall
promptly execute and deliver any instrument that such Successor Landlord may
reasonably request to evidence such attornment. Upon such attornment this
Lease shall continue in full force and effect as a direct lease between the
Successor Landlord and Tenant upon all the terms, conditions and covenants of
this Lease except that the Successor Landlord, including, in the context of
clauses (a) through (c) below, any mortgagee succeeding to Landlord's rights,
shall not (a) be liable for any previous act or omission of Landlord under this
Lease; (b) be subject to any offset, not expressly provided for in this Lease,
which theretofore shall have accrued to Tenant against Landlord; or (c) be
bound by any previous modification of this Lease or by any previous prepayment
of more than one month's rent, unless such modification or prepayment shall
have been expressly approved in writing by the lessor of the Superior Lease or
the holder of the mortgage through or by reason of which the
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Successor Landlord shall have succeeded to the rights of Landlord under this
Lease. Tenant shall be provided written notice identifying any such mortgagee.
ARTICLE 15 - DEFAULTS AND REMEDIES
SECTION 15.01. DEFAULTS BY TENANT. The occurrence of any one or more of the
following events shall be a default under and breach of this Lease by Tenant:
A. Tenant shall fail to pay any Monthly Rental Installment of Minimum
Annual Rent or the Annual Rental Adjustment or any other amounts due
Landlord from Tenant as additional rent or otherwise within five (5)
days after such payment is due. In the event of a default under
subparagraph A. above, Landlord shall provide Tenant with written
notice of such default two (2) times during each successive twelve
(12) month period of the Lease Term and Tenant shall have an
additional five (5) days to cure such default before Landlord shall
declare a default or exercise its remedies herein.
B. Tenant shall fail to perform or observe any term, condition, covenant
or obligation required to be performed or observed by it under this
Lease for a period of thirty (30) days after notice thereof from
Landlord; provided, however, that if the term, condition, covenant or
obligation to be performed by Tenant is of such nature that the same
cannot reasonably be performed within such thirty-day period, such
default shall be deemed to have been cured if Tenant commences such
performance within said thirty-day period and thereafter diligently
undertakes to complete the same and does so complete the required
action within a reasonable time.
C. Tenant shall fail to provide written notice to Landlord of its intent
to vacate or abandon the Leased Premises or any substantial part
thereof at least thirty (30) days prior to such vacation or
abandonment for any period. Vacation or abandonment shall mean
Tenant's absence from and failure to occupy the Leased Premises or any
substantial portion thereof for a period of ten (10) days.
D. A trustee or receiver shall be appointed to take possession of
substantially all of Tenant's assets in, on or about the Leased
Premises or of Tenant's interest in this Lease (and Tenant does not
regain possession within sixty (60) days after such appointment);
Tenant makes an assignment for the benefit of creditors; or
substantially all of Tenant's assets in, on or about the Leased
Premises or Tenant's interest in this Lease are attached or levied
under execution (and Tenant does not discharge the same within sixty
(60) days thereafter.)
E. A petition in bankruptcy, insolvency, or for reorganization or
arrangement is filed by or against Tenant pursuant to any federal or
state statute (and, with respect to any such petition filed against
it, Tenant fails to secure a stay or discharge thereof within sixty
(60) days after the filing of the same.)
SECTION 15.02. REMEDIES OF LANDLORD. Upon the occurrence of any event of
default set forth in Section 15.01 beyond any
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applicable notice and cure period, Landlord shall have the following rights and
remedies, in addition to those allowed by law, any one or more of which may be
exercised without further notice to or demand upon Tenant:
A. Landlord may re-enter the Leased Premises and cure any default of
Tenant, in which event Tenant shall reimburse Landlord as additional
rent for any costs and expenses which Landlord may incur to cure such
default; and Landlord shall not be liable to Tenant for any loss or
damage which Tenant may sustain by reason of Landlord's action, unless
caused by Landlord's gross negligence or willful misconduct.
B. 1. Landlord may terminate this Lease as of the date of such
default, in which event: (i) neither Tenant nor any person
claiming under or through Tenant shall thereafter be entitled
to possession of the Leased Premises, and Tenant shall
immediately thereafter surrender the Leased Premises to
Landlord; (ii) Landlord may re-enter the Leased Premises and
dispossess Tenant or any other occupants of the Leased
Premises by force, summary proceedings, ejectment or
otherwise, and may remove their effects, without prejudice to
any other remedy which Landlord may have for possession or
arrearages in rent; and (iii) notwithstanding the termination
of this Lease, Landlord shall be entitled to recover from
Tenant the value at the time of such termination of the amount
of rent and other charges equivalent to rent reserved in this
Lease for the remainder of the Lease Term, less the net amount
of such rent and other charges for the remainder of the Lease
Term which Tenant proves could reasonably be recovered by
Landlord from reletting the Leased Premises under then-current
and reasonably anticipated market conditions,together with all
loss or damage which Landlord may sustain by reason of such
termination, it being expressly understood and agreed that the
liabilities and remedies specified in this Subsection (B)(1)
of Section 15.02 shall survive the termination of this Lease;
or
2. Landlord may, without terminating this Lease, re-enter the
Leased Premises and re-let all or any part of the Leased
Premises for a term different from that which would otherwise
have constituted the balance of the term of this Lease and for
rent and on terms and conditions different from those
contained herein (including, but not limited to, periods of
free or reduced rent, relocation allowances, and additional
tenant finish), whereupon Tenant shall be obligated to pay to
Landlord as liquidated damages the difference between the rent
provided for herein and that provided for in any lease
covering a subsequent re-letting of the Leased Premises, for
the period which would otherwise have constituted the balance
of the term of this Lease, together with all of Landlord's
reasonable costs and expenses for preparing the Leased
Premises for re-letting, including all repairs, tenant finish
improvements, advertising, brokers' and reasonable attorneys'
fees, and all loss or damage which Landlord may sustain by
reason of such re-entry and re-letting. The failure of
Landlord to relet the Leased Premises shall not affect
Tenant's liability for damages.
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C. Landlord may sue for injunctive relief or to recover damages for any
loss resulting from the breach.
D. In the event Tenant fails to pay within thirty (30) days after the
same is due and payable any Monthly Rental Installment of Minimum
Annual Rent, any monthly installment of the Annual Rental Adjustment,
or any other sum or charge required to be paid by Tenant to Landlord,
such unpaid amount shall bear interest from the due date thereof to
the date of payment at the rate of eighteen percent (18%) per annum
until paid.
E. Mention in this Lease of any particular remedy shall not preclude
Landlord from any other remedy in law or in equity.
F. Landlord agrees to use commercially reasonable efforts to re-let the
Leased Premises.
SECTION 15.03. LIMITATION OF LANDLORD'S LIABILITY. If Landlord shall fail to
perform or observe any term, condition, covenant or obligation required to be
performed or observed by it under this Lease and if Tenant shall, as a
consequence thereof, recover a money judgment against Landlord, Tenant agrees
that it shall look solely to Landlord's right, title and interest in and to the
Building for the collection of such judgment, that being the sole asset to
which Tenant may look for payment of any such judgment; and Tenant further
agrees that no other assets of Landlord, wherever situate, shall be subject to
levy, execution or other process for the satisfaction of Tenant's judgment and
that Landlord shall not be liable for any deficiency.
The references to "Landlord" in this Lease shall be limited to mean and include
only the owner or owners, at the time, of the fee simple interest in the
Building. In the event of a sale or transfer of such interest (except a
mortgage or other transfer as security for a debt), the "Landlord" named
herein, or, in the case of a subsequent transfer, the transferor, shall, after
the date of such transfer, be automatically released from all liability for the
performance or observance of any term, condition, covenant or obligation
required to be performed or observed by Landlord hereunder arising after the
date of such transfer; and the transferee shall be deemed to have assumed all
of such terms, conditions, covenants and obligations.
SECTION 15.04. NON-WAIVER OF DEFAULTS. Landlord's or Tenant's failure or
delay to exercise or enforce at any time any of the rights or remedies or other
provisions of this Lease shall not be construed to be a waiver thereof, nor
affect the validity of any part of this Lease or Landlord's or Tenant's right
thereafter to exercise or enforce each and every such right or remedy or other
provision. No waiver of any default and breach of the Lease shall be deemed to
be a waiver of any other default and breach. The receipt by Landlord of less
than the full rent due shall not be construed to be other than a payment on
account of rent then due, nor shall any statement on Tenant's check or any
letter accompanying Tenant's check be deemed an accord and satisfaction, and
Landlord may accept such payment without prejudice to Landlord's right to
recover the balance of the rent due or to pursue any other remedies provided in
this Lease. No act or omission by Landlord or its employees or agents during
the term of this Lease shall be deemed an acceptance of a surrender of the
Leased Premises, and no agreement to accept
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such a surrender shall be valid unless in writing and signed by Landlord.
SECTION 15.05. ATTORNEYS' FEES. In the event either party defaults in the
performance or observance of any of the terms, conditions, covenants or
obligations contained in this Lease and the other party employs attorneys to
enforce all or any part of this Lease, the defaulting party agrees to reimburse
the non-defaulting party for the reasonable attorneys' fees incurred thereby,
whether or not suit is filed.
ARTICLE 16 - LANDLORD'S RIGHT TO RELOCATE TENANT
Landlord shall have the right, at its option, upon at least one hundred twenty
(120) days' prior written notice to Tenant, to relocate any portion of the
Leased Premises located on the seventh (7th) and/or third (3rd) floors and
consisting of approximately 10,000 rentable square feet or less and to
substitute for such portion of the Leased Premises other space located on the
fourth (4th) floor of the Building or, after the third (3rd) year of the Lease
Term, located on the third (3rd) floor of the Building, containing at least as
much rentable area as such portion of the Leased Premises. The size and
configuration of the substituted space shall be reasonably acceptable to
Tenant. Such substituted space shall be improved by Landlord, at its expense,
with improvements at least equal in quantity and quality to those in such
portion of the Leased Premises. Landlord shall reimburse Tenant for any and
all reasonable expenses incurred with and caused by such relocation, including
telephone installation and moving of equipment and furniture. Such costs shall
be reimbursed by Landlord within sixty (60) days of receipt from Tenant of
original invoices or receipts marked "paid in full". In no event shall
Landlord be liable for any consequential damages to Tenant as a result of any
such relocation, including, but not limited to, loss of business income or
opportunity. Upon completion of the relocation, Landlord and Tenant shall
amend this Lease to change the description of the Leased Premises and any other
matters pertinent thereto.
ARTICLE 17 - NOTICE AND PLACE OF PAYMENT
SECTION 17.01. NOTICES. Any notice required or permitted to be given under
this Lease or by law shall be deemed to have been given if it is written and
delivered in person or mailed by Registered or Certified mail, postage prepaid,
to the party who is to receive such notice at the address specified in Item N
of the Basic Lease Provisions. When so mailed, the notice shall be deemed to
have been given as of the date it was mailed. The address specified in Item N
of the Basic Lease Provisions may be changed by giving written notice thereof
to the other party.
SECTION 17.02. PLACE OF PAYMENT. All rent and other payments required to be
made by Tenant to Landlord shall be delivered or mailed to Landlord's
management agent, Duke Realty Services Limited Partnership, P.O. Box 66122,
Indianapolis, Indiana 46266 or any other address Landlord may specify from time
to time by written notice given to Tenant.
ARTICLE 18 - MISCELLANEOUS GENERAL PROVISIONS
SECTION 18.01. CONDITION OF PREMISES. Tenant acknowledges that, except as
provided in this Lease, neither Landlord nor any agent of Landlord has made any
representation or warranty with respect to the Leased Premises or the Building
or with respect to the suitability or condition of any part of the Building for
the conduct of Tenant's business and Tenant is hiring the Leased Premises "as
is."
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SECTION 18.02. INSOLVENCY OR BANKRUPTCY. In no event shall this Lease be
assigned or assignable by operation of law, and in no event shall this Lease be
an asset of Tenant in any receivership, bankruptcy, insolvency, or
reorganization proceeding.
SECTION 18.03. COMMON AREAS. The term "Common Areas," as used in this Lease,
refers to the areas of the Building and the land described in Exhibit A-1 which
are designed for use in common by all tenants of the Building and their
respective employees, agents, customers, invitees and others, and includes, by
way of illustration and not limitation, entrances and exits, hallways and
stairwells, elevators, restrooms, sidewalks, driveways, parking areas,
landscaped areas and other areas as may be designated by Landlord as part of
the Common Areas of the Building. Tenant shall have the non-exclusive right,
in common with others, to the use of the Common Areas, subject to such
nondiscriminatory rules and regulations as may be adopted from time to time by
Landlord including those set forth in Section 5.02 and Exhibit C of this Lease.
Further, Landlord shall have the right to change the location and size of the
Common Areas from time to time as Landlord shall see fit in its reasonable
discretion, including, without limitation, the removal of property and
facilities from the Common Areas; provided, however, that no such alteration or
removal will materially impair Tenant's access to or use of the Leased
Premises.
SECTION 18.04. CHOICE OF LAW. This Lease shall be governed by and construed
pursuant to the laws of the State of Indiana.
SECTION 18.05. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Lease, all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.
SECTION 18.06. NAME. Tenant shall not, without the written consent of
Landlord, use the name of the Keystone Crossing Office Park for any purpose
other than as the address of the business to be conducted by Tenant in the
Leased Premises, and in no event shall Tenant acquire any rights in or to such
names. Landlord reserves the right to change the name and/or address of the
Building at any time.
SECTION 18.07. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
SECTION 18.08. TIME. Time is of the essence of this Lease and each and all of
its provisions.
SECTION 18.09. DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord" and
"Tenant" as used herein shall include the plural as well as the singular. If
more than one person is named as Tenant, the obligations of such persons are
joint and several. The marginal headings and titles to the articles of this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
SECTION 18.10. PRIOR AGREEMENTS. This Lease and the letter of understanding
executed pursuant to Section 2.03 hereof contain
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all of the agreements of the parties hereto with respect to any matter covered
or mentioned in this Lease, and no prior agreement, understanding or
representation pertaining to any such matter shall be effective for any
purpose. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective
successors in interest.
SECTION 18.11. PAYMENT OF AND INDEMNIFICATION FOR LEASING COMMISSIONS. The
parties hereby acknowledge, represent and warrant that the only real estate
broker or brokers involved in the negotiation and execution of this Lease is
that, or are those, named in Item I of the Basic Lease Provisions and that no
other broker or person is entitled to any leasing commission or compensation as
a result of the negotiation or execution of this Lease. Tenant hereby
indemnifies and holds Landlord harmless from any and all liability for the
breach of any such representation and warranty on its part and shall pay any
compensation to any other broker or person who may be deemed or held to be
entitled thereto.
SECTION 18.12. SEVERABILITY OF INVALID PROVISIONS. If any provision of this
Lease shall be held to be invalid, void or unenforceable, the remaining
provisions hereof shall not be affected or impaired, and such remaining
provisions shall remain in full force and effect.
SECTION 18.13. ESTOPPEL CERTIFICATE. Tenant shall, within fifteen (15) days
following receipt of a written request from Landlord, execute, acknowledge and
deliver to Landlord or to any lender, purchaser or prospective lender or
purchaser designated by Landlord a written statement, in the form attached
hereto as Exhibit D or in such other form as Landlord may, in the exercise of
its normal business judgment, request, certifying (i) that this Lease is in
full force and effect and unmodified (or, if modified, stating the nature of
such modification), (ii) the date to which rent has been paid, and (iii) that
there are not, to Tenant's knowledge, any uncured defaults (or specifying such
defaults if any are claimed). Any such statement may be relied upon by any
prospective purchaser or mortgagee of all or any part of the Building.
Tenant's failure to deliver such statement within such period shall be
conclusive upon Tenant that this Lease is in full force and effect and
unmodified, and that there are no uncured defaults in Landlord's performance
hereunder.
Landlord shall, within thirty (30) days following receipt of a written request
from Tenant, execute, acknowledge and deliver to Tenant or to any assignee,
lender, purchaser or prospective assignee, lender or purchaser designated by
Tenant a written statement, certifying (i) that this Lease is in full force and
effect and unmodified (or, if modified, stating the nature of such
modification), (ii) the date to which rent has been paid, and (iii) that there
are not, to Landlord's knowledge, any uncured defaults (or specifying such
defaults if any are claimed). Any such statement may be relied upon by any
prospective assignee, lender or purchaser of Tenant's assets or business.
SECTION 18.14. SERVICES PERFORMED BY LANDLORD. Any services which Landlord is
required to furnish pursuant to the provisions of this Lease may, at Landlord's
option, be furnished from time to time, in whole or in part, by employees of
Landlord, by the
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managing agent of the property, or by one or more third persons; and Landlord
further reserves the right to require Tenant to enter into reasonable
agreements with such third persons in form and content approved by Landlord for
the furnishing of such services.
SECTION 18.15. AMENDMENT FOR TAX PURPOSES. Landlord shall have the right at
any time and from time to time to unilaterally amend the provisions of this
Lease if Landlord is advised by its counsel that all or any portion of the
monies paid by Tenant to Landlord hereunder are, or may be deemed to be,
unrelated business income within the meaning of the United States Internal
Revenue Code or regulation issued thereunder; and Tenant agrees that it will
execute all documents or instruments necessary to effect such amendment or
amendments, provided that no such amendment shall result in Tenant's having to
pay in the aggregate more money on account of its occupancy of the Leased
Premises under the terms of this Lease as so amended; and provided further that
no such amendment or amendments shall result in Tenant's receiving under the
provisions of this Lease fewer services than it is entitled to receive nor
services of a lesser quality; provided, however, that Tenant shall suffer no
material adverse effect as a result of any such amendment.
SECTION 18.16. FORCE MAJEURE. Except as otherwise provided in this Lease,
this Lease and the obligation of Tenant to pay rent hereunder and perform all
of the other covenants and agreements hereunder on the part of Tenant to be
performed shall in no way be affected, impaired or excused because Landlord is
unable to fulfill or is delayed in fulfilling any of its obligations when such
inability or delay is occasioned by causes beyond its control, including, but
not limited to, war, invasion or hostility; work stoppages, boycotts, slowdowns
or strikes; shortages of materials, equipment, labor or energy; manmade or
natural casualties; unusual weather conditions or other acts of God; acts or
omissions of governmental or political bodies; or civil disturbances or riots.
SECTION 18.17. UNRELATED BUSINESS INCOME. Neither Tenant nor any other person
having an interest in the possession, use, occupancy or utilization of the
Leased Premises shall enter into any lease, sublease, license, concession or
other agreement for use, occupancy or utilization of space in the Leased
Premises which provides for rental or other payment for such use, occupancy or
utilization based in whole or in part on the net income or profits derived by
any person from the property leased, used, occupied or utilized (other than an
amount based on a fixed percentage or percentages of receipts or sales), and
that any such purported lease, sublease, license, concession, assignment or
other agreement shall be absolutely void and ineffective as a conveyance of any
right or interest in the possession, use, occupancy or utilization of any part
of the Leased Premises (and that if a sublease is entered into, neither the
rental payable thereunder nor the amount thereof passed on to any person or
entity shall have deducted therefrom any expenses or costs related in any way
to the subleasing of such space).
SECTION 18.18. FINANCIAL STATEMENTS. In the event Tenant is not a publicly
held corporation, Tenant shall provide to Landlord, upon Landlord's written
request, a copy of Tenant's most recent certified and audited financial
statements prepared as of the end of Tenant's most recent fiscal year. Such
financial statements
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shall be prepared in conformity with generally accepted accounting principles,
consistently applied.
SECTION 18.19. REPRESENTATIONS AND INDEMNIFICATIONS. Any representations and
indemnifications of Landlord contained in the Lease shall not be binding upon
(i) any mortgagee having a mortgage presently existing or hereafter placed on
the Building, or (ii) a successor to Landlord which has obtained or is in the
process of obtaining fee title interest to the Building as a result of a
foreclosure of any mortgage or a deed in lieu thereof, unless such party
becomes the Landlord under this Lease.
SECTION 18.20. TENANT'S REPRESENTATIONS AND WARRANTIES. The undersigned
represents and warrants to Landlord that (i) Tenant is duly organized, validly
existing and in good standing in accordance with the laws of the state under
which it was organized; (ii) all action necessary to authorize the execution of
this Lease has been taken by Tenant; and (iii) the individual executing and
delivering this Lease on behalf of Tenant has been authorized to do so, and
such execution and delivery shall bind Tenant. Tenant, at Landlord's request,
shall provide Landlord with evidence of such authority.
SECTION 18.21. RIGHT OF FIRST OFFER. Provided that (i) Tenant is not in
default at the time of exercise or commencement of this option, (ii) the
creditworthiness of Tenant has not materially diminished, (iii) Tenant
originally named herein remains in possession of and has been continuously
operating in the entire Leased Premises throughout the Lease Term, and (iv) the
use of the Leased Premises has not changed, and subject to any existing rights
of other tenants to the Offer Space (as hereinafter defined) as of the date of
this Lease, Landlord shall, before entering into a lease with a third party for
all or any portion of the third (3rd) floor of the Building (the "Offer
Space"), notify Tenant in writing of the availability of such space for leasing
("Landlord's Notice"). Tenant shall have ten (10) business days from its
receipt of Landlord's Notice to deliver to Landlord a written notice agreeing
to lease, on the terms and conditions (except as set forth below, the same
terms and conditions as contained in this Lease) contained in Landlord's
Notice, either all of the Offer Space, ie., the entire third (3rd) floor, or,
at Tenant's option, a portion of the Offer Space containing approximately
10,000 contiguous rentable square feet, the exact location and configuration of
which shall be reasonably determined by Landlord and shall be commercially
leaseable. In the event Tenant fails to notify Landlord of its agreement
within said ten (10) day period, Landlord shall be free to lease the Offer
Space to a third party, provided, however, that at any time prior to Landlord
entering into a lease with a third party for the Offer Space, but in no event
after the third (3rd) year of the Lease Term, if Tenant desires to lease the
Offer Space, Tenant may so notify Landlord in writing, in which case the Offer
Space shall be leased to Tenant upon the terms and conditions contained herein.
The term for the Offer Space shall be coterminous with the term for the
original Leased Premises. The Minimum Annual Rent for the Offer Space shall be
equal to (i) Fifteen Dollars and Eighty-six Cents ($15.86) per rentable square
foot if leased during the first year of the Lease Term; (ii) Sixteen Dollars
and Thirty-six Cents ($16.36) per rentable square foot if leased during the
second year of the Lease Term; and (iii) Sixteen Dollars and Eighty-six Cents
($16.86) per rentable square foot if leased during the third year of the Lease
Term. Landlord
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agrees to provide Tenant with a tenant finish improvement allowance for the
Offer Space in an amount not to exceed Eight Dollars ($8.00) per rentable
square foot for the full six year Lease Term, which amount shall be reduced on
a pro-rata basis for any period less than the full six year Lease Term.
SECTION 18.22. RIGHT OF FIRST REFUSAL. Provided that (i) Tenant is not in
default at the time of exercise or commencement of this option, (ii) the
creditworthiness of Tenant has not materially diminished, (iii) Tenant
originally named herein remains in possession of and has been continuously
operating in the entire Leased Premises throughout the Lease Term, and (iv) the
use of the Leased Premises has not changed, and subject to any existing rights
of other tenants to the Refusal Space (as hereinafter defined) as of the date
of this Lease, Tenant shall have the right of first refusal ("Refusal Option")
to lease additional space in the Building located on the third (3rd) floor, the
fourth (4th) floor and the seventh (7th) floor ("Refusal Space") as such space
becomes available for leasing during the Lease Term. This Refusal Option with
respect to any space located on the third (3rd) floor of the Building shall be
at the rental rates and upon such other terms as set forth in Section 18.21
during the first three years of the Lease Term. The Refusal Space on the
fourth (4th) and seventh (7th) floors, and on the third (3rd) floor after the
third year of the Lease Term, shall be offered to Tenant at the rental rate
then being offered by Landlord to a specific third party prospective tenant for
such space, excluding free rent, but in no event less than the then current
rental rate under this Lease, and upon such other terms as determined by
Landlord, provided, however, that the tenant finish improvement allowance shall
be that which is being offered to the third party prospective tenant. Said
allowance shall be available only for tenant finish improvements in the Refusal
Space, which improvements shall be mutually agreed upon by Landlord and Tenant,
and shall not be available to reduce or abate rent in any manner or as any form
of cash allowance.
Upon notification in writing by Landlord that the Refusal Space or any portion
thereof is available, Tenant shall have ten (10) business days in which to
notify Landlord in writing of its election to lease such Refusal Space at such
rental rates and other terms described above, in which event this Lease shall
be amended to incorporate such Refusal Space. In the event Tenant declines or
fails to elect to lease such Refusal Space, then this Refusal Option shall
automatically terminate and shall thereafter be null and void as to such space.
It is understood and agreed that this Refusal Option shall not be construed to
prevent any tenant in the Building from extending or renewing its lease or
exercising any other options pursuant to its lease.
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In addition, during the Lease Term, Landlord hereby agrees to provide Tenant,
upon Tenant's written request, but not more than once a month, a report
indicating the availability of space in the Building.
SECTION 18.23. OPTION TO EXTEND.
A. Grant and Exercise of Option. Provided that (i) Tenant is not
in default at the time of exercise or commencement of this option, (ii) the
creditworthiness of Tenant has not materially diminished, and (iii) the use of
the Leased Premises has not changed, Tenant shall have one (1) option to extend
the term of this Lease (the "Original Term") for one (1) additional period of
five (5) years (the "Extension Term"). The Extension Term shall be upon the
same terms and conditions contained in the Lease for the Original Term except
(i) Tenant shall not have any further option to extend and (ii) the Minimum
Annual Rent shall be adjusted as set forth herein ("Rent Adjustment"). Tenant
shall exercise such option by delivering to Landlord, no later than twelve (12)
months prior to the expiration of the Original Term, written notice of Tenant's
desire to extend the Original Term. Tenant's failure to properly exercise
such option shall waive it. If Tenant properly exercises its option to extend,
Landlord shall notify Tenant of the Rent Adjustment no later than ninety (90)
days prior to the commencement of the Extension Term. Tenant shall be deemed
to have accepted the Rent Adjustment if it fails to deliver to Landlord a
written objection thereto within ten (10) business days after receipt thereof.
If Tenant properly exercises its option to extend, Landlord and Tenant shall
execute an amendment to the Lease (or, at Landlord's option, a new lease on the
form then in use for the Building) reflecting the terms and conditions of the
Extension Term.
B. Market Rent Adjustment. The Minimum Annual Rent for the Extension
Term shall be an amount equal to the Minimum Annual Rent then being quoted by
Landlord to prospective new tenants of the Building for space of comparable
size and quality and with similar or equivalent improvements as are found in
the Building, and if none, then in similar buildings in the_Park; provided,
however, that in no event shall the Minimum Annual Rent during the Extension
Term be less than the highest Minimum Annual Rent payable during the Original
Term. The Minimum Monthly Rent shall be an amount equal to one-twelfth (1/12)
of the Minimum Annual Rent for the Extension Term and shall be paid at the same
time and in the same manner as provided in the Lease.
SECTION 18.24. SIGNAGE. Notwithstanding anything contained herein to the
contrary, and provided that Tenant complies with all zoning and other municipal
and county regulations, Tenant may, at its own cost and expense (except that
Tenant may use a portion of the Allowance, if available, in accordance with the
provisions of Section 2.02), erect a non-exclusive sign on the Building
("Sign") identifying its business, which Sign (i) shall be located on the
precast surface above the seventh (7th) floor windows of Tenant's offices; (ii)
shall not exceed two (2) feet in height; and (iii) shall have interstate
exposure. The Sign shall consist of the letters "NHP" and the corporate logo
of Tenant. The exact location, style and size of the Sign shall be subject to
Landlord's prior written approval which shall not be unreasonably withheld,
conditioned or delayed. Tenant agrees to maintain such Sign in first-class
condition and in compliance
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<PAGE> 39
with all zoning and building codes throughout the Lease Term. Tenant shall be
responsible for all electrical costs associated with the Sign. Upon expiration
or early termination of the Lease Term, Tenant shall remove the Sign and repair
all damage to the Building caused thereby. Landlord does not warrant the
availability of such Sign to Tenant. Any language in the Lease
notwithstanding, Tenant shall indemnify and hold harmless Landlord from any and
all liability for any loss of or damage or injury to any person (including
death resulting therefrom) or property connected with or arising from the Sign
or the rights granted Tenant herein.
SECTION 18.25. SATELLITE DISH.
a. Provided Tenant is not in default under the Lease, and
provided further that Tenant complies with all zoning and other municipal and
county rules and regulations, Tenant shall have the right, at its own cost and
expense, to install, operate and maintain on the roof of the Building, a
microwave satellite dish ("Dish") for a reasonable monthly rental rate, to be
determined by Landlord upon its review of Tenant's specifications for the Dish.
Tenant shall be solely responsible for obtaining any necessary permits and
licenses required to install and operate the Dish. Copies of such permits and
licenses shall be provided to Landlord.
b. The size, location, design and manner of installation of the
Dish and all related wiring and equipment shall be designated and approved by
Landlord, which approval shall not be unreasonably withheld. After obtaining
written approval of Landlord, Tenant shall have reasonable access to the roof
for installation and maintenance of the Dish and shall have the right to
install all reasonable wiring related thereto. However, unless otherwise
approved by Landlord in writing, in no event shall Tenant be permitted to
penetrate the roof membrane in connection with the installation or maintenance
of the Dish.
c. Tenant represents and warrants that the installation and
maintenance of the Dish will not cause any damage to the structural portions of
the Building. Tenant shall be responsible for repairing any such damages to
the structure.
d. Tenant shall install, operate and maintain the Dish in
accordance with all federal, state and local laws and regulations. Prior to
installation of the Dish, Tenant shall, on behalf of the installer, provide
Landlord with a certificate of insurance reasonably satisfactory to Landlord.
e. Tenant reserves the right to discontinue its use of the Dish
at any time prior to the termination of the Lease or any renewal or extension
thereof for any reason whatsoever, provided that Tenant gives thirty (30) days
prior written notice thereof to Landlord. Tenant shall be responsible for all
costs of removal and for restoring the Building to its original condition after
such removal. Notwithstanding the foregoing, Landlord reserves the right at
any time during or upon the expiration of the Lease Term to reasonably require
by written notice to Tenant that Tenant remove the Dish within ten (10) days
from Tenant's receipt thereof, unless Landlord waives such right in writing at
the time of granting its consent to the installation of said Dish. Such
removal shall be in accordance with all of the terms and conditions set forth
herein. If Tenant elects not to remove the Dish from the Building, upon
expiration or earlier termination of this Lease, or after expiration of the ten
(10)
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<PAGE> 40
day notice period provided herein, the Dish shall be deemed abandoned by Tenant
and shall become the property of Landlord.
f. Any language in the Lease notwithstanding, Landlord shall not
be liable and Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all liability, damages (including but not limited to
personal injury, death, or property damages), costs, expenses, and attorneys'
fees incurred by Landlord arising from any Dish related cause whatsoever,
including those arising from the installation, use, maintenance and removal
thereof, except for that caused by the gross negligence or willful misconduct
of Landlord.
g. If Tenant fails to comply with the terms stated herein, or if
removal of the Dish is required by any governmental authority having
jurisdiction thereof, Tenant shall remove the Dish and all related wiring and
equipment and restore the Building to its original condition in accordance
herewith within ten (10) days of its receipt of written notice requiring the
same.
h. Tenant's right to install, maintain and use such Dish shall be
subordinate and inferior to the rights of any and all existing tenants in the
Building that have previously been granted the right to install and maintain
dishes on the roof of the Building.
SECTION 18.26. PARKING. The commercial zoning ordinance of Marion County,
Indiana requires 3.5 parking spaces for every 1,000 square feet for general
office buildings. The Building currently has 3.8 parking spaces for every
1,000 square feet, based on the total Rentable Area of 149,350 square feet. In
the event it is reasonably determined by Tenant that the visitor parking spaces
available for the Building are insufficient to adequately serve Tenant's
reasonable needs, and upon Tenant's written request, Landlord agrees to add
five (5) additional visitor parking spaces in the Building parking lot, within
a reasonable time after its receipt of said notice.
SECTION 18.27. STORAGE SPACE. Provided Tenant is not in default hereunder,
Landlord agrees to provide Tenant certain temporary storage space, at no cost,
located on the third (3rd) floor of the Building and known as Suite 350 (the
"Storage Space"), from the Commencement Date until the date of substantial
completion of the Additional Space. Tenant accepts the Storage Space "AS IS"
without representation or warranty by Landlord of any kind and with the
understanding that Landlord shall have no responsibility with respect thereto.
Tenant's occupancy of the Storage Space shall be in accordance with all terms
and conditions of this Lease, except as otherwise provided herein.
SECTION 18.28. AMERICANS WITH DISABILITIES ACT. To the best of Landlord's
knowledge, Landlord has received no notice from any governmental agency or
other source that the Building is not in compliance with the Americans With
Disabilities Act ("ADA"). Landlord shall indemnify Tenant from and against any
claims, and shall defend Tenant in any action, arising from non-compliance of
the Building common areas with the ADA.
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<PAGE> 41
SECTION 18.29. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant
that, except as otherwise provided in this Lease, upon the continuing
compliance by Tenant with all of the terms, covenants and provisions of this
Lease to be performed by Tenant, Tenant shall and may peaceably and quietly
have, hold and enjoy the Leased Premises for the Lease Term, free from any
interference whatsoever by, from or through Landlord or anyone claiming by,
from or through Landlord, except as may be otherwise provided herein.
ARTICLE 19 - NON-LIABILITY AND INDEMNIFICATION
SECTION 19.01. NON-LIABILITY OF LANDLORD. Neither Landlord nor any partner,
director, officer, agent, servant or employee of Landlord shall be liable to
Tenant for any loss, injury or damage to Tenant or to any other person, or to
its or their property, irrespective of the cause of such injury, damage, or
loss, unless caused by or due to the negligence or willful misconduct of
Landlord, its agents, servants, or employees, without contributory negligence
on the part of Tenant or any of its subtenants or licensees or its or their
employees, agents or contractors. Further, neither Landlord nor any partner,
director, officer, agent, servant or employee of Landlord shall be liable for
any such damage caused by other tenants or persons in, upon, or about the
Building, or caused by operations in construction of any private, public, or
quasi-public work.
SECTION 19.02. ADDITIONAL INDEMNITY. - Intentionally omitted.
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<PAGE> 42
ARTICLE 20 - HAZARDOUS MATERIALS
Tenant shall not (either with or without negligence) cause or permit the
escape, disposal or release of any biologically or chemically active or other
hazardous substances, or materials. Tenant shall not allow the storage or use
of such substances or materials in any manner not sanctioned by law or by the
highest standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Building any such
materials or substances except to use in the ordinary course of Tenant's
business, and then only after written notice is given to Landlord of the
identity of such substances or materials. Without limitation, hazardous
substances and materials shall include those described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6901 et seq., any applicable state or local laws and
the regulations adopted under these acts. If any lender or governmental agency
shall ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall be
reimbursed by Tenant to Landlord upon demand as additional charges if such
requirement applies to the Leased Premises, provided such testing is not
required as a result of Landlord's act. In addition, Tenant shall execute
affidavits, representations and the like from time to time at Landlord's
request concerning Tenant's best knowledge and belief regarding the presence of
hazardous substances or materials on the Leased Premises. In all events,
Tenant shall indemnify Landlord in the manner elsewhere provided in this Lease
from any release of hazardous materials on the Leased Premises occurring while
Tenant is in possession, or elsewhere if caused by Tenant or persons acting
under Tenant. The within covenants shall survive the expiration or earlier
termination of the Lease Term.
To the best of Landlord's knowledge, there is no asbestos or hazardous
materials (except as may be necessary or appropriate for a particular tenant's
use) in, on or about the Leased Premises, Building or site.
ARTICLE 21 - CONSENTS
In any instance in which either Landlord or Tenant shall be requested to
consent to or approve any matter with respect to which such party's consent or
approval is required by any of the provisions of this Lease, such consent or
approval shall not be unreasonably withheld, conditioned, delayed, or exercised
except as may otherwise be expressly set forth to the contrary in this Lease.
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<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
LANDLORD:
WRC PROPERTIES, INC., a Delaware
corporation
ATTEST:
By:
- ------------------------ -----------------------------
Its:
- ------------------------ ---------------------------
(Title)
TENANT:
NHP INCORPORATED, a
Delaware corporation
ATTEST:
By:
- ------------------------ -----------------------------
Printed:
- ------------------------ ------------------------
(Title)
Its:
----------------------------
STATE OF
------------ )
) SS:
COUNTY OF )
------------
Before me, a Notary Public in and for said County and State,
personally appeared __________________________________, and ___
_______________________________, by me known and by me known to be the
____________________ and __________________, respectively, of NHP Incorporated,
a Delaware corporation, who acknowledged the execution of the foregoing
"Keystone Office Lease" on behalf of said corporation.
WITNESS my hand and Notarial Seal this _____ day of _________________,
1996.
---------------------------
Notary Public
---------------------------
(Printed Signature)
My Commission Expires:
------------------------
My County of Residence:
------------------------
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<PAGE> 1
EXHIBIT 10.26
ASSET MANAGEMENT AGREEMENT
This Asset Management Agreement (the "Agreement") is made and
entered into as of the 29th day of February 1996, by and between C.R.I., Inc.,
a Delaware corporation ("CRI") and NHP Incorporated, a Delaware corporation
("NHP").
W I T N E S S E T H:
WHEREAS, CRI was the sponsor and remains the managing general
partner of numerous public and private offerings of interests in limited
partnerships (the "Investment Partnerships") listed on Schedule I attached
hereto and made a part hereof, as amended from time to time, which acquired
interests in limited partnerships (the "Local Partnerships") which own and
operate the apartment complexes for low- and moderate-income tenants listed on
Schedule I, as amended from time to time, all of which receive assistance in
the form of either (i) Section 221(d)(3) mortgages with below market interest
rates; (ii) mortgages under Section 236, (iii) mortgages under Section
221(d)(4); (iv) mortgages from state housing agencies; and/or (v) Section 8
subsidies with respect to the apartment units in the complex (the "Apartment
Complexes"); and
WHEREAS, CRI wishes to contract with NHP to provide certain
asset management services and administrative oversight with respect to the
operations of the Local Partnerships and the management of the Apartment
Complexes.
NOW, THEREFORE, in consideration of the premises and for good
and valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, and subject to the terms, conditions, representations,
warranties and covenants set forth herein, the parties agree as follows:
1. NHP's Services. NHP hereby agrees to provide asset
management services to CRI, and to perform the duties and obligations set forth
below:
(a) Make recommendations to CRI as to matters
requiring the consent of CRI and/or the Investment Partnerships pursuant to the
agreements of limited partnership that govern the operation of the Local
Partnerships (the "Local Partnership Agreements") and provide support for the
implementation of the decisions made by CRI and/or the Investment Partnerships
with respect to such matters, including, without limitation:
(i) sale or refinancing of an Apartment
Complex or transfer of interests in a Local Partnership, including
verifications of the Local Partnerships' determinations of net cash flow and of
sale, refinancing or liquidation proceeds;
(ii) withdrawal and/or admission of a
general partner to a Local Partnership;
<PAGE> 2
(iii) undertaking financing by a Local
Partnership, or a general partner advance to a Local Partnership, which (a) is
in excess of $25,000 or (b) is secured by a lien on the property of the Local
Partnership;
(iv) construction of new or replacement
capital improvements in excess of limits established by a Local Partnership
Agreement, except to the extent such construction was contemplated by a
CRI-approved budget;
(v) replacement, extension and/or removal of
a management agent;
(vi) amendment of a Local Partnership
Agreement other than routine amendments, such as those to remove a dissolved,
decreased or bankrupt general partner;
(vii) events as to which NHP has knowledge
would cause a Local Partnership to be terminated for federal income tax
purposes;
(viii) the appropriateness and adequacy of
insurance coverage for each insurable interest in accordance with prior
procedures, and alternative arrangements therefor if necessary.
(b) Conduct annual reviews of major contracts
(that is, contracts requiring expenditures in excess of $25,000 annually) not
otherwise budgeted entered into by the Local Partnerships.
(c) Review budgets submitted by the general
partners of the Local Partnerships (the "Local General Partners") or the
managing agents for comparison of actual income, costs and expenses to the
projections theretofore furnished, analyze variances from such projections, and
advise CRI with respect thereto, including recommendations for changes or
improvements.
(d) Review monthly operating reports ("MORs"),
balance sheets and other materials submitted by the Local General Partners or
the managing agents, including review and analysis of receipts and expenditures
and comparison of actual and budgeted amounts, and recommend changes or
improvements. In the case of Investment Partnerships whose interests were
offered in a public offering ("Public Partnerships"), the MORs shall be
reviewed within twenty (20) business days of receipt from the Local General
Partner (it being understood that NHP will use reasonable
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<PAGE> 3
efforts to obtain the same from the Local General Partners as expeditiously as
possible) each month. For the remaining Investment Partnerships, the MORs
shall be reviewed at least quarterly within twenty (20) business days of
receipt of all three MORs for such quarter from the Local General Partner (it
being understood that NHP will use reasonable efforts to obtain the same from
the Local General Partners as expeditiously as possible).
(e) Determine the appropriateness of rent
increases and, if necessary, oversee the efforts of the management agent in
securing such rent increase or appealing the denial of the same .
(f) Approve deposits and withdrawals from reserve
accounts when needed.
(g) Review annual surplus cash distributions from
the Local Partnerships and calculations of fees that may be due pursuant to the
terms of the Local Partnership Agreements and take reasonable steps to ensure
that such fees are paid in a timely fashion.
(h) Use reasonable efforts to obtain from the
Local Partnerships on an expeditious basis financial statements, reports,
budgets, tax returns and books and records regarding the Local Partnerships and
such other information and documentation as is required to be provided to the
Investment Partnerships pursuant to the terms of the partnership agreements
that govern the operations of the Investment Partnerships (the "Investment
Partnership Agreements"). Review the Local Partnerships' audited financial
statements upon receipt from the Local Partnership (no later than June 30 of
each year) and notify CRI upon such review of any material non-compliance or
going concern issues. Confirm that the Local Partnerships have timely remitted
audited financial statements to their respective lenders and notify CRI upon
learning of any non-compliance.
(i) Notify CRI within three (3) business days if
any of the following come to the attention of the assigned NHP asset manager:
(i) any actual, proposed or threatened
sale or transfer of title (including condemnation) of an Apartment Complex or
an Investment Partnership's interest in a Local Partnership;
(ii) any material damage or material lack
of repair, or any material deterioration or material waste suffered or
permitted with respect to an Apartment Complex;
(iii) any abandonment of any Apartment
Complex or material portion thereof;
(iv) any event, occurrence or condition
which NHP knows would constitute a violation of any material provision of a
Local Partnership Agreement, Regulatory Agreement, Property Management
Agreement or loan document or other document that
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<PAGE> 4
governs the ownership, operation or management of an Apartment Complex or a
Local Partnership;
(v) any material substandard performance
of the Apartment Complexes, managing agents or Local General Partners; and/or
(vi) issuance by a Federal or state
housing agency of a management agent and/or physical inspection report
indicating below satisfactory performance.
(j) Perform site visits to, and meet with the
managers of, the Apartment Complexes, to review operating performance, leasing
activity, tenant issues, employee issues, Regulatory Agreement compliance, and
any proposed capital improvements or major expenditures, such site visits to
occur with such frequency as reasonably determined necessary by CRI. Prepare a
report of such visits on a form to be mutually approved by CRI and NHP, and
submit to CRI within twenty (20) business days any such reports showing
material substandard performance.
(k) Locate and assist CRI in retaining
independent consultants, advisors and experts required to perform specialized
services for the Local Partnership(s), such as auditing and accounting services
(it being understood and agreed that NHP shall not be authorized to retain any
such consultants, advisors and experts, and that all such engagements shall be
made by CRI).
(l) Review all correspondence and materials
submitted to NHP for its review prior to the distribution to the limited
partners of the Investment Partnerships, and cooperate in the preparation
thereof by providing at CRI's request information regarding the Apartment
Complexes and Local Partnerships.
(m) Use reasonable efforts to obtain from the
Local Partnerships and expeditiously distribute to the respective Investment
Partnerships insurance certificates for all insurance policies in effect for
the Apartment Complexes and/or the Local Partnerships.
1A. Disposition Services. NHP shall design and
implement, over a reasonable period of time, as mutually agreed upon, a program
or series of programs, each of which may include one or more Apartment
Complexes, which program(s) shall be subject to CRI's approval, for the
refinancing or sale of the Apartment Complexes or the sale of the Investment
Partnerships' partnership interests in the Local Partnerships (each a
"Disposition"). NHP shall seek purchasers and/or refinancing lenders and
present proposals to CRI for approval. NHP shall thereafter work to close such
Dispositions, including obtaining all necessary governmental approvals.
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<PAGE> 5
2. Term. The term of this Agreement shall be for three
(3) years, commencing May 1, 1996 (the "Commencement Date") and ending April
30, 1999, unless terminated in accordance with Section 13 hereof. Thereafter,
the term shall continue on a month-to-month basis until terminated by either
party pursuant to Section 13 hereof.
3. Fees. For the provision of the services described in
Sections 1 and 1A of this Agreement, CRI shall pay NHP the following fees:
(a) Set-up Fee. CRI has paid NHP a one-time non-
refundable set-up fee of $150,000 upon execution of this Agreement. This fee
shall not be offset against any other fees or amounts payable hereunder.
(b) Base Fee. $500,000 per annum payable in
equal monthly installments of $41,666.67 on the first day of each month (except
that if such day falls on a weekend or holiday, payment shall be made on the
preceding business day) commencing on the Commencement Date.
(c) Disposition Fee.
(i) Minimum Capital Events Fee. CRI
shall pay NHP an annual Capital Events Fee of $160,000, paid in arrears in four
equal quarterly installments commencing August 1, 1996. Upon termination of
this Agreement, CRI shall pay to NHP any accrued but unpaid portion of the
Capital Events Fee for the quarter in which the termination is effective,
subject to reduction pursuant to clause (iii) below.
(ii) Disposition Fee. For each
Disposition which is closed, NHP shall receive a Disposition Fee equal to 2% of
the gross sales price, in the case of a sale of an Apartment Complex or the
sale of the partnership interests in a Local Partnership or another partnership
invested in, directly or indirectly, by an Investment Partnership and which,
directly or indirectly, is a partner in the Local Partnership, or 2% of the
principal amount of a new mortgage in the case of a refinancing (or 2% of the
principal amount of supplemental financing and the outstanding balance of the
existing financing if such is restructured in connection with the supplemental
financing). The Disposition Fee shall be paid at closing of the Disposition
from sales or refinancing proceeds. CRI shall guarantee payment of such
Disposition Fee no later than 30 days after closing. This guaranty shall
require CRI to pay the Disposition Fee even if the disposition proceeds are
non-cash or if they have not been released to the Investment Partnership
because of a dispute amongst the partners of the respective Local Partnership.
The termination of this Agreement shall not affect
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<PAGE> 6
the obligations of the Investment Partnerships or CRI hereunder to pay NHP any
accrued but unpaid portions of the Disposition Fee.
(iii) Notwithstanding subparagraph (c)(ii)
above, at such time during each twelve-month period commencing on the
Commencement Date, NHP has collected Disposition Fees equal to $160,000 in the
aggregate, additional Disposition Fees shall be distributed as follows: a) NHP
shall receive fifty cents of each of the next $320,000 received, with the other
fifty cents of each $320,000 payable to CRI as a credit against the $160,000
Capital Events Fee for such twelve-month period; and b) NHP shall receive 100%
of all further Disposition Fees earned.
(iv) In the event CRI terminates the
Agreement without cause, and NHP, prior to the termination notice, has
commenced work on a Disposition, NHP shall be entitled to its Disposition Fee
if such transaction closes within nine months following the termination date of
this Agreement. For purposes hereof, NHP will be deemed to have commenced work
on a Disposition if it has presented the proposal from the eventual purchaser
or assignee or successor of such purchaser, or refinancing lender or assignee
or successor of such lender, to CRI and CRI proceeds with the transaction on
substantially the terms set forth in NHP's proposal whether or not NHP is
involved.
4. Reporting Requirements.
(a) NHP shall report to CRI monthly as to the
status of the services which it is providing pursuant to Section 1. These
reports shall include, beginning July 1, 1996, and continuing thereafter on the
first day of each month, a "Key Issues Report" in a form mutually acceptable to
CRI and NHP outlining any major issues regarding any of the Apartment Complexes
or Local Partnerships, including but not limited to capital improvements
costing in the aggregate more than $50,000, material defaults on mortgage
obligations, terminations of rental subsidy and management agent review and/or
physical inspection reports from a Federal or state housing agency indicating
below satisfactory performance.
(b) Beginning July 15, 1996, NHP shall submit to
CRI on the 15th day of each month a status report, in a form mutually
acceptable to CRI and NHP, on all Dispositions on which NHP is working.
(c) Beginning July 1, 1996, and each quarter
thereafter, NHP shall meet with CRI (or participate by telephone conference) to
discuss issues, the disclosure of which may be required in the Management
Discussion and Analysis Section of required SEC reports, regarding the
Apartment Complexes invested in by the Public Partnerships.
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<PAGE> 7
5. Certain Actions. Notwithstanding anything to the
contrary contained herein, CRI shall have the right to approve or disapprove
any strategic decision made by NHP under this Agreement. Further, NHP agrees
that it will not take any action under any Local Partnership Agreement or under
any Local Partnership loan document without the prior written consent of CRI
(other than to request information to which CRI is entitled under the relevant
agreement); provided, however, that NHP shall be permitted to take such actions
which are of a routine nature without the consent of CRI.
6. Records. NHP shall maintain at its office all
records with respect to the asset management services it is providing under
this Agreement and shall, upon receipt of reasonable notice, provide CRI with
such access during business hours to the records as CRI may require.
Notwithstanding the foregoing, NHP agrees to deliver promptly to CRI all
original MORs and such other documents as CRI requests. The parties agree that
all such records are the property of CRI and, upon termination of this
Agreement, whether by expiration of its term or otherwise, NHP shall turn over
to CRI all of its records and files, and shall deliver to CRI all property and
documents of CRI, the Investment Partnerships or the Local Partnerships then in
the custody of NHP, whether such documents are originals or copies. CRI will
endeavor to provide the following documents to NHP prior to the Commencement
Date: Local Partnership partnership agreements and amendments; loan documents
and regulatory agreements for the Apartment Complexes; Property Management
Agreements; list of limited partner tax basis (except for the Public
Partnerships); Local Partnership tax returns for 1995 and financial statements
for 1994 and 1995; Apartment Complex operating budgets for 1995 and 1996; and
most recent site visit reports. CRI acknowledges that NHP will not be able to
commence performance of its obligations hereunder for an Investment Partnership
until it has received substantially all of these documents for such Investment
Partnership.
7. Standard of Care. NHP shall use reasonable efforts
in undertaking its obligations hereunder, and shall employ the standards and
practices customarily used by a reasonably prudent provider of such services.
NHP shall not be liable to CRI for any claims or damages in the absence of
NHP's gross negligence, fraud or willful misconduct.
8. NHP's Financial Status. NHP shall immediately notify
CRI of any material changes in its asset management group which are reasonably
likely to occur. NHP shall immediately notify CRI of any voluntary or
involuntary proceedings that might result in bankruptcy, reorganization,
dissolution, liquidation, the appointment of a trustee or receiver, an
assignment for the benefit of creditors of NHP or NHP having its activities
restricted in any
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<PAGE> 8
manner related to its performance of material obligations hereunder by any
governmental agency.
9. Representations and Warranties of NHP. NHP hereby
represents and warrants the following:
(a) NHP is duly organized, validly existing and
in good standing under the laws of Delaware, with full power, right and
authority to enter into this Agreement and the transactions contemplated
hereby.
(b) All proceedings legally required to be taken
by NHP in connection with the authorization and execution of this Agreement and
the consummation of the transactions contemplated hereby and related hereto,
and all such approvals, authorizations, consents, licenses or other orders of
local, state or federal regulatory agencies, public boards or bodies, if any,
as are necessary and appropriate with respect to all or any of such matters,
have been taken or obtained or shall have been taken or obtained prior to
engaging in the transactions contemplated hereby.
(c) This Agreement has been duly authorized,
executed and delivered by NHP and when duly authorized, executed and delivered
by CRI, will constitute the legal, valid and binding obligation of NHP
enforceable in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, or other laws or equitable
principles affecting creditors' rights generally.
(d) The execution and delivery of this Agreement
and compliance with its terms, conditions and provisions will not conflict
with, constitute a default under or result in a breach of any of the terms,
conditions or provisions of the organizational documents of NHP, or any
agreement or instrument to which it is a party or by which it is bound, or any
administrative decree or order or judgment to which it is subject, or require
the consent of any third person.
(e) NHP is not in default with respect to any
order or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency that would adversely affect NHP's
ability to perform its obligations hereunder.
9A. Representations and Warranties of CRI. CRI hereby
represents and warrants the following:
(a) CRI is duly organized, validly existing and
in good standing under the laws of Delaware, with full power, right and
authority to enter into this Agreement and the transactions contemplated
hereby.
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<PAGE> 9
(b) All proceedings legally required to be taken
by CRI in connection with the authorization and execution of this Agreement and
the consummation of the transactions contemplated hereby and related hereto,
and all such approvals, authorizations, consents, licenses or other orders of
local, state or federal regulatory agencies, public boards or bodies, if any,
as are necessary and appropriate with respect to all or any of such matters,
have been taken or obtained or shall have been taken or obtained prior to
engaging in the transactions contemplated hereby.
(c) This Agreement has been duly authorized,
executed and delivered by CRI and when duly authorized, executed and delivered
by NHP, will constitute the legal, valid and binding obligation of CRI
enforceable in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, or other laws or equitable
principles affecting creditors' rights generally.
(d) The execution and delivery of this Agreement
and compliance with its terms, conditions and provisions will not conflict
with, constitute a default under or result in a breach of any of the terms,
conditions or provisions of the organizational documents of CRI, or any
agreement or instrument to which it is a party or by which it is bound, or any
administrative decree or order or judgment to which it is subject, or require
the consent of any third person.
(e) CRI is not in default with respect to any
order or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency that would adversely affect CRI's
ability to perform its obligations hereunder.
Notwithstanding the foregoing representations and warranties of CRI, NHP is
aware that Martin C. Schwartzberg has claimed to be the managing general
partner, in place of CRI, of certain of the Investment Partnerships listed on
Schedule I.
10. Expense Reimbursement. The respective Investment
Partnership shall reimburse NHP for the cost and expense of all budgeted or
pre-approved third party contractors (such as attorneys, appraisers and
engineers) and NHP's reasonable out-of-pocket costs and expenses (such as
travel, long distance telephone facsimile, overnight courier charges, postage,
etc.). Such costs and expenses shall not, however, include all or any part of
NHP's overhead (e.g., the salaries and other compensation paid by NHP to its
officers and employees, rentals for office space or the cost of routine
materials, equipment and supplies utilized by NHP). Any non-routine costs and
expenses incurred in connection with a Disposition shall be subject to CRI's
prior approval. NHP shall provide to CRI, for its approval, a budget for each
proposed
- 9 -
<PAGE> 10
Disposition, specifying anticipated costs and expenses. NHP shall submit
expense reimbursement forms, approved by CRI, on the 15th of each month for the
immediately preceding month. To the extent the Investment Partnership has
funds available to pay such invoices, CRI agrees to cause it to do so. In the
event the Investment Partnership does not have sufficient funds available to
reimburse NHP for its expenses, CRI agrees to immediately lend the Investment
Partnership sufficient funds to reimburse NHP. Notwithstanding anything to the
contrary contained herein, at NHP's request CRI shall pay directly to the
respective third party any invoice or billing exceeding $2,000.
11. NHP as Independent Contractor. In the performance of
services hereunder, NHP is acting as an independent contractor for its own
account and without authority, express or implied, to act for or on behalf of
CRI or the Investment Partnerships in any capacity other than that of an
independent contractor, except as expressly set forth in this Agreement or as
may from time to time be authorized by CRI or an Investment Partnership in
writing. Nothing herein shall be deemed to make NHP, or any of its employees,
an employee of CRI or of any Investment Partnership, nor shall anything herein
be deemed to make NHP and CRI or an Investment Partnership partners or joint
venturers. NHP shall not be authorized or empowered to execute any document on
behalf of CRI or an Investment Partnership or to take any action on behalf of
CRI or an Investment Partnership, except as expressly set forth in this
Agreement or as may from time to time be authorized by CRI or an Investment
Partnership in writing.
12. Insurance and Fidelity Bonds. NHP agrees that it
shall maintain errors and omissions insurance and fidelity bonds in the amounts
presently in force, which CRI hereby consents to.
13. Termination.
(a) CRI may terminate this Agreement upon sixty
(60) days' notice for a violation of any provision hereof which violation has a
material adverse effect on CRI; provided that, if such violation is capable of
cure, CRI shall give NHP sixty (60) days' written notice of such violation with
an opportunity to cure the same. In the event such violation cannot reasonably
be cured within sixty (60) days, then, provided NHP commences cure promptly
after notice and diligently pursues cure thereafter, NHP shall have such
additional time as is reasonably required, not to exceed an additional ninety
(90) days, to cure such violation.
(b) CRI may terminate this Agreement immediately
upon the occurrence of any of the following:
(i) NHP's fraud, gross negligence, or
criminal misconduct in connection with its duties hereunder;
- 10 -
<PAGE> 11
(ii) NHP's business ceases to involve
management of subsidized housing;
(iii) NHP's bankruptcy, reorganization,
dissolution, liquidation, the appointment of a trustee or receiver, or an
assignment for the benefit of creditors.
(c) CRI may terminate this Agreement without
cause effective any time during the Term on or after the first anniversary of
the Commencement Date upon ninety (90) days' written notice and, in the case of
a termination effective prior to the end of the three-year period commencing on
the Commencement Date, the payment of $200,000.
(d) NHP may terminate this Agreement without
cause upon ninety (90) days' written notice to CRI.
(e) NHP may terminate this Agreement upon thirty
(30) days notice for a violation by CRI of any provision hereof, which, in the
case of a non-monetary default, has a material adverse effect on NHP; provided
that, in the case of a failure to timely pay any fees or amounts payable
hereunder, NHP shall give CRI five (5) business days' written notice of such
violation with an opportunity to cure the same, and in the case of any other
violation which is capable of cure, NHP shall give CRI sixty (60) days' written
notice of such violation with an opportunity to cure the same. In the event
such non-monetary violation cannot reasonably be cured within sixty (60) days,
then, provided CRI commences cure promptly after notice and diligently pursues
cure thereafter, CRI shall have such additional time as is reasonably required,
not to exceed an additional ninety (90) days, to cure such violation.
(f) Termination of this Agreement by either party
pursuant to any provision hereof shall not release either party from any
liability on its part that arises prior to termination, except if, and to the
extent that, either party expressly releases the other in writing from such
liability.
15. Indemnities.
(a) NHP shall indemnify CRI and the Investment
Partnerships and hold them harmless from and against any and all losses,
penalties, fines, forfeitures, damages, claims, causes of action or expenses,
including reasonable attorneys' fees and costs, that any of them may sustain or
incur as a result of (i) any action or inaction resulting from NHP's fraud,
gross negligence or willful misconduct; or (ii) the failure of NHP to have the
legal authority referred to in Section 9(c) hereof to engage in the activities
covered by this Agreement.
- 11 -
<PAGE> 12
(b) CRI shall indemnify NHP and its affiliates
and hold them harmless from and against any and all losses, penalties, fines,
forfeitures, damages, claims, causes of action or expenses, including
reasonable attorneys' fees and costs, that (i) any of them may sustain or incur
as a result of any action or inaction resulting from CRI's fraud, gross
negligence or willful misconduct or the proper performance by NHP of its
obligations hereunder or (ii) arising out of or incurred in connection with any
claim by Capital Management Strategies, Inc. or its employees or independent
contractors, Martin C. Schwartzberg or any partner of any Investment
Partnership or Local Partnership in any way related to this Agreement.
(c) If any action shall be brought against either
party based upon any of the matters for which such party (the "Indemnitee") is
indemnified hereunder, Indemnitee shall notify the other party (the
"Indemnitor") in writing thereof and Indemnitor shall promptly assume the
defense thereof, including, without limitation, the employment of counsel
acceptable to Indemnitee (the firm of Arent, Fox, Kintner, Plotkin & Kahn is
acceptable to both parties and CRI hereby agrees to waive any conflict of
interest as to NHP's use of such firm pursuant to this subsection (c)) and the
negotiation of any settlement; provided, however, that any failure of
Indemnitee to notify Indemnitor of such matter shall not impair or reduce the
obligations of Indemnitor hereunder. Indemnitee shall have the right, at the
expense of Indemnitor to employ separate counsel in any such action and to
participate in the defense thereof. In the event Indemnitor shall fail to
discharge or undertake to defend Indemnitee against any claim, loss or
liability for which Indemnitee is indemnified hereunder, Indemnitee may, at its
sole option and election, defend or settle such claim, loss or liability. The
liability of Indemnitor to Indemnitee hereunder shall be conclusively
established by such settlement, provided such settlement is made in good faith,
the amount of such liability to include both the settlement consideration and
the costs and expenses, including, without limitation, attorneys' fees and
disbursements, incurred by Indemnitor in effecting such settlement. In such
event, Indemnitor shall pay the same as hereinafter provided. Indemnitee's
good faith in any such settlement shall be conclusively established if the
settlement is made on the advice of independent legal counsel for Indemnitee.
(d) Indemnitor shall not, without the prior
written consent of Indemnitee: (i) settle or compromise any action, suit,
proceeding or claim or consent to the entry of any judgment that does not
include as an unconditional term thereof the delivery by the claimant or
plaintiff to Indemnitee of a full and complete written release of Indemnitee
(in form, scope and substance satisfactory to Indemnitee in its sole
discretion) from all liability in respect of such action, suit, proceeding or
- 12 -
<PAGE> 13
claim and a dismissal with prejudice of such action, suit, proceeding or
claims; or (ii) settle or compromise any action, suit, proceeding or claim in
any manner that may adversely affect Indemnitee or obligate Indemnitee to pay
any sum or perform any obligation.
(e) All costs and expenses incurred by Indemnitee
for which it is to be indemnified by Indemnitor ("Costs") shall be immediately
reimbursable to Indemnitee when and as incurred and, in the event of any
litigation, claim or other proceeding, without any requirement of waiting for
the ultimate outcome of such litigation, claim or other proceeding, and
Indemnitor shall pay to Indemnitee any and all Costs within fifteen (15) days
after written notice from Indemnitee itemizing the amounts thereof incurred to
the date of such notice. In addition to any other remedy available for the
failure of Indemnitor to periodically pay such Costs, such Costs, if not paid
within said fifteen-day period, shall bear interest at the rate of fifteen
percent (15%) per annum.
16. Assignment of Agreement. This Agreement shall not be
assigned, and the obligations hereunder shall not be subcontracted, by NHP or
its successors, including the surviving entity following a merger or
consolidation of NHP, without the prior written consent of CRI.
Notwithstanding the foregoing, NHP may assign this Agreement to a wholly-owned
subsidiary of NHP upon notice to CRI. This Agreement shall inure to the benefit
of the parties hereto and their respective successors or permitted assigns.
17. Confidentiality. NHP agrees that all information
concerning the Local Partnerships, the Apartment Complexes and the Investment
Partnerships shall be kept strictly confidential. Notwithstanding the
foregoing, NHP shall have the right to disclose the existence of this Agreement
to the extent necessary to perform its functions hereunder. NHP further agrees
that all information of any nature obtained from CRI, including but not limited
to past, present or future investments, sales and other business activities of
CRI and/or any affiliated company, shall be kept strictly confidential, shall
not be disclosed to third parties, and shall not be used for any purpose other
than to assist NHP in the performance of services provided pursuant to this
Agreement, without the prior written approval of CRI. Notwithstanding the
foregoing, NHP shall have the right, upon reasonable prior notice to CRI, to
disclose only so much information as it is legally required to report because
of its status as a public corporation. Further, NHP agrees not to contact
directly or indirectly any of the investors in any of the Investment
Partnerships in connection with any matter relating to the Investment
Partnerships, the Local Partnerships or provision of the services described
hereunder without the written consent of CRI, including, but not limited to,
any communication for the purpose of taking any action detrimental to the
interests of CRI. Notwithstanding the foregoing, NHP shall have the right to
include property performance data regarding the Apartment Complexes in NHP's
proprietary property performance data
- 13 -
<PAGE> 14
base (the "NHP Data Base"), to use such data for analysis purposes, and include
such data in any disclosure to third parties made by NHP from the NHP Data
Base; provided, however, the identity of an Apartment Complex shall not be
disclosed along with such property's performance data.
18. No Waiver. No act or omission by any party shall be
deemed to be a waiver of any of its rights hereunder in the absence of an
express written statement to that effect signed by the party waiving the right.
The waiver by any party of any breach of this Agreement shall not operate or be
construed to be a waiver of any subsequent breach.
19. Notices. Any notice, communication, request,
instruction or other document required or permitted hereunder shall be given in
writing in person or by certified mail, return receipt requested, postage
prepaid, or by prepaid overnight courier service, or delivered, as follows:
C.R.I., Inc.
11200 Rockville Pike
Rockville, Maryland 20852
Attn: H. William Willoughby, President
With a copy to the Office of General Counsel
at the same address.
NHP Incorporated
1225 Eye Street, N.W., Suite 601
Washington, DC 20005-3945
Attn: Linda Brower
With a copy to Joel F. Bonder, Esquire at the
same address and also to:
Tucker, Flyer & Lewis
1615 L Street, N.W., Suite 400
Washington, DC 20036-5610
Attn: Stefan F. Tucker, Esquire
20. Arbitration. Any dispute arising hereunder between
the parties shall be determined by arbitration, which arbitration shall be in
accordance with the Commercial Arbitration Rules then in effect of the American
Arbitration Association by one arbitrator in Washington, D.C., and judgment
upon the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The decision and award of the arbitrator shall be in
writing, shall be final and conclusive on the parties, and counterpart copies
thereof shall be delivered to each of the parties. In rendering such decision
and awards, the arbitrator shall not add to, subtract from or otherwise modify
the provisions of this Agreement. All
- 14 -
<PAGE> 15
direct and reasonable costs of the arbitration proceeding, including
compensation of the arbitrator but excluding any compensation paid to counsel,
agents, employees, and witnesses of either party, shall be borne equally by the
parties or as the arbitrator shall determine.
21. Non-Exclusive Agreement. CRI and NHP agree that this
is a non-exclusive Agreement and NHP shall have the right to perform asset
management services identical or similar to those described in Sections 1 and
1A hereof for parties other than CRI. Further, CRI and NHP acknowledge that
NHP may have other business interests and may engage in other activities
similar or in addition to those related to the activities to be performed for
CRI under this Agreement.
22. Reduction in Number of Investment Partnerships. The
parties acknowledge that Martin C. Schwartzberg has undertaken an attempt to
replace CRI as the managing general partner of some of the Investment
Partnerships. Each Investment Partnership as to which he succeeds or has
succeeded in this attempt shall not be subject to this Agreement. Any
reduction in the number of Investment Partnerships subject to this Agreement,
whether pursuant to Schwartzberg's takeover efforts or otherwise, will not
reduce the fees payable to NHP pursuant to Sections 3(a), (b) and (c)(1)
hereof.
23. No officer, director, shareholder, partner or
employee of CRI, the Investment Partnerships or NHP shall have any personal
liability for the obligations hereunder of, respectively, CRI, the Investment
Partnerships or NHP.
24. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Maryland.
25. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which,
when taken together, shall be deemed to be a single, enforceable Agreement
among the parties hereto.
- 15 -
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first written above.
<TABLE>
<S> <C>
ATTEST: C.R.I., INC.
By:
- ---------------------------- ---------------------------------
H. William Willoughby
Its: President
ATTEST: NHP INCORPORATED
By:
- ---------------------------- ---------------------------------
J. Roderick Heller, III
Its: Chairman and CEO
</TABLE>
- 16 -
<PAGE> 1
EXHIBIT 10.27
February 2, 1996
Mr. Richard M. Powell
Vice President
Barnes Morris Pardoe Foster
601 Thirteenth Street, N.W.
Suite 800 North
Washington, D.C. 20005
Dear Rick:
I am delighted to confirm to you an offer of employment with NHP as
Senior Vice President for Special Projects beginning February 5, 1996. I have
long been impressed by your talents and your entrepreneurial approach, and I
have no doubt that our relationship will be long and mutually beneficial.
I am setting forth below the terms and conditions under which you
would be joining NHP.
1. Title. I will recommend to the Board of Directors of
NHP, Incorporated ("NHP") that you be elected Senior
Vice President of NHP at the next Board of Director's
meeting. You may also become an officer of various
subsidiary corporations.
2. Duties. As Senior Vice President, you will report
directly to me. Initially, you will have
responsibility for assessing, and, as appropriate,
implementing opportunities for NHP with respect to
student housing, military housing and public housing
privatization. In addition, you will work with me in
pursuit of large-scale acquisitions or merger
opportunities which do not necessarily fall within
the responsibility levels of our Acquisitions Group.
You and I will discuss what other areas, if any,
should be within your scope of responsibility.
3. Full Time and Best Efforts. You will devote your
full time and attention to the performance of your
duties while employed by NHP. You will also
faithfully, industriously and to the best of your
ability, experience and talents, perform your duties
to NHP and use your best efforts to promote the
interests of NHP. This section, however, would not
preclude service, consistent with your
responsibilities to NHP, on corporate, civic or
charitable boards or committees.
4. Location. Your duties will be performed from NHP's
principal place of business on the Washington, DC
area. As you know, we are relocating to Tysons
Corner in late April or early May.
<PAGE> 2
Mr. Richard M. Powell
February 2, 1996
Page 2
5. Term. You and NHP agree that our relationship, and
your employment by NHP, can be terminated by either
you or NHP at any time, subject to the provisions of
Section 8.
6. Base Compensation.
a) You will receive an annual salary of $180,000
payable in accordance with NHP procedures.
Moreover, you will be eligible to receive a
bonus of up to 30% of your base salary. Such
bonus is determined at my discretion, subject
to the approval of our Board, and payable
after the end of our fiscal year.
b) NHP shall deduct from the compensation
payable to you all federal, state and local
income tax, social security, and other
withholdings as may be required by law.
7. Stock Option. You shall be entitled to participate
in the NHP stock option program, as options may be
granted from time to time at the discretion of the
Board of Directors of NHP, Inc. Our program includes
a 20% vesting per year and an exercise price based on
current value. You will initially receive options
for 60,000 shares at such price as may be appropriate
at the time of Board action.
8. Severance.
a) You are leaving an established business
position in order to join NHP when it is
considering a variety of strategic options.
In order to protect you against unforeseen
circumstances, you will receive the
compensation set forth in subsection (b) in
the event that:
(1) Your employment is terminated by NHP
for any reason (other than cause) on or
before December 31, 1997, or
(2) All or substantially all of the
assets, or 50% or more of the shares of stock
of NHP Incorporated are acquired in a hostile
takeover at any time in the future.
b) In the event of the occurrence of any one or
more of the events specified in subsection
(a) and you resign, are terminated or for any
reason are no longer an employee of NHP
within six months after the occurrence of the
event specified in subsection (a), you shall
promptly be paid an amount equal to your then
annual base salary, plus the amount of the
bonus paid to you with respect to the most
recent fiscal year of NHP; provided, however,
that in the event such bonus payment was less
than 20% of your
<PAGE> 3
Mr. Richard M. Powell
February 2, 1996
Page 3
salary, then such minimum amount payable to
you shall be 20% of such salary.
c) In the event that compensation is payable
pursuant to subsection (b), options shall be
treated in accordance with the NHP option
plan, a copy of which is attached hereto.
9. Other. I understand that you are presently working
on several transactions (not involving NHP) which
will close in the near future and for which you may
be entitled to commissions. I further understand
that you have been acting as an agent for
transactions which may allow NHP either to acquire or
to dispose of the properties described below. If
these transactions close, you may also be entitled to
certain commissions from either the buyer or the
seller.
<TABLE>
<CAPTION>
NHP Dispositions
<S> <C>
Property Buyer
-------- -----
Seven Corners Paulette Sengerne
Corporate Center
Grosvenor House ING Real Estate
Elm Creek ING Real Estate
NHP Acquisitions
Property Seller
-------- ------
Shadyside, West Deer Park Stephen A. Goldberg
Briarwood, Countryside Stephen A. Goldberg
Hamilton House, Casa Del Mar Stephen A. Goldberg
DLJ REMIC Portfolio Stephen A. Goldberg
Scott Ross Portfolio Scott Ross
</TABLE>
NHP has no objection to your receiving commissions on any of
these transactions.
<PAGE> 4
Mr. Richard M. Powell
February 2, 1996
Page 4
10. Fringe Benefits. You will be entitled to participate
in such fringe benefit programs as NHP may from time
to time make available to executive employees, now
including the following:
a. Group Medical/Dental Insurance/Vision Care
b. Group Life Insurance (2 times W-2
earnings)
c. Long-term Disability Insurance
d. Accidental Death and Dismemberment
Insurance
e. 401 (K) Plan (after one year)
f. Executive Physical Examination Program
g. Four weeks vacation
h. Relocation benefits under the Corporation
Moving Policy
i. Reimbursement of dues for one business
club
If you agree that this letter reflects our understanding,
please sign in the space below.
Sincerely yours,
J. Roderick Heller, III
Chairman and Chief Executive Officer
NHP Incorporated
AGREED:
- ------------------------
Richard M. Powell
<PAGE> 1
EXHIBIT 10.28
STOCK PURCHASE AGREEMENT
by and between
NHP INCORPORATED
(as "Purchaser")
and
COMMONWEALTH OVERSEAS TRADING COMPANY LIMITED
(as "Seller")
and
SHEIK MOHAMMED A. AL-TUWAIJRI
(the "Shareholder")
March 20, 1996
<PAGE> 2
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Outstanding Notes and Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Purchase Price; Closing Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Post-Closing Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 12
3.1 Organization; Standing and Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Authority; Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Absence of Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.10 Property and Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.11 Patents and Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.12 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.13 Material Contracts and Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.14 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.15 Licenses, Permits and Authorizations. . . . . . . . . . . . . . . . . . . . . . . . . 17
3.16 ERISA and Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.18 Employees; Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
3.19 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.20 Accounts Receivable and Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . . 21
3.21 Appropriateness of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.22 Powers of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.23 Banking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.24 Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES CONCERNING LOANS AND SERVICING RIGHTS . . . . . . . . . . . . . . . . . 24
4.1 Approved Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.2 Owned Mortgage Loans and Mortgage Servicing Portfolio. . . . . . . . . . . . . . . . . 24
4.3 Real Estate Owned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V
REPRESENTATIONS AND WARRANTIES CONCERNING THE SELLER . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.1 Ownership of the Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.2 Delivery of Good Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.3 Organization; Standing and Power. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.4 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.5 Authority; Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.6 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.8 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.9 Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.10 Experience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VI
REPRESENTATIONS AND WARRANTIES CONCERNING THE SHAREHOLDER. . . . . . . . . . . . . . . . . . . . . . . 35
6.1 Authority; Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.2 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.3 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VII
</TABLE>
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES CONCERNING THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . 36
7.1 Organization; Standing and Power. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.2 Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.3 Experience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.4 Authority; Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.1 Accuracy of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . 38
8.2 Restraints or Prohibitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.3 Compliance with Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.4 Due Investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.5 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.6 HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.8 Board Approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.9 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.10 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.11 Update Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.12 Certificates and Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.13 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.14 Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.15 Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.16 Right to Cure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF THE SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1 Accuracy of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . 41
9.2 HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE X
COVENANTS OF THE SELLER AND THE SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.1 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.2 Conduct of Business Pending the Closing. . . . . . . . . . . . . . . . . . . . . . . . 41
10.3 Third Party Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.4 GNMA, FHA, Fannie Mae, Freddie Mac and Other Approvals. . . . . . . . . . . . . . . . 44
</TABLE>
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<TABLE>
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10.5 Delivery of Disclosure Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.6 Post-Closing Delivery of Disclosure Schedules. . . . . . . . . . . . . . . . . . . . 45
10.7 Competing Offers; Merger or Liquidation. . . . . . . . . . . . . . . . . . . . . . . . 45
10.8 Post-Termination Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE XI
OTHER COVENANTS AND INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.1 Reasonable Efforts and Certain Obligations. . . . . . . . . . . . . . . . . . . . . . . 46
11.2 Certain Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE XII
REMEDIES FOR BREACHES OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.1 Investigations; Survival of Representations
and Warranties and Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.3 Measurement of Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.4 Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.5 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE XIII
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE XIV
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.1 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.5 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
14.6 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.7 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.8 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.10 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
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14.12 Governing Law; Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.13 Recitals, Schedules and Annexes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.14 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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<PAGE> 7
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered
into as of this 20th day of March, 1996, by and among NHP Incorporated, a
Delaware corporation (the "Purchaser"), Commonwealth Overseas Trading Company
Limited, a Bermuda corporation (the "Seller"), and Sheik Mohammed A.
Al-Tuwaijri, a shareholder of the Seller (the "Shareholder").
WHEREAS, WMF Holdings Ltd., a Delaware corporation (the "Parent" and,
together with its subsidiaries, the "Company"), is wholly owned by Seller and
is engaged in the mortgage banking business; and
WHEREAS, the Seller desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Seller, 5,339 shares of the Parent's
common stock, par value $.01 per share (the "Shares"), which represent all of
the issued and outstanding capital stock of the Parent as of the date hereof;
and
WHEREAS, the parties hereto believe that the purchase and sale of the
Shares will provide mutual benefits to the Purchaser and the Seller.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereby
agree as follows:
ARTICLE I
DEFINITIONS
As used in and for all purposes of this Agreement, unless otherwise
indicated, each of the following terms shall have the respective meanings set
forth below.
"Adjustment Date" shall mean the date on which an adjustment to the
Purchase Price is made in accordance with the provisions of Section 2.6 of this
Agreement and Purchaser receives the full amount of such adjustment in
immediately available funds.
"Adjustment Interest Rate" shall mean interest at an annual rate equal
to LIBOR plus 4%.
"Adjustment Period Interest" shall mean interest on the amount of an
adjustment to the Purchase Price pursuant to the provisions of Section 2.6 of
this Agreement computed at the Adjustment Interest Rate with respect to the
period commencing on the Closing Date and ending on the Adjustment Date.
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<PAGE> 8
"Ancillary Agreements" shall mean all agreements required to be
executed at or prior to Closing pursuant to Articles VIII and IX of this
Agreement.
"Approvals" shall mean any approvals, authorizations, qualifications,
consents, licenses, franchises, orders and other permits of all judicial,
governmental, quasi-governmental or regulatory entities, whether federal, state
or local, domestic or foreign.
"Balance Sheet" shall mean the consolidated audited balance sheet of
the Company.
"Balance Sheet Date" shall mean December 31, 1995.
"Business Day" shall mean any day of the week other than a Saturday,
Sunday, a federal holiday or any other day on which banking institutions in the
District of Columbia are authorized by law or by executive order to be closed.
"Closing Date" shall have the meaning set forth in Section 2.7.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean the real and personal property securing a
Mortgage Loan or a bond, mortgage-backed security or other obligation relating
to a Mortgage Loan.
"Commonwealth" shall mean Commonwealth Overseas Trading Company
Limited.
"Company" shall mean the Parent and, unless the context otherwise
provides, each of its subsidiaries, including, without limitation, WMF Group,
WMF/Huntoon, Vienna Mortgage Corporation, a Virginia corporation, and Sheffield
Acquisition Corp., a Tennessee corporation.
"Company Disclosure Schedule" shall mean the disclosure schedule
concerning the Company delivered by the Seller and the Shareholder to the
Purchaser pursuant to the terms of this Agreement.
"Company Group" shall have the meaning set forth in Section 3.16.
"Company Pension Plans" shall have the meaning set forth in Section
3.16.
"Company Plans" shall have the meaning set forth in Section 3.16.
"Defect" shall mean any untruth or incorrectness of any representation
or warranty herein contained with respect to a Mortgage Loan or a pool of
Mortgage Loans or Collateral or any failure by the Company to comply in any
material respect with any applicable covenants, requirement,
- 2 -
<PAGE> 9
procedure, rule, regulation or guideline of GNMA, Fannie Mae, Freddie Mac, any
PMI, FHA, HUD or any other Investor with respect to a Mortgage Loan or a
Mortgage.
"DUS" shall mean the Fannie Mae Delegated Underwriting and Servicing
program.
"DUS Mortgage Loans" shall mean Mortgage Loans originated under DUS.
"Employee Benefit Plans" shall have the meaning set forth in Section
3.16.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
judgments, notices of noncompliance or violation, investigations (other than
internal reports prepared by the Company solely in the ordinary course of its
business and not in response to any third party action or request of any kind)
or proceedings relating in any way to any Environmental Law or any permit
issued, or any approval given, under any such Environmental Law ("Claims"),
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (b)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from Hazardous Materials arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Law" shall mean any federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, guide, written policy and rule
of common law now in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; the
Resource Conservation and Recovery Act of 1976, as amended; the Occupational
Safety and Health Act, as amended; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.;
the Safe Drinking Water Act, 42 U.S.C. Section 3803 et seq.; the Oil Pollution
Act of 1990, PUB. Law 101-380 and any state and local or foreign counterparts
or equivalents.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Account" shall mean the account to be established pursuant to
the Escrow Agreement into which Purchaser shall deposit the Escrow Fund.
"Escrow Agent" shall mean the Person designated as the Escrow Agent
in the Escrow Agreement.
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<PAGE> 10
"Escrow Agreement" shall mean an agreement substantially in the form
of Exhibit A attached to this Agreement which exhibit, if not attached hereto
as of the Closing, shall be agreed to and attached hereto by no later than
March 26, 1996.
"Escrow Fund" shall mean the NHPI Shares, constituting a portion of
the Purchase Price, which are to be deposited on the Closing Date in the Escrow
Account as a reserve to meet certain of the obligations of the Seller and the
Shareholder under Section 2.6 of this Agreement.
"Escrow Termination Date" shall mean the third anniversary of the
Closing Date or such later date as shall be determined in accordance with the
provisions of this Agreement and the Escrow Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expenses" shall mean the fees, costs and other expenses, including
attorney's, auditor's, broker's, or finder's fees and commissions, incurred by
a party hereto in connection with the transactions contemplated hereby, whether
or not such transactions are actually consummated.
"Fannie Mae" shall mean Fannie Mae or any successor organization.
"FHA" shall mean the Federal Housing Administration, an agency within
HUD, or any successor thereto and including the Federal Housing Commissioner
and the Secretary of HUD where appropriate under the FHA regulations.
"FHA Loan" shall mean a Mortgage Loan insured in whole or in part by
the FHA.
"Financial Statements" shall mean the Balance Sheet as of the Balance
Sheet Date and the related consolidated statements of operations and cash flows
for the twelve months then ended, together with the report thereon all
certified by KPMG Peat Marwick LLP, independent public accountants.
"Flow Servicing Agreement" shall mean an agreement between the Company
and a Mortgage originator setting forth the terms and conditions under which
the Company agrees to buy loan servicing rights from the Mortgage originator.
"Freddie Mac" shall mean the Federal Home Loan Mortgage Corporation or
any successor or organization.
"GNMA" shall mean the Government National Mortgage Association or any
successor organization.
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<PAGE> 11
"Hazardous Material" shall mean (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment
that contain electric fluid containing levels of polychlorinated biphenyls and
radon gas; (b) any chemicals, materials or substances defined as or included in
the definition of "hazardous substances," "hazardous waste," "hazardous
materials," "extremely hazardous waste," "restricted hazardous waste," "toxic
substances," "toxic pollutants," "contaminants," or "pollutants," or words of
similar import, under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any governmental or regulatory entity or which poses a threat to
health or safety.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"HUD" shall mean the United States Department of Housing and Urban
Development or any successor organization.
"Indefinite Term Warranties" shall have the meaning set forth in
Section 12.1.
"Indemnified Purchasers" shall have the meaning set forth in Section
12.2(a).
"Indemnified Sellers" shall have the meaning set forth in Section
12.2(b).
"Intellectual Property Rights" shall have the meaning set forth in
Section 3.11.
"Investor" shall mean FHA, GNMA, Fannie Mae and Freddie Mac or any
private or public investor or credit enhancer for which the Company or any of
its Subsidiaries is originating and/or servicing (or to the extent of any
continuing obligation, has in the past originated or serviced) Mortgage Loans
pursuant to a Mortgage Servicing Agreement.
"Legal Requirements" shall mean any federal, state, county, local or
foreign law, rule, regulation, ordinance, order, decree, judgment or other
legal, judicial, regulatory or governmental requirement.
"Liabilities" shall mean any liabilities or obligations, direct or
indirect, whether accrued, absolute, contingent or otherwise.
"LIBOR" shall mean the London Inter-Bank Offered Rate.
"Lien" shall mean all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
- 5 -
<PAGE> 12
"Loan Documents" shall mean any Mortgage Note or Mortgage or similar
instrument, and all amendments thereto, evidencing or securing a Mortgage Loan,
including hard copies where available, and all machine-readable copies on any
media.
"Material Adverse Effect" shall mean any loss, damage or other
circumstance, occurrence, breach of representation or warranty or other event
that could have a material adverse effect on the business, property, assets,
liabilities, condition (financial or otherwise) or prospects of any Person,
individually or taken as a whole, including, but not limited to, an adverse
affect which would, in the aggregate, amount to losses or damages in the amount
of $10,000 or more.
"Mortgage" shall mean a mortgage, deed of trust, security deed or
other security instrument on real property securing a Mortgage Note.
"Mortgage Loan" shall mean a mortgage loan evidenced by a Mortgage
Note and secured by a Mortgage which is either an Owned Mortgage Loan or a
Mortgage Loan comprising the Mortgage Servicing Portfolio.
"Mortgage Loan File" shall mean the credit and closing packages,
custodial documents, escrow documents, and all other documents in the
possession of the Company pertaining to a Mortgage Loan or reasonably necessary
for prudent servicing of a Mortgage Loan, in each case as required by any
Investor, PMI and its requirements, procedures, rules, regulations and
guidelines.
"Mortgage Note" shall mean a written promise to pay a sum of money at
a fixed or variable interest rate during a specified term evidencing a Mortgage
Loan.
"Mortgage Servicing Agreement" shall mean an agreement between the
Company and an Investor or a servicer or other party setting forth the terms
and conditions under which Mortgage Loans or other obligations relating to
Mortgage Loans have been and are to be serviced or subserviced and which may be
incorporated in general guidelines and issuances of an Investor (such as the
applicable Fannie Mae and Freddie Mac Seller/Servicer Guides) or PMI.
"Mortgage Servicing Portfolio" shall mean, as of the date of this
Agreement, all the Mortgage Loans which have been, are and, subject to existing
Mortgage Servicing Agreements, are to be serviced or subserviced by the
Company, other than the Owned Mortgage Loans, as more particularly identified
on Schedule 3.24, and, from time to time after the date of this Agreement, as
and when Owned Mortgage Loans are delivered to Investors, such previously Owned
Mortgage Loans as well.
"National Housing Act" shall mean the National Housing Act of 1934, as
amended.
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<PAGE> 13
"NHPI Shares" shall mean the 210,000 shares of common stock of the
Purchaser, par value $.01 per share, all of which shares are to be deposited on
the Closing Date in the Escrow Account pursuant to the terms of this Agreement
and the Escrow Agreement.
"Non-Originated Mortgage Loans" shall mean all Mortgage Loans which
were not originated by the Company, otherwise delivered by the Company to an
Investor or with respect to which the Company made representations and
warranties to an Investor or PMI similar to those made by an originator.
"Notes" shall mean the promissory notes payable by the Parent to Sheik
Mohammed A. Al-Tuwaijri in the aggregate amount of US$5,000,000, copies of
which are attached to this Agreement as Exhibit B which exhibit, if not
attached hereto as of the Closing, shall be attached hereto by no later than
March 26, 1996.
"Originated Mortgage Loans" shall mean all Mortgage Loans other than
Non-Originated Mortgage Loans.
"Owned Mortgage Loans" shall mean all the Mortgage Loans the legal
and/or beneficial ownership interests in which are vested in the Company (or
any of its Subsidiaries) as of the date of this Agreement. For the purpose of
this Agreement, Owned Mortgage Loans shall not include Mortgage Loans backed by
mortgage pass-through certificates guaranteed by GNMA (since such Mortgage
Loans are transferred in trust to the owner of the related GNMA guaranteed
mortgage-backed securities.)
"Parent" shall mean WMF Holdings Ltd., a Delaware corporation.
"Payment Notice" shall have the meaning set forth in Section 2.4.
"Person" shall mean all natural persons, corporations, business
trusts, associations, companies, partnerships, joint ventures, governmental
entities and any other entities.
"PMI" shall mean private mortgage insurance, credit enhancement or a
private mortgage insurer or credit enhancer, as the context may require.
"Purchase Price" shall mean Sixteen Million United States Dollars
(US$16,000,000), equal to the sum of the Escrow Fund and immediately available
funds in the amount of US$11,800,000, subject to reduction as provided in
Section 2.6 of this Agreement, to be paid by Purchaser to Seller as
consideration for the purchase of the Shares.
"Purchaser" shall mean NHP Incorporated.
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<PAGE> 14
"Release" shall mean disposing, transporting, discharging, injecting,
spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying,
seeping, placing, purging and the like, into or upon any land or water or air,
or otherwise entering into the environment.
"REO" shall mean real estate obtained by the Company in its name (or
in the name of its Subsidiaries) or on behalf of Investors in connection with
foreclosure proceedings or deed in lieu of foreclosure proceedings on Mortgage
Loans.
"Representations and Warranties" shall mean the representations set
forth in Articles III, IV, V, VI and VII hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall mean Commonwealth Overseas Trading Company Limited, a
Bermuda corporation.
"Seller Disclosure Schedule" shall mean the disclosure schedule
concerning the Seller delivered by the Seller and the Shareholder to the
Purchaser pursuant to the terms of this Agreement.
"Seller Representation and Warranty Default Event" shall mean the
untruth, inaccuracy or other breach of any Representation or Warranty of the
Seller or the Shareholder included or provided for in this Agreement of which
notice or notices shall be given to the Seller or the Shareholder on or before
the Seller Representation and Warranty Expiration Date. For the purposes of
this Agreement, a Seller Representation and Warranty Default Event shall be
deemed to occur in the Warranty Year in which a Notice of Claim (as defined in
the Escrow Agreement) is delivered pursuant to the terms of the Escrow
Agreement.
"Seller Representation and Warranty Expiration Date" shall mean the
last day of the applicable Warranty Period.
"Servicing Rights" shall mean the right to receive the servicing fee
income and any other income arising from or connected to the Mortgage Servicing
Agreements or the servicing of the Mortgage Loans in the Mortgage Servicing
Portfolio.
"Shareholder" shall mean Sheik Mohammed A. Al-Tuwaijri.
"Shareholder Disclosure Schedule" shall mean the disclosure schedule
concerning the Shareholder delivered by the Shareholder to the Purchaser
pursuant to the terms of this Agreement.
"Shares" shall mean the 5,339 shares of the Company's common stock,
par value $.01 per share, which represent all of the issued and outstanding
capital stock of the Company.
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<PAGE> 15
"Subsidiary" shall mean (i) each corporation in which a Person owns or
controls, directly or indirectly, capital stock representing more than 10% of
the outstanding voting stock and (ii) each other partnership, joint venture,
limited liability company or partnership or other business entity in which a
Person owns or controls, directly or indirectly, an equity, ownership or
equivalent interest representing more than 10% of the voting rights or
interests therein. Unless otherwise indicated by context, Subsidiary shall
refer to a Subsidiary of the Parent.
"Tax Returns" shall mean any returns, declarations, reports, claims
for refunds, or information returns or statements relating to Taxes by any
applicable tax jurisdiction (including any schedules, attachments or
amendments).
"Taxes" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs, duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever imposed on the
Company or for which the Company is liable, including any interest, penalty, or
addition thereto, whether disputed or not.
"Warranty Period" shall have the meaning set forth in Section 12.1.
"Warranty Year" shall have the meaning set forth in Section 2.6.
"WMF Group" shall mean Washington Mortgage Financial Group, Ltd., a
Delaware corporation.
"WMF/Huntoon" shall mean WMF/Huntoon, Paige Associates Limited, a
Delaware corporation.
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1 Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, at the Closing the Seller agrees to sell, assign,
transfer and deliver to the Purchaser, and the Purchaser agrees to purchase
from the Seller, all of such Seller's right, title and interest in and to the
Shares, free and clear of all Liens, other than restrictions on transfer of a
general nature arising under federal and state securities laws.
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2.2 Outstanding Notes and Options.
(a) Immediately following Closing and on the
Closing Date, the Purchaser shall contribute capital to the Company in
an amount necessary to retire the outstanding Notes, which amounts
shall thereupon be paid to Sheik Mohammed A. Al-Tuwaijri after the
receipt of the original canceled Notes, or such other assurances
satisfactory to the Purchaser, in its sole discretion. In the event
that any of the original Notes are not delivered at Closing, Sheik
Mohammed A. Al-Tuwaijri agrees that the interest payable on any such
Notes shall be reduced to a rate equal to LIBOR.
(b) The Stock Option Agreement by and between the Parent
and Shekar Narasimhan shall be terminated prior to the Closing Date
without any recourse to the Company from and after the Closing.
2.3 Purchase Price; Closing Payment. Upon the terms and subject
to the conditions of this Agreement, on the Closing Date Purchaser shall pay to
Seller the Purchase Price as follows:
(a) The Escrow Fund to the Escrow Account to be held
and/or disbursed by Escrow Agent in accordance with the terms of the
Escrow Agreement; and
(b) $11,800,000, representing the amount by which the
Purchase Price exceeds the Escrow Fund, by wire transfer of
immediately available funds denominated in United States Dollars to an
offshore account designated in writing by Seller at least three
Business Days prior to the Closing Date.
2.4 Escrow.
(a) At the Closing, the Purchaser, the Seller, the
Shareholder and Escrow Agent shall enter into an Escrow Agreement.
The Escrow Fund shall be held, maintained and administered in
accordance with the terms of the Escrow Agreement.
(b) Disbursements of NHPI Shares from the Escrow Account
shall be made from time to time pursuant to the terms of the Escrow
Agreement to reflect reductions in the Purchase Price pursuant to
Section 2.6 and Article XII of this Agreement.
2.5 Specific Performance. The Purchaser shall be entitled to
specific performance and or damages with respect to any breach of the
Representations and Warranties set forth in Sections 3.1, 3.2, 3.3, 3.4, 5.1,
5.2, 5.3, 5.4, 5.5, 6.1, 6.2 and 6.3, or any other section of this Agreement to
the extent that monetary damages would not be an adequate remedy (such as in
Section 10.6, where the Seller is obligated to provide schedules post-closing),
without regard to the limitations set forth in Section 2.6.
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2.6 Post-Closing Adjustments. In each of the three twelve month
periods from the Closing Date until the third anniversary of the Closing Date
(each, a "Warranty Year"), the Purchaser shall be entitled to a reduction in
the Purchase Price if there shall occur one or more Seller Representation and
Warranty Default Events in any such Warrany Year, to the extent that the loss
or damage (which, with respect to certain Representations and Warranties, will
be determined according to the Escrow Agreement), plus Adjustment Period
Interest, arising or resulting from, or as a consequence of:
(a) any single Seller Representation and Warranty Default
Event, or a series of related Seller Representation and Warranty
Default Events, exceeds $300,000, in which case the Purchase Price
shall be reduced by such excess; and/or
(b) all Seller Representation and Warranty Default
Events, taken together (including, for the purpose of this
calculation, all losses or damages from any event specified in Section
2.6(a)), exceeds $600,000, in which case the Purchase Price shall be
reduced by any such excess.
The adjustment in the Purchase Price shall be accomplished by receipt of assets
from the Escrow Fund in accordance with the Escrow Agreement or from payments
made by the Seller and/or the Shareholder in accordance with this Agreement.
2.7 Closing. The Closing of the sale and purchase of the Shares
under this Agreement shall take place at the offices of Swidler & Berlin,
Chartered, 3000 K Street, N.W., Washington, D.C. 20007, with pre-Closing in
escrow (pending solely the transfer of the Escrow Fund, wire transfer of the
cash portion of the Purchase Price, and the transfer of the Shares) at 10:00
a.m. on March 31, 1996, and final Closing at or before 10:00 a.m. on April 1,
1996, or at such other time, date, and place as are mutually agreeable to the
Seller and the Purchaser. At the Closing, the Seller will deliver to the
Purchaser certificates for the Shares, duly endorsed in blank or accompanied by
stock powers or other instruments of transfer duly executed in blank and
accompanied by all necessary stock transfer stamps, and such other instruments
of transfer, conveyance and assignment requested by the Purchaser as may be
necessary or appropriate to confirm in the Purchaser legal and beneficial title
to the Shares. The date of the Closing is hereinafter referred to as the
"Closing Date." If at the Closing Date any of the conditions specified in
Article VIII shall not have been fulfilled, the Purchaser shall, at its sole
election, be relieved of all obligations under this Agreement without thereby
waiving any other rights it may have by reason of such failure or such
non-fulfillment, and shall also be entitled to extend the Closing Date one or
more times to facilitate efforts to meet such conditions..
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
The Seller and the Shareholder, jointly and severally, hereby
represent and warrant to the Purchaser as follows:
3.1 Organization; Standing and Power. The Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Parent has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Parent is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or leased or the nature of its activities makes such
qualification necessary. Schedule 3.1 of the Company Disclosure Schedule sets
forth the jurisdictions in which the Parent conducts business or owns or leases
properties. Copies of the Certificate of Incorporation and By-laws of the
Parent heretofore delivered to the Purchaser are accurate and complete.
3.2 Subsidiaries. Schedule 3.2 of the Company Disclosure Schedule
sets forth, for each Subsidiary, (i) its name and jurisdiction of
incorporation, (ii) the number of shares of authorized capital stock of each
class of its capital stock, (iii) the number of issued and outstanding shares
of each class of its capital stock, the names of the holders thereof and the
number of shares held by each such holder, (iv) the number of shares of capital
stock held in its treasury, (v) its directors and officers, and (vi) the
jurisdictions in which the conducts business or owns or leases properties.
Each Subsidiary has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Each
Subsidiary is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or leased or the nature of its activities makes such qualification necessary.
Copies of the Certificate of Incorporation and By-laws of each Subsidiary
heretofore delivered to the Purchaser are accurate and complete. Except as set
forth on Schedule 3.2 of the Company Disclosure Schedule, the Parent has no
Subsidiaries and does not own or control, directly or indirectly, shares of
capital stock of any other corporation or any interest or investment in any
partnership, joint venture, limited liability company or partnership or other
business entity or enterprise. Except as set forth on Schedule 3.2 of the
Company Disclosure Schedule, each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of its
organization.
3.3 Capitalization. The authorized capital stock of the Company,
the issued and outstanding shares of the capital stock of the Company of each
class, and the holders of record of the capital stock of the Company are as set
forth on Schedule 3.3 of the Company Disclosure Schedule. All of the issued and
outstanding shares of the Company's capital stock have been offered,
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issued, and sold by the Company in compliance with applicable Federal and state
securities laws and all other applicable Legal Requirements. All of the issued
and outstanding capital stock of the Company has been duly authorized and
validly issued and is fully paid and nonassessable. Except as set forth in
Schedule 3.3 of the Company Disclosure Schedule: (A) no subscription, warrant,
option, convertible or exchangeable security or other right or security
(contingent or otherwise) to purchase or acquire any shares of capital stock of
the Company is authorized or outstanding, (B) the Company has no obligation
(contingent or otherwise) to issue any subscription, warrant, option,
convertible or exchangeable security, or other such right or security, or to
issue or distribute to holders of any shares of its capital stock any evidences
of indebtedness or assets of the Company, (C) the Company has no obligation
(contingent or otherwise) to purchase, redeem, or otherwise acquire any shares
of its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof and (D) no shares of the Company's
capital stock are held in its treasury. Except as contemplated by this
Agreement or as provided in Schedule 3.3 of the Company Disclosure Schedule, no
Person is entitled to (i) any preemptive or similar right with respect to the
issuance of any capital stock of the Company or (ii) any rights with respect to
the registration of any capital stock of the Company under the Securities Act
and no stockholder of the Company has granted options, warrants or other rights
to purchase or otherwise acquire any interest in any shares of the Company's
capital stock from such stockholder. Except as contemplated by this Agreement,
there are no agreements, undertakings or understandings, written or oral,
between the Company and any holder of its capital stock, or among any holders
of its capital stock, relating to the acquisition (including, without
limitation, rights of first refusal or preemptive rights), disposition, or
voting of the capital stock of the Company or any Subsidiary. Since the
Balance Sheet Date no shares of the capital stock of the Company have been
issued or retired or, in the case of treasury shares, reissued.
3.4 Authority; Noncontravention. The execution, delivery, and
performance of this Agreement and the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby, will not
violate any Legal Requirements applicable to the Company and will not conflict
with or result in any breach of any of the terms, conditions, or provisions of,
or violate or constitute a default under (with or without notice or passage of
time or both) or otherwise give any Person a basis for accelerated or increased
rights of termination or nonperformance under, or require a consent or waiver
under, its Certificate of Incorporation or By- Laws (each as amended to date
and presently in effect) or any indenture, lease, agreement, Lien or other
instrument or arrangement to which the Company is a party or by which it or any
of its properties is bound or affected, or any Legal Requirement applicable to
the Company where any such violation, conflict, breach, default, failure to
obtain a consent or waiver would, in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Company. Schedule 3.4 of the Company
Disclosure Schedule sets forth a list of all indentures, leases, agreements,
Liens, licenses, permits and other instruments requiring the consent, approval
or waiver of any Person to any of the transactions contemplated hereby.
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<PAGE> 20
3.5 Governmental Consents. No consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
notice to or filing with, any judicial, governmental or regulatory authority or
entity is required on the part of the Company in connection with the execution
and delivery of this Agreement or any Ancillary Agreements, the offer, sale and
delivery of the Shares, or the other transactions to be consummated at the
Closing as contemplated by this Agreement, except as set forth on Schedule 3.5
of the Company Disclosure Schedule.
3.6 Litigation. Except as set forth on Schedule 3.6 of the
Company Disclosure Schedule, there is no action, suit, arbitration or
proceeding, or judicial, governmental or regulatory inquiry or investigation
pending, or, to the best knowledge of the Seller and the Shareholder, after
diligent inquiry, any basis therefor or threat thereof, against the Company,
that questions the validity of this Agreement or which may otherwise prevent or
delay the consummation of the transactions contemplated hereby or that might
result, either individually or in the aggregate, in a Material Adverse Effect,
nor is there any litigation pending, or, to the best knowledge of the Seller
and the Shareholder, after diligent inquiry, any basis therefor or threat
thereof, against the Company by reason of the past employment relationships of
any of the Company's employees or the proposed activities of the Company.
There is no outstanding judgment, order, decree, stipulation, or injunction of
any judicial, governmental or regulatory entity against or affecting the
Company or its assets or its business or any of its officers, directors, or
employees with respect to the Company's business.
3.7 Financial Statements. The Company has furnished to the
Purchaser on Schedule 3.7 of the Company Disclosure Schedule, with respect to
(a) and (b) below, and will furnish by April 15, 1996, with respect to (c)
below:
(a) a complete and correct copy of the Financial
Statements. The Financial Statements are complete and correct, are in
accordance with the books and records of the Company and present
fairly the consolidated financial condition, results of operations and
changes in financial position of the Company, as at the dates and for
the periods indicated, and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
during the periods covered thereby and prior periods;
(b) interim financial statements as of February 29, 1996,
which have been prepared from the books and records of the Company and
certified by the Company and which present fairly, in all material
respects, the pre-Tax income of the Company for the periods presented,
with a tolerance level of $250,000; and
(c) interim financial statements as of March 31, 1996,
which have been prepared from the books and records of the Company and
certified by the Company and which present fairly, in all material
respects, the pre-Tax income of the Company for the periods presented.
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3.8 Absence of Liabilities. Except as disclosed in Schedule 3.8 of
the Company Disclosure Schedule, the Company did not have, at the Balance Sheet
Date, Liabilities, except for (i) Liabilities set forth on the Balance Sheet.
Since the Balance Sheet Date, the Company has not incurred or otherwise become
subject to any Liabilities, except as permitted hereunder or as disclosed on
Schedule 3.8 of the Company Disclosure Schedule, except that DUS Loans, as set
forth on Schedule 3.24, have been made since the Balance Sheet Date.
3.9 Taxes. The amount shown on the Balance Sheet as provision for
taxes is sufficient in all material respects for payment of all accrued and
unpaid Taxes for the period then ended and all prior periods. Except as
disclosed on Schedule 3.9 of the Company Disclosure Schedule:
(a) The Company has filed all Tax Returns that are
required to be filed by it, such returns are true and correct and all
Taxes shown thereon to be due or otherwise required to be paid by the
Company have been timely paid. No income Tax Returns of the Company
have been audited by the Internal Revenue Service or any state,
county, local or foreign taxing authority, and no controversy with
respect to Taxes of any type is pending or threatened. The Company's
net operating losses for federal income tax purposes, as set forth in
the Financial Statements, are not subject to any limitations imposed
by Section 382 of the Code, and consummation of the transactions
contemplated by this Agreement or by any other agreement,
understanding or commitment, contingent or otherwise, to which the
Company is a party or by which it is otherwise bound will not have the
effect of limiting the Company's ability to use such net operating
losses in full to offset such taxable income;
(b) The Company has made adequate provision on its book
of account for all Taxes with respect to its business, properties and
operations through the Balance Sheet Date, and the accruals for Taxes
in the Balance Sheet are adequate to cover all liabilities for Taxes
of the Company for all periods ending on or before the Closing Date.
The Company has true, complete and accurate books and records which
the Purchaser may reasonably require in connection with the
determination of any Taxes or any claim for refund, audit,
examination, notice of deficiency or assessment or any judicial or
administrative proceeding relating to the Company or the transactions
contemplated by this Agreement; and
(c) The Company (i) has not filed any consent or
agreement pursuant to Code Section 341(f), and no such consent or
agreement will be filed at any time on or before the Closing Date;
(ii) has not made any payments, is not obligated to make any payments
and is not a party to any agreement that under certain circumstances
could obligate the Company to make any payments that will not be
deductible under Code Section 280G, (iii) is not a United States real
property holding corporation within the meaning of Code Section
897(c)(2); (iv) is not a party to a tax allocation or sharing
agreement; (v) does not have any Liability for unpaid Taxes because it
was a member of an affiliated group with the meaning of Code Section
1504(a); (vi) has never applied for a tax ruling from a governmental
entity
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and (vii) has never filed or been the subject of an election under
Code Section 338(g) or Code Section 338(h)(10) or caused or been the
subject of a deemed election under Code Section 338(e).
3.10 Property and Assets. The Company has good title to all of its
properties and assets, including all properties and assets reflected in the
Balance Sheet, except those disposed of since the date thereof in the ordinary
course of business as disclosed on Schedule 3.10 of the Company Disclosure
Schedule, and none of such properties or assets is subject to any Lien other
than those the material terms of which are described in the Balance Sheet or in
Schedule 3.10 to the Company Disclosure Schedule.
3.11 Patents and Trademarks. Set forth on Schedule 3.11 to the
Company Disclosure Schedule is a true and complete list of all patents, patent
applications, trademarks, service marks, trademark and service mark
applications, trade names, copyrights, copyright registrations and
applications, licenses and other intellectual property rights presently owned
or held by the Company or necessary for the conduct of the Company's business
as conducted and as proposed to be conducted, as well as any agreement under
which the Company has access to any confidential information used by the
Company in its business (collectively, the "Intellectual Property Rights"). The
Company owns, or has the right to use under the agreements or upon the terms
described in Schedule 3.11 to the Company Disclosure Schedule, all of the
Intellectual Property Rights. There is no claim or demand of any Person
pertaining to, or any action or proceeding that is pending or threatened which
challenges (or would challenge) the rights of the Company in respect of any
Intellectual Property Rights. The business conducted or proposed to be
conducted by the Company will not cause the Company to infringe or violate any
of the patents, trademarks, service marks, trade names, copyrights, licenses,
trade secrets, or other proprietary rights of any other Person or entity.
Neither the Seller nor the Shareholder has any knowledge, after diligent
inquiry, that any employee of the Company is obligated under any contract
(including any license, covenant, or commitment of any nature), or subject to
any Legal Requirement that would conflict or interfere with (i) the performance
of such employee's duties as an officer, employee, or director of the Company,
(ii) the use of such employee's best efforts to promote the interests of the
Company or (iii) the Company's business as conducted or proposed to be
conducted. No other Person (including, without limitation, any prior employer
of any employee of the Company) has any right to or interest in any inventions,
improvements, discoveries, or other information utilized by the Company in its
business or assigned to the Company by such employee pursuant to any
nondisclosure and assignment of inventions agreement executed by such employee
or otherwise.
3.12 Insurance. The Company maintains valid policies of workers'
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than is customarily obtained
by corporations of established reputation engaged in the same or similar
business and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability, and other risks. Schedule
3.12 of the Company Disclosure Schedule contains
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a true and complete list of all insurance policies and bonds and self insurance
arrangements currently in force that cover or purport to cover risks or losses
to or associated with the Company's business, operations, premises, properties,
assets, employees, agents and directors and sets forth, with respect to each
such policy, bond and self insurance arrangement, a description of the insured
loss coverage, the expiration date and time of coverage, the dollar limitations
of coverage, a general description of each deductible feature and principal
exclusion and the premiums paid and to be paid prior to expiration.
3.13 Material Contracts and Obligations. Schedule 3.13 to the
Company Disclosure Schedule sets forth a list of all material agreements of any
nature to which the Company is a party or by which it or its properties are
bound or affected, including without limitation (a) each agreement that
requires or might require future expenditures by the Company in excess of
$10,000 or that might result in payments to the Company in excess of $10,000,
(b) all employment and consulting agreements, employee benefit, bonus, pension,
profit sharing, stock option, stock purchase, and similar plans and
arrangements, and distributor and sales representative agreements, (c) any
agreement with any stockholder, officer, or director of the Company, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), including, without
limitation, any agreement or other arrangement providing for the furnishing of
services by, rental of real or personal property from, or otherwise requiring
payments to, any such Person and (d) any agreement relating to the Intellectual
Property Rights. The Company has delivered to the Purchaser true, correct and
complete copies of all of the foregoing agreements. All of such agreements,
instruments and contracts are (i) valid, binding, and in full force and effect
in accordance with their respective terms, and (ii) there is not any existing
default or event of default (or event that, with notice or passage of time, or
both, would constitute a default, or would constitute a basis of force majeure
or other claim of excusable delay or nonperformance).
3.14 Compliance. The Company has , in all material respects,
complied with all Legal Requirements applicable to its present and proposed
business and has all Approvals required thereby. There is no term or provision
of any lease, indenture, contract, agreement, Lien or instrument to which the
Company is a party or by which it or any of its properties or assets is bound
or affected, or of any provision of any Legal Requirements applicable to or
binding upon the Company, that would result in a Material Adverse Effect or in
the future is reasonably likely to result in a Material Adverse Effect. No
employee of the Company is in violation of any term of any contract or covenant
(either with the Company or with another entity) relating to employment,
patents, proprietary information disclosure, non-competition, or
non-solicitation.
3.15 Licenses, Permits and Authorizations. The Company has all
material Approvals necessary to enable the Company to continue to conduct its
business as currently being conducted or proposed to be conducted. The Company
has not received any notice from any governmental or regulatory agency or
authority to the effect that the Company is in default under any of its
Approvals. Each of the Approvals is in full force and effect and the Company
is in material
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compliance with all of its obligations with respect thereto, and no event has
occurred which permits, or upon the giving of notice or the lapse of time or
otherwise would permit, revocation, nonrenewal, modification, suspension or
termination of any of the foregoing.
3.16 ERISA and Employee Matters.
(a) Schedule 3.16 of the Company Disclosure Schedule
contains a true and complete list of each "employee benefit plan," as
defined in Section 3(3) of ERISA, and of all other employee
compensation plans, programs, agreements or arrangements, currently
maintained by the Company or any trade or business, whether or not
incorporated, which is part of a controlled group within the meaning
of Section 414(b), (c) or (m) of the Code with the Company
(collectively, the "Company Group"), or under which any member of the
Company Group has any liability in respect of current or former
employees (collectively, the "Company Plans"). All the Company Plans
which constitute employee "pension plans" as defined in Section 3(2)
of ERISA are referred to herein as the "the Company Pension Plans."
Each of the Company Plans is in compliance in all material respects
with the terms thereof and the applicable provisions of ERISA and the
Code, including any applicable qualification requirements of the Code.
The Company Group has fulfilled its obligations under the minimum
funding standards of ERISA and the Code with respect to each Company
Pension Plan, and the Company Group has not incurred, and the Company
Group does not have any knowledge of any event or condition which
would cause the Company Group to incur, any liability to the Pension
Benefit Guaranty Corporation, any trustee under Section 4049 of ERISA,
or any Company Pension Plan in connection with the termination of any
Company Pension Plan under Title IV of ERISA. No Company Pension Plan
has an accumulated or waived funding deficiency, or has applied for an
extension of any amortization period within the meaning of Section 412
of the Code and no event or condition exists which could be deemed a
reportable event within the meaning of section 4043 of ERISA. Each
Company Pension Plan which is intended to be a qualified plan under
Section 401(a) of the Code is so qualified and has received a
favorable determination letter from the Internal Revenue Service. The
Company has previously delivered to the Purchaser with respect to each
Company Plan, true and correct copies of (A) each Company Plan (or, in
the case of an oral or informal Company Plan, a written description
thereof); (B) the most recent annual report (Form 5500 series); (C)
the most recent actuarial valuation report; and (iv) the most recent
Summary Plan Description, as described in Section 102(a)(1) of ERISA.
(b) The actuarial present value of accrued benefits (both
vested and unvested) of Company Pension Plans subject to Title IV of
ERISA does not exceed the assets of such Company Pension Plans based
upon the actuarial assumptions used in funding such plan for the 1995
valuation, which assumptions are reasonable in light of the experience
of such plan.
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(c) Except as set forth on Schedule 3.16 of the Company
Disclosure Schedule there are no pending claims or lawsuits which have
been asserted or instituted (other than in respect of benefits due in
the ordinary course which, in the aggregate, are not material) against
the assets of any of the Company Plans or against the Company Group or
any fiduciary of the Company Plans with respect to the Company Plans.
(d) As of the date hereof, there are no benefits to be
provided to current or future retirees under any "welfare benefit
plans" within the meaning of Section 3(1) of ERISA which are
maintained by the Company Group.
(e) The Company Group has not maintained or contributed
to, or been obligated or required to contribute to, a "multiemployer
plan," as such term is defined in Section 3(37) of ERISA, and no
withdrawal liability has been incurred by or asserted against any of
the Company Group with respect to a withdrawal from any multiemployer
pension plan, and the Company Group does not have any knowledge of any
event of condition which would cause any of the Company Group to incur
any such withdrawal liability.
(f) Except as set forth in Schedule 3.16 of the Company
Disclosure Schedule, no Company Plan exists which would result in the
payment to any individual of any money or other property or rights or
accelerate or provide any other rights or benefits to any individual
as a result of the transactions contemplated by this Agreement.
3.17 Environmental Matters. Except as set forth on Schedule 3.17
of the Company Disclosure Schedule:
(a) The Company has complied in all material respects
with all applicable Environmental Laws and the requirements of any
Approvals issued under such Environmental Laws. There are no past,
pending or threatened Environmental Claims against or affecting the
Company or any real property owned, encumbered at any time by or at
any time operated by the Company including, without limitation any of
the Collateral. There are no facts, circumstances, conditions or
occurrences affecting any real property owned, encumbered at any time
by or at any time operated by the Company or on any property adjoining
or in the vicinity of any such real property that would reasonably be
expected (i) to form the basis of an Environmental Claim against the
Company or any such real property, or (ii) to cause such real property
to be subject to any restrictions on the ownership, occupancy, use or
transferability of such real property under any applicable
Environmental Law.
(b) Hazardous Materials have not at any time been
generated, used, treated or stored on, or transported to or from, any
real property owned, encumbered at any time by or at any time operated
by the Company where such generation, use, treatment or storage has
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<PAGE> 26
violated any Environmental Law. Hazardous Materials have not at any
time been Released on or from any real property where such Release has
violated any applicable Environmental Law. There are not now any
underground storage tanks located on any real property owned or
currently operated by the Company.
3.18 Employees; Labor Relations.
(a) Schedule 3.13 of the Company Disclosure Schedule
contains a true and complete list of all contracts, agreements, plans,
arrangements, commitments and understandings (formal and informal)
pertaining to terms of employment, compensation, bonuses, profit
sharing, stock purchases, stock repurchases, stock options,
commissions, incentives, loans or loan guarantees, severance pay or
benefits, use of the Company's property and related matters of the
Company with any current or former officer, director, employee, agent
or consultant, and true and complete copies of all such contracts,
agreements, plans, arrangements and understandings have been delivered
to Purchaser. Schedule 3.18 of the Company Disclosure Schedule
contains a true and complete list of all labor, collective bargaining,
union and similar agreements under or by which the Company is
obligated, and true and complete copies of all such agreements have
been delivered to Purchaser. Except as set forth on Schedules 3.13 or
3.18 of the Company Disclosure Schedule, neither Purchaser nor the
Company will have any responsibility for continuing any Person in the
employ (or retaining any Person as a consultant) of the Company from
and after the Closing or have any liability for any severance payments
to or similar arrangements with any such Person who shall cease to be
an employee of the Company at or prior to the Closing.
(b) The Company is not engaged in any unfair labor
practice. There is (i) no unfair labor practice complaint pending
against the Company or threatened against the Company, before the
National Labor Relations Board or other governmental or regulatory
authority, and no grievance or arbitration proceeding arising out of
or under any collective bargaining agreement is so pending against the
Company or threatened against the Company, (ii) no strike, labor
dispute, slowdown or stoppage pending against the Company or
threatened against the Company and (iii) no union representation
question existing with respect to the employees of the Company.
3.19 Absence of Changes. Since the Balance Sheet Date, there has
not been:
(a) Any change in the assets, Liabilities, financial
condition, or operations of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of
business that have not resulted, either individually or in the
aggregate, in a Material Adverse Effect;
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(b) Any change (individually or in the aggregate), except
in the ordinary course of business, in the contingent obligations of
the Company by way of guaranty, endorsement, indemnity, warranty, or
otherwise;
(c) Any waiver or compromise by the Company of a valuable
right or of a debt owed to it;
(d) Any loans made by the Company to the Seller, the
Shareholder, or any of the Company's employees, officers, directors,
agents or consultants other than travel advances made in the ordinary
course of business;
(e) Any extraordinary increases in the compensation of
any of the Company's employees, officers, directors, agents or
consultants;
(f) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(g) Any issuance or sale by the Company of any shares of
its capital stock or other securities;
(h) Any other event or condition of any character that
has had or could reasonably be expected to have a Material Adverse
Effect on the Company, or
(i) Any agreement or commitment by the Company to do any
of the things described in this Section 3.19.
3.20 Accounts Receivable and Notes Receivable. The accounts and
notes receivable included in the Balance Sheet represent valid claims from bona
fide transactions, incurred in the ordinary course of business, and no
counterclaims or offsetting claims with respect to such receivables are pending
or threatened. The Company maintains reserves for losses arising from the
origination, servicing, foreclosure and liquidation of Mortgage Loans,
securities positions, repurchase and reverse repurchase agreements to the
extent the Company expects such losses may occur. There are no reserves as of
the date of this Agreement, other than reserves with respect to DUS Loans,
although the Company does not expect losses in the amount of such reserves.
All such reserves have been determined in accordance with generally accepted
accounting principles consistently applied and are in the amounts shown in the
Balance Sheet and are sufficient to meet all reserve requirements of Investors.
Such reserves are reasonably adequate in all respects to provide for all
expected losses and comply with all applicable requirements with respect
thereto.
3.21 Appropriateness of Payments. Neither the Company nor any of
its directors, officers, agents, employees or other Person associated with or
acting on behalf of the Company has (a) used
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any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (b) made any direct or
indirect unlawful payments to government officials or employees, including
foreign government officials or employees, from corporate funds, (c)
established or maintained any unlawful or unrecorded fund of corporate monies
or other assets, (d) made any false or fictitious entries on the books of
account of the Company, (e) made or received any bribe, rebate, payoff,
influence payment kickback or other unlawful payment, or (f) made any other
payment, favor or gift not fully deductible for federal income tax purposes.
3.22 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
3.23 Banking. Schedule 3.23 of the Company Disclosure Schedule
contains a true and complete list of the names and locations of all financial
institutions at which the Company maintains a checking account, deposit
account, securities account, safety deposit box or other deposit or safekeeping
arrangement, the numbers or other identification of all such accounts and
arrangements and the names of all persons authorized to draw against any funds
therein.
3.24 Disclosures. Neither this Agreement nor any exhibit or
schedule hereto, nor any report, certificate, or instrument furnished to any of
the Purchaser, its special counsel or any other agent or representative of the
Purchaser in connection with the transactions contemplated by this Agreement
contains or will contain any untrue statement of a material fact or omits or
will 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, including, without limiting the foregoing, the
following information set forth on Schedule 3.24 of the Company Disclosure
Schedule:
(a) Bank reconciliations for all accounts which have
exceptions greater than thirty days as at January 31, 1996;
(b) For each of WMF Group and WMF/Huntoon, the Fixed
Asset Ledger as at December 31, 1995 and February 29, 1996;
(c) For each of WMF Group and WMF/Huntoon, the Servicing
Advance (Principal, Interest, Taxes and Insurance) Aging Report as at
February 29, 1996;
(d) For each of WMF Group and WMF/Huntoon, Owned Mortgage
Loans and Servicing Portfolio Data Disks as of December 31, 1995 and
February 29, 1996;
(e) For WMF Group, the Detail of Accounts Payable as at
December 31, 1995 and February 29, 1996;
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(f) For each of WMF Group and WMF/Huntoon, Delinquency
Reports for all product types (quarterly for last two years);
(g) For each of WMF Group and WMF/Huntoon, Watch List
with listing requirements (quarterly for last two years);
(h) 1996 Business Plan;
(i) For each of WMF Group and WMF/Huntoon, the
Multifamily Pipeline Report as at December 31, 1995 and February 29,
1996;
(j) DUS Risk Management Report for December 1995 and
February 1996;
(k) WMF Group Month-End Servicing Portfolio (including
portfolio summary statistics) as at December 31, 1995 and February 29,
1996;
(l) WMF/Huntoon, Paige Associates Month End Portfolio
(including portfolio summary statistics) as at December 31, 1995 and
February 29, 1996;
(m) WMF Group's McCracken System information as at the
Closing Date;
(n) WMF/Huntoon's FICS System information as at the
Closing Date; and
(o) List of all properties secured by Mortgage Loans
which receive the benefits of Section 8 project based housing
assistance payments setting forth the percentage of units covered by
such Section 8 contract and the termination date of such Section 8
contract as of March 15, 1996.
Neither the Seller nor the Shareholder knows of any information or fact that
has or would have a Material Adverse Effect on the assets, business, prospects,
or condition (financial or otherwise) of the Company that has not been
disclosed to the Purchaser in writing.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
CONCERNING LOANS AND SERVICING RIGHTS
The Seller and the Shareholder, jointly and severally, hereby
represent and warrant to the Purchaser as follows:
4.1 Approved Issuer. WMF Group is a Fannie Mae approved DUS
lender in good standing. WMF/Huntoon is a GNMA approved issuer in good
standing. Each of WMF Group and WMF Huntoon is (i) a FHA-approved mortgagee,
(ii) a Fannie Mae and a Freddie Mac approved seller/servicer in good standing,
and (iii) in full compliance with all of the material provisions contained in
the applicable FHA, GNMA, Fannie Mae and Freddie Mac guides, any subsequent
amendments in or to any of them, and all other applicable regulations and
Investor requirements. Except as set forth on Schedule 4.1 of the Company
Disclosure Schedule, neither the Company nor the Seller has at any time in the
past received notice from any governmental, quasi-governmental or private
agency of pending or threatened actions or investigations which would question
the status of WMF Group or WMF Huntoon as an approved lender or issuer as
provided in this Section 4.1. No outstanding claims exist against the Company
(directly or indirectly) from or through the FHA, GNMA or any Investors
(including, without limitation, claims under FHA multifamily co-insurance
program). No event has occurred which, with the passage of time or the giving
of notice, or both, would result in the loss by either WMF Group or WMF Huntoon
of their qualification as an approved lender or issuer as set forth in this
Section 4.1 or of the Company or any officer, director or employee of the
Company as a contractor or as a Person otherwise permitted to transact business
with any such governmental, quasi-governmental or private agency.
4.2 Owned Mortgage Loans and Mortgage Servicing Portfolio.
(a) Description of Owned Mortgage Loans. Set forth on
Schedule 3.24 of the Company Disclosure Schedule is a complete and
correct list, as of February 29, 1996, of all Owned Mortgage Loans,
the aggregate unpaid principal of each Owned Mortgage Loan, the
Investor and the PMI (if applicable) with respect to each Owned
Mortgage Loan, the interest rate, maturity date, amendments,
adjustment dates and terms (if applicable), debt service coverage
ratios, loan to value ratios, lock-out dates, prepayment penalties,
yield maintenance fees, servicing fees, current and previous default
status (including, without limitation, workouts and threatened
defaults), amounts of balloon payments, if any, due on maturity,
descriptions of any additional Collateral beyond real property,
fixtures and leases, and other material terms of each Owned Mortgage
Loan, and all other information reasonably required by the Purchaser.
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(b) Description of Mortgage Servicing Portfolio. Set
forth on Schedule 3.24 of the Company Disclosure Schedule is a true
and complete list, as of February 29, 1996, of each Investor with
which the Company has a Mortgage Servicing Agreement, listing for each
such Investor the Investor's name and the aggregate principal amount
and number of Mortgage Loans subject to such Mortgage Servicing
Agreement, the weighted average servicing rate, the unpaid principal
balance, the overall interest payable by the borrower, the maturity
date, amendments, adjustment dates and terms (if applicable), debt
service coverage ratios, loan to value ratios, lock-out dates,
prepayment penalties, yield maintenance fees, servicing fees, current
and previous default status (including, without limitation, workouts
and threatened defaults), amounts of balloon payments, if any, due on
maturity, descriptions of any additional Collateral beyond real
property, fixtures and leases, the applicable aggregate escrow balance
under each such Mortgage Servicing Agreement, and other material
terms, and listing for the Mortgage Servicing Portfolio interest rates
by group and principal balances by age. The Seller has made available
to the Purchaser true and complete copies of each Mortgage Servicing
Agreement and all amendments, modifications and extensions thereof.
(c) Compliance. Each Originated Mortgage Loan, the
related Loan Documents and Loan Files has complied with (i) all Legal
Requirements applicable to such Mortgage Loan and (ii) the terms of
any sales contracts with Investors by which the Mortgage Loans were
transferred to the Investors ("Sales Agreements") and any schedule,
statement or certificate furnished to the Investors pursuant to any of
the Mortgage Servicing Agreements or the Sales Agreements. Except as
described in Schedule 4.2(c) of the Company Disclosure Schedule, each
Mortgage Loan (i) is evidenced by an enforceable note or other
evidence of indebtedness and is subject to no defense, offset or
counterclaim, and (ii) is secured by a duly recorded and enforceable
first Mortgage. The Company has not assumed any obligations with
respect to Non-Originated Mortgage Loans other than non-recourse
servicing obligations. The Company has complied with all guidelines,
procedures, rules and regulations of FHA, GNMA, Fannie Mae, Freddie
Mac, Investors, PMIs (if any) and/or state banking authorities
relating to the origination, underwriting and servicing thereof, which
are applicable to the Company.
(d) No Outstanding Charges. Except as set forth on
Schedule 4.2(d) of the Company Disclosure Schedule, all Taxes,
governmental assessments, insurance premiums, PMI premiums, water,
sewer and municipal charges, leasehold payments and ground rents which
previously became due and owing with respect to any Collateral or REO
have been paid, or an escrow of funds identified on Schedule 3.24 of
the Company Disclosure Schedule has been established in an amount
sufficient to pay for every such item which remains unpaid and which
has been assessed but is not yet due and payable. Except as set forth
on Schedule 4.2(d), the Company has not advanced funds, directly or
indirectly, for the payment of any amount required under the Loan
Documents except for interest accruing from the date
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of the Mortgage Note or date of disbursement of the Mortgage Loan
proceeds, whichever is earlier, to the date which precedes by one
month the due date of the first installment of principal and interest.
(e) Original terms Unmodified. Except as set forth in
the Loan Documents or the Loan Files and identified on Schedule 4.2(e)
of the Company Disclosure Schedule, the terms of each Mortgage Note
and Mortgage have not been impaired, waived, altered or modified in
any respect from the date of their origination except by a written
instrument, which written instrument has been recorded if recordation
is necessary to protect the interests of the owner thereof. The
substance of any such waiver, alteration or modification has been
communicated to and approved in writing by (i) the relevant Investor
and PMI (if any), to the extent required by the relevant Investor and
PMI requirements, and (ii) the title insurer, to the extent required
by the relevant policies, and its terms are reflected in the Loan
Documents or the applicable Loan Files. Except as set forth in the
Loan Documents or the Loan Files and identified on Schedule 4.2(e) of
the Company Disclosure Schedule, the Company has not (i) subordinated
the Lien of any Mortgage Loan to any other Mortgage or Lien, (ii)
released any portion of the Collateral from the Lien of any Mortgage
Loan or (iii) executed any instrument of release, cancellation or
satisfaction with respect to any Mortgage Loan.
(f) Enforceability. Except to the extent that the
enforceability may be affected by bankruptcy or other laws affecting
the rights of creditors generally, each of the Originated Mortgage
Loans and Loan Documents and, to the best of Seller's and
Shareholder's knowledge, each Non-Originated Mortgage Loan, is
enforceable in accordance with its terms and the exercise of any right
thereunder will not render the Mortgage Loan or Loan Documents
unenforceable, in whole or in part, or subject to any right of
rescission, and no such right of rescission has been asserted with
respect thereto.
(g) No Recourse. Except as set forth on Schedule 4.2(g)
of the Company Disclosure Schedule, and with respect to DUS Mortgage
Loans, none of the Servicing Rights is subject to recourse against the
Company for losses on liquidation of a Mortgage Loan, borrower
defaults or repurchase obligations upon the occurrence of non-payment
or other events, and the Company has no obligation or recourse to any
Person to which it may have sold or transferred any Mortgage Loans or
Servicing Rights. For the purposes of this Section 4.2(g), "recourse"
shall not include industry standard representations and warranties
(such as those concerning title, zoning, etc.), except to the extent
that such representations and/or warranties relate generally to
economic performance (such as those included in the DUS program).
(h) Condemnation and Casualty. Except as set forth on
Schedule 4.2(h) of the Company Disclosure Schedule, neither the
Seller, the Shareholder nor the Company has any
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notice or knowledge of (i) any proceeding pending or threatened for
the partial or total condemnation of any of the Collateral or that all
or any part of the Collateral has been or will be condemned or (ii)
any casualty affecting any portion of the Collateral.
(i) Doing Business. To the best knowledge of the Seller
and the Shareholder, after diligent inquiry, all Persons which have
had any interest in a Mortgage Loan, whether as mortgagee, assignee,
pledgee or otherwise, are (or, during the period in which they held
and disposed of such interest, were) (i) in compliance with any and
all applicable licensing requirements of the laws of the state in
which the Collateral is located, and (ii) (1) organized under the laws
of such state, (2) qualified to do business in such state, (3) federal
savings and loan associations or national banks having principal
offices in such state, or (4) not doing business in such state. No
act or acts by any Person which has had an interest in an Owned
Mortgage Loan will render the Mortgage Loan or Loan Documents
unenforceable, in whole or in part, or subject to any right of
rescission, and no such right of rescission has been asserted with
respect thereto.
(j) Title Insurance. To the extent required by the
applicable Investor, each Originated Mortgage Loan and, to the best
of Seller's and Shareholder's knowledge, each Non-Originated Mortgage
Loan is insured by an ALTA lender's title insurance policy or other
generally acceptable form of policy or insurance acceptable to the
relevant Investor, containing such endorsements and affirmative
insurance as is customary for similar transactions; each such title
insurance policy is issued by a title insurer acceptable to the
applicable Investor qualified to do business in the jurisdiction where
the Collateral is located, and insures the originator and its
successors and assigns as to the first priority Lien of the Mortgage
in the original principal amount of the Mortgage Loan subject only to
those Liens shown on the title policy and approved in writing by the
Investor. The applicable Investor, as assignee of the originator's
rights, is an insured of such lender's title insurance policy, and
such lender's policy is in full force and effect. Neither the Company
nor any prior servicer has committed or suffered any act or omission
which would impair the coverage of such lender's policy.
(k) No Payment Defaults. Except as set forth on Schedule
4.2(k) of the Company Disclosure Schedule, there are no payment
defaults under the Loan Documents nor any events which, with the
giving of notice or the passage of time, or both, would constitute a
payment default.
(l) Deeds of Trust. In the event a Mortgage Loan is
secured by a deed of trust, all applicable requirements of law with
respect to the trustee service under such deed of trust have been
complied with or, if not complied with, can be cured solely by
substituting trustees thereunder and by filing a substitution of
trustee document in the appropriate filing or recording office.
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(m) Insurance. The Collateral securing each of the
Mortgage Loans has been covered by policies of hazard, builders' risk,
all-risk property and flood insurance, to the extent required by all
applicable Legal Requirements or Investor or PMI requirements
applicable to such Mortgage Loan, all in a form usual and customary in
the industry and all of which are in full force and effect, and all
amounts due and payable under each policy have been, or will be, paid
prior to the Closing Date. Any and all claims under such insurance
policies have been submitted and processed in accordance with the
applicable Investor requirements. The Company has not been informed
of any uninsured casualty losses to the premises securing the Mortgage
Loans or any casualty losses to such premises where coinsurance has
been, or the Company has reason to believe will be, claimed by the
insurance company or where the loss, exclusive of contents, is greater
than the net recovery from the casualty insurance carrier. To the best
knowledge of the Seller and the Shareholder, all damage with respect
to which casualty insurance proceeds have been received by or through
the Company has been repaired or is in the process of being repaired
with such proceeds. Except as set forth in Schedule 4.2(m) of the
Company Disclosure Schedule, the Company has not been informed nor
does the Company have any independent knowledge that any property
subject to a Mortgage has been or will be condemned in whole or in
part.
(n) Mortgage Insurance. Each Mortgage Loan which is
represented on Schedule 3.24 of the Company Disclosure Schedule to
have FHA Insurance is insured under the National Housing Act. As to
each contract of FHA mortgage insurance and each Mortgage Loan which
is represented on Schedule 3.24 of the Company Disclosure Schedule to
be insured by PMI, the Company has complied with all applicable
provisions of the related insurance or guarantee contract and all
applicable Legal Requirements, the insurance or guarantee is in full
force and effect with respect to each Mortgage Loan or related
obligation, and there does not exist any event or condition which
currently, or but for the passage of time or the giving of notice or
both, can result in a revocation, impairment or reduction of or set
off with respect to any such insurance or guarantee.
(o) Escrow Accounts. Except as set forth on Schedule
4.2(o) of the Company Disclosure Schedule, the Company collects all
escrows related to the Mortgage Loans. Except as set forth on
Schedule 4.2(o) of the Company Disclosure Schedule, all escrow
accounts have been maintained by the Company and, to the best of the
Seller's and Shareholder's knowledge, all prior servicers in
accordance with all applicable Legal Requirements and the requirements
of Investors and PMIs, and in accordance with the Mortgage Servicing
Agreements and the Loan Documents related thereto. Except as set
forth on Schedule 4.2(o) of the Company Disclosure Schedule, the
Company has credited to the account of mortgagors all interest
required to be paid on any escrow account through the Closing Date.
All escrow, custodial, and suspense accounts related to the Owned
Mortgage Loans are held in the Company's name or the Investor's name
by the Company.
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Schedule 4.2(o) of the Company Disclosure Schedule sets forth the
correct account number and location of each escrow account.
(p) Title to Owned Mortgage Loans. The Company is the
sole owner and holder of legal title to each of the Owned Mortgage
Loans and no other Person has any interest in the Owned Mortgage Loan
other than the applicable Investor.
(q) Defaults Under FHA Loans. Except as set forth on
Schedule 4.2(q), no defaults of any nature under the terms of any of
the FHA Loans have occurred and are continuing or are reasonably
expected by the Company to occur, which would entitle the Company to
assign the FHA Loan to the FHA in exchange for mortgage insurance
benefits.
(r) Letters of Credit. Set forth on Schedule 4.2(r) of
the Company Disclosure Schedule is a complete and correct list of all
letters of credit held by the Company, identifying for each the
Investor or PMI, amount, expiration date, reason held, account party
and other material information relating thereto. Each such letter of
credit is irrevocable, unconditional, fully enforceable and satisfies
all applicable Investor requirements.
(s) Original Notes. Except as identified on Schedule
4.2(s) of the Company Disclosure Schedule, the Company's warehousing
lender or other Investor or a custodian therefor has physical
possession of the executed original Mortgage Note for each Mortgage
Loan, which Mortgage Notes are located in the location set forth in
Schedule 4.2(s) of the Company Disclosure Schedule and are held in a
fire-proof vault.
(t) Future Advances. Except as identified on Schedule
4.2(t) of the Company Disclosure Schedule, the Company is under no
obligation to make any future advances under any of the Mortgage
Loans. Except as identified on Schedule 4.2(t) which also identifies
the source and amount of future funding, any mortgage amounts that may
hereafter be required to be disbursed to the applicable borrower are
held in escrow or other reserve accounts with or on behalf of the
Company. All agreements to provide future funding from Investors are
in full force and effect and the Seller and the Shareholder has no
reason to believe, after diligent inquiry, that such funding will not
be available as and when necessary.
(u) Zoning and Compliance. All of the real property and
improvements included in the Collateral securing the Originated
Mortgage Loans and, to the best of Seller's and Shareholder's
knowledge, all of the real property and improvements included in the
Collateral securing the Non-Originated Mortgage Loans comply in all
material respects with all applicable zoning, land use, environmental
and, to the best knowledge of the Seller and the Shareholder, after
diligent inquiry, other Legal Requirements applicable to the property
or the related borrower as well as any regulatory agreement or
restrictive covenant affecting the Collateral.
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<PAGE> 36
(v) Usury. Each of the Originated Mortgage Loans and, to
the best of Seller's and Shareholder's knowledge, each of the
Non-Originated Mortgage Loans complies with or is exempt from
applicable Legal Requirements pertaining to usury. The requirements
of all applicable Legal Requirements governing consumer credit and
truth-in-lending have been complied with respect to each Originated
Mortgage Loan and to the best of Seller's and Shareholder's knowledge,
with respect to each Non-Originated Mortgage Loan.
(w) Structural Defects. To the best knowledge of the
Seller and the Shareholder, after diligent inquiry, there are no
structural defects affecting any of the improvements included in the
Collateral securing the Mortgage Loans, other than defects for which
adequate reserves have been established by the borrower with the
Company which are identified on Schedule 4.2(w) of the Company
Disclosure Schedule.
(x) Financing Statements. The Company has filed or
caused to be filed all necessary UCC financing statements, including
all necessary extension statements, in the appropriate offices to
perfect and maintain the first Lien security interest in all
Collateral for which such filings are necessary.
(y) Purchases of Owned Mortgage Loans. Except as set
forth on Schedule 4.2(y) of the Company Disclosure Schedule, there
exists a binding contract or agreement providing for the purchase of
each of the Owned Mortgage Loans by an Investor; each such contract or
agreement is in full force and effect; there exists no basis upon
which any of such Investors could refuse to purchase any of the Owned
Mortgage Loans pursuant to such contracts or agreements; and neither
the Seller nor the Shareholder has any reason to believe, after
diligent inquiry, that any of the Owned Mortgage Loans will not be
purchased by the applicable Investors in due course in accordance with
such contracts or agreements.
(z) Prior Claims Experience. Except as set forth on
Schedule 4.2(z) of the Company Disclosure Schedule, the Company has
never been required to re-purchase any Mortgage Loan and has never
been subject to any surcharge or experienced any deduction from the
amount of any claim that it has presented for mortgage insurance,
guarantee or similar benefits with respect to any defaulted Mortgage
Loan.
(aa) The Company has no Flow Servicing Agreements.
(bb) Attached hereto as Schedule 4.2(bb) of the Company
Disclosure Schedule are true and complete lists, as of March 31, 1996,
of (i) all outstanding loan commitments, other than repurchase
obligations under Mortgage Servicing Agreements and purchase
obligations made by the Company, (ii) any commitments made by
Investors to purchase Mortgage Loans from the Company (or to guarantee
and purchase mortgage-backed securities with respect
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thereto), (iii) the discount/purchase price of each of the Investor
commitments, and (iv) all future and option contracts.
(cc) Except as set forth in Schedule 4.2(cc) of the
Company Disclosure Schedule, the Company owns the entire right, title
and interest in and to the servicing of each Mortgage Loan in the
Mortgage Servicing Portfolio and the sole right to service such
Mortgage Loans subject to the Mortgage Servicing Agreements, free and
clear of all Liens. Except as set forth in Schedule 4.2(cc) of the
Company Disclosure Schedule, the Company has the full right, power and
authority to enter into and consummate this Agreement without any
negative impact on any of the Mortgage Servicing Agreements and to
sell the Servicing Rights under the Mortgage Servicing Agreements,
including the Servicing Rights to the Mortgage Loans in the Mortgage
Servicing Portfolio and the Company is not obligated to sell all or
any part of same to any other party.
(dd) Except as set forth in Schedule 4.2(dd) of the
Company Disclosure Schedule, the Company has not received notice of a
servicing impropriety for any Mortgage Loan in the Mortgage Servicing
Portfolio, and each Mortgage Loan serviced by the Company has been
properly serviced and accounted for in all respects in accordance with
standard industry practices. To the extent that any applicable Legal
Requirement in any jurisdiction or of FHA, GNMA, Fannie Mae, Freddie
Mac, PMI or HUD requires the payment of interest on escrow accounts by
the Company with respect to any particular Mortgage Loan, all such
interest has been properly paid. All amounts payable in respect of a
Mortgage Note, Mortgage, or the property covered by a Mortgage which
the Company is responsible for paying, directly or on behalf of a
mortgagor, have been paid when due and payable. All pools for which
the Company is responsible are in compliance with all applicable GNMA,
Fannie Mae, Freddie Mac and Investor requirements, procedures, rules,
regulations and guidelines. The custodial files for each Mortgage
Loan will contain upon the Closing Date all items required by all
applicable GNMA, Fannie Mae, Freddie Mac or Investors requirements,
procedures, rules, regulations and guidelines for the certification of
such pools. Except as set forth in Schedule 4.2(dd) of the Company
Disclosure Schedule, all GNMA pools have been certified, in accordance
with the GNMA Mortgage-Backed Securities Guide, and are recertifiable.
The securities backed by such pools are issued on uniform documents in
accordance with the applicable GNMA, Fannie Mae or Freddie Mac
requirements, procedures, rules, regulations and guidelines. The
principal balances outstanding and owing on the Mortgage Loans in each
pool equal or exceed the amounts owing to the security holders of each
pool.
(ee) Each Mortgage Servicing Agreement is valid, binding
and enforceable in accordance with its terms. The Company has
serviced all Mortgage Loans in accordance with all applicable Investor
requirements. There are no pending or threatened claims by any
Investor against the Company relating directly or indirectly to any
Mortgage Loan or any
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Mortgage Servicing Agreement. The Company has no notice of any
default by other parties under any Mortgage Servicing Agreement or
Flow Servicing Agreement. No material default of the Company exists
under any Mortgage Servicing Agreement or Flow Servicing Agreement,
including any default arising with notice or lapse of time, or both.
(ff) Each Mortgage Loan File is complete in all material
respects, and all monies received with respect to each Mortgage Loan
have been properly accounted for and applied. There are no Defects in
any Mortgage Loan File, Mortgage Loan or pool.
(gg) Except as set forth in Schedule 4.2(gg) of the
Company Disclosure Schedule, the Company has received no notice from
the FHA or a PMI disclaiming liability on the insurance or guaranty of
any Mortgage Loan in the Mortgage Servicing Portfolio, and neither the
Seller nor the Shareholder has any knowledge, after diligent inquiry,
of any facts or circumstances which if disclosed to any such entities
would result in such a disclaimer of liability.
(hh) The Company has properly conducted, in all material
respects, an escrow analysis for each Mortgage Loan within the 12
month period immediately preceding the Closing Date. All books and
records with respect to each such Mortgage Loan are in good condition
and are adjusted to reflect properly the results of the escrow
analysis. The Company has delivered notification to the mortgagor
under each such Mortgage Loan of all payment adjustments resulting
from such escrow analysis.
(ii) All Mortgage Loans with adjustable rates, if any,
have been timely and appropriately adjusted, in all material respects,
and the mortgagors appropriately advised where it is the obligation of
the Company to do so. All buydown funds with respect to such Mortgage
Loans have been properly applied. All real estate taxes, assessments
and similar charges due in respect of the property covered by each
such Mortgage Loan having an impound account administered by the
Company are current.
(jj) No amounts are owing to HUD or any other entity with
respect to Mortgage Loans in the Mortgage Servicing Portfolio for
overpaid subsidies, except in the ordinary course of business and in
an amount which in the aggregate is less than $20,000. No amounts are
owing to the Company by mortgagors or anyone else with respect to
Mortgage Loans in the Mortgage Servicing Portfolio for overpaid
subsidies.
4.3 Real Estate Owned. The Company does not hold any REO and no
properties are in foreclosure by the Company.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
CONCERNING THE SELLER
The Seller and the Shareholder, jointly and severally, hereby
represent and warrant to the Purchaser as follows:
5.1 Ownership of the Shares. The Seller owns of record and
beneficially all of the Shares and has, and at all times prior to and as of the
Closing Seller will have, good and marketable title to such Shares free and
clear of all Liens.
5.2 Delivery of Good Title. Upon delivery of the Shares to be
sold by Seller hereunder and payment of the Purchase Price therefor pursuant to
the terms of this Agreement, Purchaser will have good and marketable title to
such Shares at Closing free and clear of all Liens.
5.3 Organization; Standing and Power. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Bermuda. The Seller has all corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted and
to execute, deliver and perform its obligations under this Agreement and all
Ancillary Agreements and to consummate the transactions contemplated hereby and
thereby. The Seller is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or leased or the nature of its activities makes such
qualification necessary. Copies of the Certificate of Incorporation and
By-laws of the Seller heretofore delivered to the Purchaser are accurate and
complete as of the date hereof.
5.4 Capitalization. The authorized capital stock of the Seller,
the validly issued and outstanding, fully paid and nonassessable shares of the
capital stock of the Seller, and the holders of record of the capital stock of
the Seller are as set forth on Schedule 5.4 of the Seller Disclosure Schedule.
5.5 Authority; Noncontravention. The execution, delivery, and
performance by the Seller of this Agreement and the Ancillary Agreements, and
the consummation by the Seller of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action. This
Agreement and the Ancillary Agreements have been duly executed and delivered by
the Seller and constitute legal, valid and binding obligations of the Seller,
enforceable in accordance with their respective terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general application that may affect the enforcement of
creditors' rights generally and by general equitable principles. The execution
of and performance of the transactions contemplated by this Agreement and the
Ancillary Agreements and compliance with their provisions by the Seller will
not violate any Legal Requirement applicable to
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the Seller and will not conflict with or result in any breach of any of the
terms, conditions, or provisions of, or violate or constitute a default under
(with or without notice or passage of time or both) or otherwise give any
Person a basis for accelerated or increased rights of termination or
nonperformance under, or require a consent or waiver under, its Certificate of
Incorporation or By- Laws (each as amended to date and presently in effect) or
any indenture, lease, agreement, Lien or other instrument or arrangement to
which the Seller is a party or by which it or any of its properties is bound or
affected. Schedule 3.4 of the Seller Disclosure Schedule sets forth a list of
all indentures, leases, agreements, Liens, licenses, permits and other
instruments requiring the consent, approval or waiver of any Person to any of
the transactions contemplated hereby.
5.6 Governmental Consents. No consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any governmental authority is required on the part of the Seller
in connection with the execution and delivery of this Agreement, the offer,
sale, and delivery of the Shares, or the other transactions to be consummated
at the Closing, as contemplated by this Agreement, except as set forth on
Schedule 5.6 of the Seller Disclosure Schedule.
5.7 Litigation. Except as set forth on Schedule 5.7 of the Seller
Disclosure Schedule, there is no action, suit, or proceeding, or governmental
inquiry or investigation, pending, or, to the best of the Seller's knowledge,
any basis therefor or threat thereof, against the Seller, that questions the
validity of this Agreement or the right of the Seller to enter into or perform
its obligations under this Agreement or any Ancillary Agreement, nor is there
any litigation pending, or any basis therefor or threat thereof, against the
Seller by reason of the past employment relationships of any of the Seller's
employees, the proposed activities of the Seller, or negotiations by the Seller
with possible investors in the Seller. There is no outstanding judgment,
order, decree, stipulation, or injunction of any governmental entity against or
affecting the Seller or its assets or its business or any of its officers,
directors, or employees with respect to the Seller's business.
5.8 Taxes. The amount shown in the Financial Statements as the
provision for taxes is sufficient in all material respects for payment of all
accrued and unpaid federal, state, county, local, and foreign taxes for the
period then ended and all prior periods. The Seller has filed or has obtained
presently effective extensions with respect to all Federal, state, county,
local, and foreign tax returns that are required to be filed by it, such
returns are true and correct and all taxes shown thereon to be due have been
timely paid with exceptions not material to the Seller. Federal income Tax
Returns of the Seller have not been audited by the Internal Revenue Service,
and no controversy with respect to taxes of any type is pending or, to the best
knowledge of the Seller, threatened. The Seller's net operating losses for
federal income tax purposes, as set forth in the Financial Statements, are not
subject to any limitations imposed by Section 382 of the Code, and consummation
of the transactions contemplated by this Agreement or by any other agreement,
understanding or commitment, contingent or otherwise, to which the Seller is a
party or by which it is otherwise
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bound will not have the effect of limiting the Seller's ability to use such net
operating losses in full to offset such taxable income.
5.9 Investment. Each of the Seller and the Shareholder
understands that the NHPI Shares are being issued to the Seller in compliance
with the exemption in Section 4(2) of the Securities Act for transactions by an
issuer not involving a public offering and similar exemptions under applicable
state law. The Seller is an "accredited investor" as defined in Rule 501(a)(3)
of the regulations promulgated pursuant to the Securities Act, owns assets in
excess of $5,000,000, and was not formed for the purpose of acquiring NHPI
Shares. The Seller is acquiring the NHPI Shares for its own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same; and, except as contemplated by this Agreement and the exhibits and
schedules hereto, the Seller has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness, or commitment providing for
the disposition thereof.
5.10 Experience. The Seller has carefully reviewed the
representations concerning the Purchaser contained in this Agreement, has read
all reports and other disclosure documents filed by the Purchaser with the
Securities and Exchange Commission pursuant to the Securities Act and the
Exchange Act which it deems necessary and appropriate, and has made detailed
inquiry concerning the Purchaser, its business, and its personnel; the officers
of the Purchaser have made available to the Seller any and all written
information that it has reasonably requested and have answered to the Seller's
satisfaction all inquiries made by the Seller; and the Seller has adequate net
worth and means of providing its current needs and contingencies to sustain a
complete loss of its investment in the Purchaser, the Seller's investment in
the NHPI Shares will not cause the Seller's overall commitment to investments
that are not readily marketable to be disproportionate to its net worth.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
CONCERNING THE SHAREHOLDER
The Shareholder hereby represents and warrants to the Purchaser as
follows:
6.1 Authority; Noncontravention. This Agreement and the Ancillary
Agreements have been duly executed and delivered by the Shareholder and
constitute valid and binding obligations of the Shareholder enforceable in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application that may affect the enforcement of creditors' rights
generally and by general equitable principles. The execution of and performance
of the transactions contemplated by this Agreement and the Ancillary Agreements
and compliance with their provisions by the Shareholder will not
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violate any Legal Requirement applicable to the Shareholder and will not
conflict with or result in any breach of any of the terms, conditions, or
provisions of, or violate or constitute a default under, or require a consent
or waiver under any indenture, lease, agreement, Lien or other instrument or
arrangement to which the Shareholder is a party or by which he or any of his
properties is bound. The Shareholder has the rights to receive all payments on
the Notes, is the sole payee on the Notes and is identified as such on the face
of the Notes, has the authority and power to amend the Notes, and any
amendments thereof as set forth in this Agreement shall be valid, binding and
enforceable in accordance with their respective terms.
6.2 Governmental Consents. No consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any governmental authority is required on the part of the
Shareholder in connection with the execution and delivery of this Agreement or
the other transactions to be consummated at the Closing, as contemplated by
this Agreement.
6.3 Litigation. Except as set forth on Schedule 6.3 of the
Shareholder Disclosure Schedule, there is no action, suit, or proceeding, or
governmental inquiry or investigation, pending, or any basis therefor or threat
thereof, against the Shareholder, that questions the validity of this Agreement
or the right of the Shareholder to enter into it or which may otherwise prevent
or delay the consummation of the transactions contemplated hereby.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
CONCERNING THE PURCHASER
The Purchaser hereby represents and warrants to the Seller and the Shareholder
as follows:
7.1 Organization; Standing and Power. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Purchaser has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and to execute, deliver and perform its obligations
under this Agreement and the Ancillary Agreements and to consummate the
transactions contemplated hereby and thereby.
7.2 Investment. The Purchaser understands that the Shares have
been issued without registration under the Securities Act or the securities
laws of any jurisdiction and that the resale or transfer of such Shares may be
restricted by federal and state securities laws. The Purchaser is acquiring the
Shares for its own account for investment and not with a view to, or for sale
in connection with, any distribution thereof, nor with any present intention of
distributing or selling the same; and, except as contemplated by this Agreement
and the exhibits and schedules hereto, the
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Purchaser has no present or contemplated agreement, undertaking, arrangement,
obligation, indebtedness, or commitment providing for the disposition thereof.
7.3 Experience. The Purchaser has carefully reviewed the
representations concerning the Seller contained in this Agreement and has made
detailed inquiry concerning the Seller, its business, and its personnel; the
officers of the Seller have made available to the Purchaser any and all written
information that it has reasonably requested and have answered to the
Purchaser's satisfaction all inquiries made by the Purchaser; and the Purchaser
has adequate net worth and means of providing its current needs and
contingencies to sustain a complete loss of its investment in the Seller.
7.4 Authority; Noncontravention. The execution, delivery, and
performance by the Purchaser of this Agreement and the Ancillary Agreements,
and the consummation by the Purchaser of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
a legal, valid and binding obligation of the Purchaser, enforceable in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application that may affect the enforcement of creditors' rights generally and
by general equitable principles. The execution of and performance of the
transactions contemplated by this Agreement and the Ancillary Agreements and
compliance with their provisions by the Purchaser will not violate any Legal
Requirement applicable to the Purchaser and will not conflict with or result in
any breach of any of the terms, conditions, or provisions of, or violate or
constitute a default under (with or without notice or passage of time or both)
or otherwise give any Person a basis for accelerated or increased rights of
termination or nonperformance under, or require a consent or waiver under, its
Certificate of Incorporation or By- Laws (each as amended to date and presently
in effect) or any indenture, lease, agreement, Lien or other instrument or
arrangement to which the Purchaser is a party or by which it or any of its
properties is bound or affected, where any such violation, conflict, breach,
default, failure to obtain a consent or waiver would have a Material Adverse
Effect on the Purchaser.
7.5 Governmental Consents. No consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any governmental authority is required on the part of the
Purchaser in connection with the execution and delivery of this Agreement, the
purchase of the Shares, or the other transactions to be consummated at the
Closing, as contemplated by this Agreement, except as set forth on Schedule 7.4
of the Purchaser Disclosure Schedule.
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ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser to consummate the transactions
contemplated by this Agreement are subject to the fulfillment, or the waiver by
the Purchaser, of each of the following conditions on or before the Closing
Date:
8.1 Accuracy of Representations and Warranties. Each
representation and warranty contained in Articles III, IV, V and VI shall be
true and correct on and as of the Closing Date with the same effect as though
such representation and warranty had been made on and as of that date.
8.2 Restraints or Prohibitions. There shall not be instituted and
pending or threatened any action or proceeding by or before any judicial,
governmental or regulatory entity or Investor (i) challenging the acquisition
of the Shares by the Purchaser or otherwise seeking to restrain or prohibit the
consummation of the transactions contemplated hereby or (ii) seeking to
prohibit the direct or indirect ownership or operation by the Purchaser of all
or a material portion of the business or assets of the Company, or to compel
the Purchaser or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or the Purchaser.
8.3 Compliance with Covenants. The Seller and the Shareholder
shall have complied with all covenants and agreements and satisfied all
conditions on their part to be performed or satisfied pursuant to the terms of
this Agreement and any Ancillary Agreement on or prior to the Closing Date.
8.4 Due Investigation. The Purchaser shall have concluded
(through its representatives, accountants, counsel and other experts) an
investigation of the business, condition (financial and other), properties,
assets, prospects, operations and affairs of the Company and shall be
satisfied, in its sole discretion, with the results thereof.
8.5 Consents and Approvals. All consents from third parties,
including from any judicial, governmental or regulatory entity, Investor,
landlord or other Person, necessary for the consummation of the transactions
contemplated hereby, shall have been obtained, including, without limiting the
generality of the foregoing:
(a) the approval of Fannie Mae to permit the Company to
make DUS Loans to the Purchaser and its subsidiaries and affiliates
following the Closing; and
(b) the consent of the warehousing lender to continue the
warehousing lending facility upon the consummation of the transactions
contemplated hereby.
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8.6 HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby under
the HSR Act shall have expired or been terminated.
8.7 Litigation. No suit, action, investigation or other
proceeding shall be pending or threatened by or before any court or
governmental or regulatory entity which could reasonably be expected to
adversely affect the ability of the Seller or the Shareholder to consummate the
transactions contemplated hereby or result in a Material Adverse Effect on the
Company.
8.8 Board Approval. The Board of Directors of Purchaser shall
have authorized and approved this Agreement and the transactions contemplated
hereby.
8.9 No Material Adverse Change. No act, event or condition shall
have occurred after the date hereof which Purchaser determines has had or could
have a Material Adverse Effect.
8.10 Opinion of Counsel. The Purchaser shall have received (i) an
opinion from Krooth & Altman, counsel for the Company and the Shareholder and
(ii) an opinion from Appleby, Spurling & Kempe, counsel for the Seller and the
Shareholder, dated the Closing Date, addressed to the Purchaser, in a form
satisfactory to the Purchaser and its counsel.
8.11 Update Schedules. Prior to or on the Closing Date, the Seller
and the Shareholder will update to a date not more than three Business Days
before the Closing and disclose to the Purchaser in writing any information
which would have been required to be included in the Schedules referred to in
Articles III, IV, V and VI and was not provided prior hereto; provided,
however, that the disclosure of any untrue statement or omission shall not
prevent the Purchaser from terminating this Agreement pursuant to Section
13.1(b) hereof at any time at or prior to the Closing in respect of any
original untrue or misleading statement.
8.12 Certificates and Documents. The Seller shall have delivered to
special counsel to the Purchaser:
(a) The Certificate of Incorporation of the Seller, the
Company and each of the Company's Subsidiaries, as amended and in
effect prior to the Closing Date, certified by the appropriate
governmental authority;
(b) Certificates, as of the most recent practicable
dates, as to the corporate good standing of the Seller, the Company
and each of its Subsidiaries issued by the appropriate governmental
authority confirming such good standing on or immediately prior to the
Closing Date;
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(c) By-laws of the Seller, the Company and each of its
Subsidiaries, certified by its Secretary or Assistant Secretary as of
the Closing Date;
(d) Resolutions of the Board of Directors of the Seller
and the Company, authorizing and approving all matters in connection
with this Agreement and the transactions contemplated hereby,
certified by the Secretary or Assistant Secretary of the Seller as of
the Closing Date; and
(e) All other documents and instruments concerning the
Company, the Company's Subsidiaries, the Seller and the Shareholder as
the Purchaser may reasonably request.
8.13 Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by the Seller.
8.14 Compliance Certificate. The Seller and the Shareholder shall
have delivered to the Purchaser a certificate, executed by the President of the
Seller, the President of Commonwealth and Sheik Mohammed A. Al-Tuwaijri, dated
the Closing Date, certifying to the fulfillment of the conditions specified in
subsections 8.1, 8.2, 8.3, 8.5, 8.7, 8.10 and 8.12 of this Agreement.
8.15 Other Matters. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchaser and its counsel, and the
Purchaser and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
8.16 Right to Cure. The Purchaser shall have the right, but not
the obligation, exercisable in its sole discretion, to take any action on
behalf of the Seller or the Shareholder, which the Purchaser deems necessary or
desirable to satisfy any of the conditions set forth in this Article VIII;
provided, however, that by taking any such action the Purchaser shall not be
deemed to have waived any right or remedy for any breach by the Seller or the
Shareholder hereunder available to the Purchaser.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF THE SELLER
The obligations of the Seller to consummate the transactions
contemplated by this Agreement are subject to fulfillment, on or before the
Closing Date, of each of the following conditions:
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9.1 Accuracy of Representations and Warranties. Each of the
representations and warranties of the Purchaser contained in Article VII shall
be true and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of that
date.
9.2 Opinion of Counsel. The Seller shall have received an opinion
from Swidler & Berlin, Chartered, counsel for the Purchaser, dated the Closing
Date, addressed to the Seller, concerning Section 7.4 in a form satisfactory to
the Purchaser and its counsel.
9.3 HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby under
the HSR Act shall have expired or been terminated.
ARTICLE X
COVENANTS OF THE SELLER AND THE SHAREHOLDER
10.1 Inspection. The Seller shall permit the Purchaser, or any
authorized representative thereof, to visit and inspect the properties of the
Seller and the Company, including their respective corporate and financial
records, and to discuss their businesses and finances with officers of the
Seller and/or the Company, during normal business hours following reasonable
notice and as often as may be reasonably requested.
10.2 Conduct of Business Pending the Closing. The Seller and the
Shareholder covenant and agree, jointly and severally, that, prior to the
Closing, unless the Purchaser shall first otherwise agree in writing or as
otherwise expressly contemplated by this Agreement:
(a) The Company shall conduct its business, or take any
action, only in the ordinary course of business and consistent with
past practices, and shall use its best efforts to maintain and
preserve its business organization, assets, employees and advantageous
business relationships, to maintain all of its properties in useful
and good condition, and to continue to be covered to the fullest
extent under the insurance policies carried by the Company, including,
without limitation, public liability and property damage insurance in
effect with financially sound and reputable insurance companies in at
least such amounts and against such risks as are currently covered by
such policies;
(b) The Company shall comply promptly with (i) all Legal
Requirements applicable to its business or operations and (ii) all
contracts, commitments and other agreements and instruments to which
it is a party.
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(c) The Company shall not, directly or indirectly, do any
of the following: (i) except in the ordinary course of business and
consistent with past practice, sell, pledge, license, lease dispose of
or encumber any assets, tangible or intangible, or any interest
therein, of the Company (including, without limitation, any
indebtedness owned or any claims held); (ii) whether or not in the
ordinary course of business or consistent with past practice, sell or
dispose of any material assets of the Company; (iii) amend its
articles of incorporation or by-laws or similar organizational
documents; (iv) split, combine or reclassify any shares of its capital
stock or declare, set aside or pay any dividend or distribution,
payable in cash, stock, property or otherwise with respect to any of
its capital stock; (v) redeem, purchase or otherwise acquire any of
its capital stock; (vi) adopt a plan of complete or partial
liquidation or resolutions providing for the complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization; or (vii) authorize or
propose any of the foregoing, or enter into any contract, agreement,
commitment, understanding or arrangement to do any of the foregoing;
(d) The Company shall not, directly or indirectly, (i)
issue, sell, pledge or dispose of, or authorize, propose or agree to
the issuance, sale, pledge or disposition of, any shares of, or any
options, warrants or rights of any kind to acquire any shares of, or
any securities convertible into or exchangeable or exercisable for any
shares of, its capital stock of any class or any other securities in
respect of, in lieu of, or in substitution for, shares of its capital
stock outstanding on the date hereof; (ii) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or entity or division
thereof, or make any investment in any entity, either by purchase of
stock or securities, contributions to capital, property transfer or
purchase of any property or assets, other than cash management
transactions in the ordinary course of business and consistent with
past practice; (iii) except in the ordinary course of business and
consistent with past practice, incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee, endorse or
otherwise as an accommodation become responsible for, the obligations
of any other individual or entity, or make any loans or advances; (iv)
authorize, recommend or propose any change in its capitalization
(other than the incurrence of indebtedness otherwise permitted
hereunder) or restructure or refinance any indebtedness; (v) modify or
change in any material respect any existing material license, lease,
contract or other document, other than in the ordinary course of
business and consistent with past practice; or (vi) authorize or
propose any of the foregoing, or enter into or modify any contract,
agreement, commitment or arrangement to do any of the foregoing;
(e) The Company shall not (a) adopt or amend in any
material respect any collective bargaining, bonus, profit-sharing,
compensation, stock option, pension, retirement, deferred
compensation, employment or other plan, agreement, trust, fund or
arrangement for the benefit of employees (whether or not legally
binding) other than to comply with any applicable Legal Requirement or
(b) pay, or make any accrual or arrangement for payment
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of, any increase in compensation, bonuses or special compensation of
any kind, or any severance or termination pay to, or enter into any
employment or loan or loan guarantee agreement with, any current or
former officer, director, employee, consultant or agent of the
Company;
(f) The Company shall not terminate or modify, or commit
or cause or suffer to be committed any act that will result in breach
or violation of any term of or (with or without notice or passage of
time, or both) constitute a default under or otherwise give any Person
a basis for non-performance under, any indenture, mortgage, deed of
trust, loan or credit agreement, lease, license or other agreement,
instrument, arrangement or understanding, written or oral. The
Company shall refrain from becoming a party to any contract, or
commitment other than in the ordinary course of business and
consistent with past practice. The Company shall meet all of its
contractual obligations in accordance with their respective terms;
(g) The Company shall not purchase or enter into any
contract to purchase any capital assets except to the extent approved
in writing by the Purchaser;
(h) The Company shall use its best efforts to obtain any
consent, authorization or approval of, or exemption by, any Person
required to be obtained or made by any party hereto in connection with
the transactions contemplated hereby or the taking of any action in
connection with the consummation thereof;
(i) The Company shall not make any change in the
accounting principles, practices, methods or policies followed by it
or depreciation or amortization policies or rates heretofore adopted
by it;
(j) The Company shall not cancel, compromise, release or
discharge any claim of the Company upon or against any Person or waive
any right of the Company of material value, and not discharge any Lien
upon any asset of the Company or compromise any debt or other
obligation of the Company to any Person other than Liens, debts or
obligations with respect to current liabilities of the Company;
(k) The Company shall not institute, settle or agree to
settle any action or proceeding;
(l) The Seller and the Shareholder shall comply promptly
with all applicable Legal Requirements imposed upon them with respect
to the transactions contemplated by this Agreement, and shall
cooperate promptly with, and furnish information to, the Purchaser in
connection with any such requirements imposed upon the Purchaser or
upon any of its affiliates in connection therewith or herewith;
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(m) The Seller and the Shareholder shall promptly advise
Purchaser orally and, within three Business Days thereafter, in
writing of any event or circumstance that has had or may have a
Material Adverse Effect upon the Company or may adversely affect the
consummation of the transactions contemplated hereby ;
(n) The Seller and the Shareholder shall deliver to the
Purchaser prior to the Closing a written statement disclosing any
untrue statement in this Agreement or any schedule hereto (or
supplement thereto) or document furnished pursuant hereto, or any
omission to state any material fact required to make the statements
herein or therein contained complete and not misleading, promptly upon
the discovery of such untrue statement or omission, accompanied by a
written supplement to any schedule to this Agreement that may be
affected thereby; provided, however, that the disclosure of such
untrue statement or omission shall not prevent the Purchaser from
terminating this Agreement pursuant to Section 12.1(c) hereof at any
time at or prior to the Closing in respect of any untrue or misleading
statement; and
(o) Neither the Company, the Seller nor the Shareholder
shall take, or agree, in writing or otherwise, to take any of the
foregoing actions or any action which would make any representation or
warranty in Articles III, IV, V or VI untrue or incorrect in any
material respect.
10.3 Third Party Consents. With respect to provisions in any
Mortgage Servicing Agreements pursuant to which an Investor may terminate such
arrangements with or without a termination fee because of the transactions
contemplated herein, Seller shall, prior to the Closing Date, promptly notify
each such Investor and use its best efforts to secure the consents or waivers
of objections in writing to the transactions contemplated herein with respect
to the servicing rights for the Mortgage Loans owned by such parties; provided,
however, that no contract, including any Mortgage Servicing Agreement, shall be
amended in order to obtain any such consent, approval, authorization, waiver or
otherwise without first obtaining the written approval of the Purchaser. Prior
to the Closing Date, the Seller shall furnish or cause the Company to obtain
all required Approvals, including without limitation, those of FHA, GNMA,
Fannie Mae, Freddie Mac, other Investors and lessors, as may be required in
order to enable the Seller to perform its obligations hereunder. All of the
fees and costs required to secure the foregoing shall be paid by the Seller.
10.4 GNMA, FHA, Fannie Mae, Freddie Mac and Other Approvals.
Immediately after the execution of this Agreement, the Seller shall cause the
Company to obtain any required Approvals of FHA, GNMA, Fannie Mae, Freddie Mac
and all other Investors to the transactions contemplated by this Agreement.
The Seller shall have the responsibility to cause the Company to do all things
necessary or appropriate to secure such approvals. For purposes of compliance
with FHA, GNMA, Fannie Mae, Freddie Mac and other Investor requirements, the
transfer dates shall
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be deemed to occur upon Closing, unless the requirements, procedures, rules,
regulations and guidelines of FHA, GNMA, Fannie Mae, Freddie Mac and any other
Investors shall otherwise require. The Seller shall cause the Company to
follow any applicable servicing transfer provisions set forth in applicable
handbooks published by FHA, GNMA, Fannie Mae and Freddie Mac.
10.5 Delivery of Disclosure Schedules. As soon as possible after
the execution hereof, but in all events prior to 5:00 p.m. Washington, D.C.
time on March 28, 1996, the Seller and the Shareholder shall cause to be
delivered to the Purchaser true copies of the definitive Company Disclosure
Schedule, Seller Disclosure Schedule and Shareholder Disclosure Schedule
completing any schedules not delivered upon execution hereof. The Purchaser
shall have a period up to and including the Closing Date to review such
schedules to determine whether they are satisfactory in form and/or content, in
the Purchaser's sole discretion. In the event that the Purchaser determines,
in its sole discretion, that the definitive schedules are satisfactory, this
covenant shall be deemed satisfied. In the event the Purchaser does not
determine, in its sole discretion, that the definitive schedules are
satisfactory, the Purchaser may terminate this Agreement, without any further
liability hereunder.
10.6 Post-Closing Delivery of Disclosure Schedules. Prior to 5:00
p.m. Washington, D.C. time on April 25, 1996, the Seller and the Shareholder
shall cause to be delivered to the Purchaser copies of the documents set forth
in Section 3.24 which provide true, complete and definitive information on the
Company as of March 31, 1996. The Purchaser shall cooperate with the Seller
and the Shareholder in complying with the time frame set forth herein.
10.7 Competing Offers; Merger or Liquidation. The Seller and the
Shareholder each agree that they will not, and will cause the Company not to,
directly or indirectly, through any officer, director, agent, or otherwise,
solicit, initiate or encourage the submissions of bids, offers or proposals by,
any Person with respect to an acquisition of the Company or all or any portion
of its business assets or capital stock or a merger or similar transaction, and
neither the Seller nor the Shareholder will, nor will they permit the Company
to, engage any broker, financial adviser or consultant with an incentive to
initiate or encourage proposals or offers from other Persons. Furthermore,
neither the Seller nor the Shareholder shall, nor shall they permit the Company
to, directly or indirectly, through any officer, director, agent or otherwise,
engage in negotiations concerning any such transaction with, or provide
information to, any Person other than the Purchaser and its representatives.
The Seller and Shareholder shall ensure that the Company shall not commence any
proceeding to merge, consolidate or liquidate or dissolve or obligate itself to
do so.
10.8 Post-Termination Employment. The Seller and the Shareholder
each acknowledge and agree that after the Closing (a) neither the Purchaser nor
the Company shall be required to employ or retain any employee of the Company
or any other Person, and (b) the Purchaser, in its sole and absolute
discretion, may cause the Company to retain all, some, or none of such
employees.
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<PAGE> 52
ARTICLE XI
OTHER COVENANTS AND INDEMNITIES
11.1 Reasonable Efforts and Certain Obligations. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to use
its reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to fulfill its obligations under this Agreement, to cause
the fulfillment of the conditions set forth in Articles VIII and IX and to
cause the consummation of the transactions contemplated hereby in accordance
with the terms and conditions hereof. The Seller shall, at its own expense,
obtain all Approvals and give all notices necessary for transfer of the Shares
and the Servicing Rights to the Purchaser. The Seller shall be responsible for
all transfer costs and expenses imposed by Investors in connection with the
transfer of the Shares and the Servicing Rights, including, without limitation,
the cost of obtaining Investor transfer consents and approvals (if required),
but not including assignments of Mortgages. The Seller shall be responsible,
at its sole cost and expense, for the certification, within the time period
required by the applicable Investor, of all pools formed by the Company prior
to the Closing Date. In addition, the Seller shall repurchase, in accordance
with Section 11.2 hereof, any Mortgage Loans which prevent a pool from being
certified within the time period required by the applicable Investor. The
Seller shall promptly furnish financial statements and other information to the
Purchaser and to other Persons as may be reasonably necessary to obtain the
waivers, consents, releases, extensions, licenses or approvals described in
this Section 11.1.
11.2 Certain Tax Matters.
(a) Returns to be filed by the Seller. The Seller shall
prepare or cause to be prepared and timely file or cause to be timely
filed all Tax Returns that are required to be filed respecting the
Company for all taxable periods ending on or before the Closing Date.
(b) Tax Liability of the Seller. The Seller shall pay or
cause to be paid and shall be liable for all Taxes due and payable by
the Company on or before the Closing Date.
(c) Tax Liability of the Purchaser. The Purchaser shall
pay or cause to be paid and shall be liable for all Taxes due and
payable by the Company for periods commencing after the Closing Date
and shall be entitled to all refunds received after the Closing Date.
(d) Cooperation and Assistance. Each party hereto shall
provide the other with such assistance as may reasonably be requested
by the requesting party in connection with the preparation and filing
of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to
liability for Taxes of the
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<PAGE> 53
Purchaser, the Company or the affiliated group of which the Company
and the Seller have been a part, including but not limited to, making
available all books and records relating thereto and all employees
having knowledge of the matters concerned and in resolving all
disputes and audits with respect to all taxable periods relating to
Taxes; provided, however, that the out-of-pocket costs for such
assistance shall be paid by the requesting party.
(e) Tax Sharing Agreements. Any Tax sharing agreements
between the Seller and the Company will be terminated as to such
entities as of the Closing Date and will have no further effect for
any taxable year (whether the current year, a future year, or a past
year).
(f) Tax Indemnification. The Seller and the Shareholder,
jointly and severally, shall indemnify the Purchaser and its
affiliates (including the Company) and their respective officers,
directors, employees and agents and hold them harmless from and
against all Liabilities for Taxes of the Company for which the Seller
is liable as provided in Section 11.2(b) and all Liabilities for
reasonable legal fees and expenses attributable to any item. The
provisions of this Section 11.2(f) shall not be construed as the
Purchaser's or the Seller's or their respective affiliates' exclusive
remedy for the matters covered hereby, and such party or any affiliate
may elect to seek indemnification instead under any other provision of
this Agreement for all or any part of the matters covered hereby or to
pursue any other remedy that may be available.
ARTICLE XII
REMEDIES FOR BREACHES OF THIS AGREEMENT
12.1 Investigations; Survival of Representations and Warranties and
Covenants. Each of Representations and Warranties shall not be deemed waived
or otherwise affected by any investigation and shall survive the Closing and
remain in full force and effect until the later of the date of final resolution
of any claims timely made under this Agreement with respect to any such
Representation and Warranty or the third anniversary thereof (the "Warranty
Period"); provided that with respect to the Representations and Warranties set
forth in Sections 3.1, 3.2, 3.3, 3.4, 5.1, 5.2, 5.3, 5.4, 5.5, 6.1, 6.2 and 6.3
the ("Indefinite Term Warranties"), the Warranty Period shall be indefinite.
This Section 12.1 shall not limit any covenant or agreement of the parties
hereto which by its terms contemplates performance after the date hereof.
12.2 Indemnification.
(a) Subject to Section 12.5, the Seller and the
Shareholder, jointly and severally, hereby indemnify, defend and hold
harmless the Purchaser and each of its respective subsidiaries
(including, from and after the Closing Date, the Company and its
Subsidiaries),
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<PAGE> 54
affiliates, directors, officers and employees (collectively, the
"Indemnified Purchasers"), and shall reimburse the Indemnified
Purchasers for, from and against all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities and
Expenses, including, without limitation, interest, penalties and
reasonable attorneys' fees, disbursements and expenses, imposed on or
incurred by the Indemnified Purchasers, or any of them, directly or
indirectly, by reason of:
(i) any breach or alleged breach by the Seller or
the Shareholder of any of the Representations and Warranties
contained in this Agreement; or
(ii) any failure or alleged failure by the Seller
or the Shareholder to perform any covenant, undertaking or
obligation hereunder.
(b) The Purchaser shall indemnify, defend and hold
harmless the Seller and the Shareholder and each of their respective
subsidiaries, affiliates, directors, officers and employees
(collectively, the "Indemnified Sellers"), and reimburse the
Indemnified Sellers for, from and against all demands, claims, actions
or causes of action, assessments, losses, damages, liabilities and
Expenses, including, without limitation, interest, penalties and
reasonable attorneys' fees, disbursements and expenses, imposed on or
incurred by the Indemnified Sellers, or any of them, directly or
indirectly, by reason of:
(i) any breach or alleged breach by the Purchaser
of any of the Representations and Warranties contained in this
Agreement; or
(ii) any failure or alleged failure by the
Purchaser to perform any covenant, undertaking or obligation
hereunder.
12.3 Measurement of Damages. In computing the amount of losses,
claims, damages, liabilities, costs and counsel fees and other expenses
described under Section 12.2, the amount of any insurance payments received by
such indemnifying party for such expenses net of any costs or deductions shall
be deducted therefrom.
12.4 Defense.
(a) If any action or claim shall be brought or asserted
against any Indemnified Sellers under this Article XII, or any
successors thereto in respect of which indemnity may be sought under
this Article XII, the Indemnified Seller: (i) may assume the defense
thereof, including the employment of counsel; and (ii) shall
immediately notify the Purchaser, who shall assume the payment of all
reasonable expenses of such defense. The Purchaser shall have the
right to employ separate counsel in any such action and participate in
the defense thereof.
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<PAGE> 55
(b) If any action or claim shall be brought or asserted
against any Indemnified Purchasers under this Article XII, or any
successors thereto in respect of which indemnity may be sought under
this Article XII, the Indemnified Purchaser: (i) may assume the
defense thereof, including the employment of counsel; and (ii) shall
immediately notify the Seller and the Shareholder, who shall assume
the joint and several obligation to pay all reasonable expenses of
such defense.
12.5 Remedies.
(a) With respect to those monetary claims, demands or
other actions arising pursuant to those Representations and Warranties
enumerated in Sections 12.1 other than the Indefinite Term Warranties,
except as provided in Section 2.5, the sole and exclusive means by
which the Purchaser or any Person or party in Pari Causa therewith may
seek recovery from the Seller and the Shareholder pursuant to such
claims, demands or other actions shall be by claiming rights to assets
held under to the Escrow Fund (taking into account the deductibles as
provided in Section 2.6); provided, however, that in the event that
one or more Notices of Claim have been filed pursuant to the terms of
the Escrow Agreement in any Warranty Year, the Purchaser shall be
indemnified by the Seller and the Shareholder pursuant to the terms of
Section 12.2 hereof but only to the extent of any remaining Escrow
Fund plus the market value of any assets thereafter released from the
Escrow Account (the value of which assets shall be determined with
respect to the NHPI Shares by multiplying the number of NHPI Shares
released by last reported closing sales price for common stock of the
Purchaser on the Nasdaq Stock Market on the date such shares are
released from the Escrow Account, or, if not a trading day, on the
immediately preceding trading day) prior to the final resolution of
any claims which are the subject of any such Notice of Claim.
(b) Notwithstanding anything to the contrary in this
Agreement, the Indefinite Term Warranties shall not result in any
liability to the Shareholder (except in to the extent of his interest
in the Escrow Fund) to the extent that such liability results from
Beverly Hills Securities Company, Ltd., a Florida limited partnership
(also known as Beverly Hills Securities Company, L.P.), being deemed a
Subsidiary of the Company.
(c) The indemnification provisions in this Article XII
are in addition to, and not in derogation of, any statutory, equitable
or common-law right or remedy any party may otherwise have for breach
of representation, warranty, covenant or agreement.
ARTICLE XIII
TERMINATION, AMENDMENT AND WAIVER
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<PAGE> 56
13.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual consent of the Purchaser and the Seller;
(b) by the Purchaser if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by the
Seller or the Shareholder under this Agreement or (ii) any of the
conditions precedent to Closing set forth in Article VIII have not
been met on the Closing Date, and, in each case, the Purchaser is not
then in material default of its obligations hereunder; or
(c) by the Seller if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by the
Purchaser under this Agreement or (ii) any of the conditions precedent
to Closing set forth in Article IX have not been met on the Closing
Date, and, in each case, neither the Seller nor the Shareholder is
then in material default of its or his obligations hereunder.
13.2 Effect of Termination.
(a) In the case of any termination of this Agreement, the
provisions of Sections 14.1 and 14.2 shall remain in full force and
effect.
(b) Upon termination of this Agreement as provided in
Section 13.1 (a), except as stated in Section 13.2 (a), this Agreement
shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto or their respective
directors, officers, employees, agents or other representatives.
(c) In the event of termination of this Agreement as
provided in Section 13.1(b) or (c), such termination shall be without
prejudice to any rights that the terminating party or parties may have
against the breaching party or parties or any other Person under the
terms of this Agreement or otherwise.
ARTICLE XIV
MISCELLANEOUS
14.1 Confidentiality. The Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary, or
secret information that the Purchaser may obtain from the Seller pursuant to
financial statements, reports, and other materials submitted by the Seller to
the Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted
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<PAGE> 57
hereunder, unless such information is known, or until such information becomes
known, to the public; provided, however, that a Purchaser may disclose such
information (i) to its attorneys, accountants, consultants, and other
professionals to the extent necessary to obtain their services in connection
with the transactions contemplated hereby, (ii) to any prospective purchaser of
any Shares from such Purchaser as long as such prospective purchaser agrees in
writing to be bound by the provisions of this Section, or (iii) to any
affiliate of such Purchaser or to a partner, shareholder or Subsidiary of such
Purchaser. Notwithstanding the foregoing, the obligations specified in this
Section 14.1 shall not apply to any information that is required by law,
regulation, rule, act or order of any governmental authority or agency to be
disclosed by the Purchaser; provided, however, that the Purchaser shall provide
the Seller with sufficient advance written notice, and shall cooperate with the
Seller, in order to limit the extent of any confidential, proprietary, or
secret information disclosed or to seek a protective order or other similar
order with respect to such information.
14.2 Expenses. Each party hereto shall pay its own Expenses, except
that the Company shall bear up to $200,000 of the third party legal and
accounting Expenses incurred by Seller to the extent that bearing such costs
does not reduce the net book value of the Company for the quarter ending March
31, 1996 below $9,500,000.
14.3 Successors and Assigns. Except as provided in Section 14.2,
the provisions of this Agreement shall be binding upon, and inure to the
benefit of, the respective successors, permitted assigns, heirs, executors,
legal representatives and administrators of the parties hereto.
14.4 Notices. All notices and other communications hereunder shall
be in writing (including telex or similar writing) and shall be deemed given if
delivered in Person or by messenger, cable, telegram or telex or facsimile
transmission or by a reputable overnight delivery service which provides for
evidence of receipt to the parties at the following addresses or telecopier
numbers (or at such other address, or telecopy number for a party as shall be
specified by like notice):
(a) if to the Seller, to:
Commonwealth Overseas Trading Company Limited
P.O. Box 1179
Cedar House
41 Cedar Avenue
Hamilton HM 12, Bermuda
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<PAGE> 58
with a copy to:
Krooth & Altman
1850 M Street, N.W.
Washington, D.C. 20036-5803
Attn: Patrick Clancy
(b) if to the Shareholder, to:
Thomad Trading & Contracting Co. Ltd.
P.O. Box 16296
Riyadh 11464
Kingdom of Saudi Arabia
Attn: Sheik Mohammed A. Al-Tuwaijri
with a copy to:
Krooth & Altman
1850 M Street, N.W.
Washington, D.C. 20036-5803
Attn: Patrick Clancy
(c) if to the Purchaser, to:
NHP Incorporated
1225 Eye Street, N.W.
Suite 601
Washington, D.C. 20005-3945
Attn: J. Roderick Heller III
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Attn: Kenneth Lore
14.5 Brokers. Each of the Seller and the Shareholder, on the one
hand, and the Purchaser, on the other hand, (i) represents and warrants to the
other party hereto that he or it has retained no finder or broker in connection
with the transactions contemplated by this Agreement, and (ii) will indemnify
and save the other parties harmless from and against any and all claims,
liabilities or
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<PAGE> 59
obligations with respect to brokerage or finders' fees or commissions, or
consulting fees in connection with the transactions contemplated by this
Agreement asserted by any Person on the basis of any statement or
representation alleged to have been made by such indemnifying party.
14.6 Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior or contemporaneous agreements
and understandings, written or oral, relating to such subject matter.
14.7 Amendments and Waivers. Except as otherwise expressly set
forth in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in
a particular instance and either retroactively or prospectively), with the
express prior written consent of the Seller and the Purchaser. No failure to
exercise and no delay in exercising any right, power or privilege shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege preclude the exercise of any other right, power or
privilege. No waiver of any breach of any covenant or agreement hereunder shall
be deemed a waiver of any preceding or subsequent breach of the same or any
other covenant or agreement. The rights and remedies of each party under this
Agreement are in addition to all other rights and remedies, at law or in
equity, that such party may have against the other parties.
14.8 No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies on any Person other than the parties hereto and their
respective successors and permitted assigns; provided, however, that the
provisions in Article XII above concerning indemnification are intended for the
benefit of the Persons specified therein and their respective legal
representatives.
14.9 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.10 Headings. The headings of the sections, subsections, and
paragraphs of this Agreement have been added for convenience only and shall not
be deemed to be a part of this Agreement.
14.11 Severability. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, the remaining terms and provisions of this
Agreement or the application of such terms and provisions to circumstances
other than those as to which it is held invalid or enforceable.
14.12 Governing Law; Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the District of Columbia,
excluding that body of laws pertaining to
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<PAGE> 60
conflicts of laws. With respect to any claim arising out of this Agreement (a)
the Seller and the Purchaser each irrevocably submit to the nonexclusive
jurisdiction of the United States District Court and the courts located in the
District of Columbia, and (b) the Seller and the Purchaser each irrevocably
waive any objection which it may have at any time to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement
brought in such court, irrevocably waive any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum and further irrevocably waive the right to object, with respect to such
suit, action or proceeding brought in any such court, that such court does not
have jurisdiction over such party, provided, that nothing herein shall
otherwise supersede or nullify the obligation of the parties to arbitrate any
claim specified or any related agreement referencing such Section.
14.13 Recitals, Schedules and Annexes. The recitals, schedules,
exhibits and annexes to this Agreement are incorporated herein and, by this
reference, made a part hereof as if fully set forth at length herein.
14.14 Construction.
(a) The article, section and subsection headings used
herein are inserted for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural, shall be deemed to include
the others whenever and wherever the context so requires.
(c) For the purposes of this Agreement, unless the
context clearly requires, "or" is not exclusive.
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<PAGE> 61
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as
of the day and year first above written.
NHP INCORPORATED
By: /s/ J. Roderick Heller, III
--------------------------------------
J. Roderick Heller, III
Chairman and Chief Executive
Officer
WMF HOLDINGS LTD.
By: /s/ Shekar Narasimhan
--------------------------------------
Shekar Narasimhan, President and
Chief Executive Officer
SHAREHOLDER:
COMMONWEALTH OVERSEAS TRADING COMPANY
LIMITED
By: /s/ Sheik Mohammed A. Al-Tuwaijri
--------------------------------------
Sheik Mohammed A. Al-Tuwaijri,
Director
/s/ Sheik Mohammed A. Al-Tuwaijri
-----------------------------------------
Sheik Mohammed A. Al-Tuwaijri,
individually
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<PAGE> 1
EXHIBIT 10.29
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") dated as of October 31, 1995
is made and entered into by and between NHP HDV-THREE, Inc., a Delaware
corporation (hereinafter referred to as "Seller") and NHP HDV-TWO, Inc., a
Delaware corporation (hereinafter referred to as "Purchaser").
RECITALS:
A. Seller is the sole shareholder of the following three
corporations: Neighborhood Reinvestment Resources Corporation, an Illinois
corporation ("NRR"), Rescorp Development, Inc., an Illinois corporation ("RDI")
and Rescorp Realty, Inc., an Illinois corporation ("RRI").
B. NRR and RDI, respectively, each own certain general
partnership interests and limited partnership interests in a total of eleven
(11) limited partnerships each of which is the owner of a real estate project
(the "Properties"), all as more fully described in Exhibit A attached hereto
and incorporated herein by reference (hereinafter sometimes collectively
referred to as the "Partnership Interests").
C. RRI is the property manager of five (5) of the Properties and
is also the property manager of other unrelated real estate projects pursuant
to certain third-party property management agreements, all as more fully
described in Exhibit B attached hereto and incorporated herein by reference
(hereinafter sometimes collectively referred to as the "Management Agreements"
and the rights therein are referred to as the "Management Rights").
D. Seller is in the business of property management and wishes to
retain the Management Rights.
E. Purchaser is in the business of owning partnership interests
and wishes to acquire from Seller the Partnership Interests.
D. Subject to, and upon the terms and conditions set forth in
this Agreement, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, the stock of NRR and RDI.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the above-recited premises,
the mutual covenants and agreements hereinafter set forth and other good and
valuable consideration, the receipt, adequacy, and sufficiency of which are
hereby acknowledged and confessed, the parties hereto do hereby covenant and
agree as follows:
<PAGE> 2
1. The Stock Purchase. Seller hereby sells, assigns, transfers
and conveys to Purchaser and Purchaser hereby purchases and accepts the
assignment from Seller of 100% of the issued and outstanding shares of Class A
common stock and 100% of the issued and outstanding shares of Class B common
stock of NRR and RDI (the "Stock"). The closing of such sale and purchase of
the Stock (the "Closing") shall occur on October 31, 1995 at a location to be
agreed upon by the parties. At the Closing, Seller shall deliver (or cause to
be delivered) to the Purchaser (i) stock certificates representing all of the
Stock, duly endorsed in blank, with all taxes, direct or indirect, attributable
to the transfer paid or provided for; (ii) a written assignment of any of the
Partnership Interests which are limited partnership interests; and (iii) such
other closing documents as are necessary and appropriate.
2. Consideration. NRR has the right to collect certain
receivables, as more fully described in Exhibit C attached hereto and
incorporated herein by reference (the Receivables"). Notwithstanding the
transfer of the stock of NRR contemplated herein, Seller shall retain and not
transfer to Purchaser all of NRR's rights to and interests in the Receivables
which, simultaneously hereto, Seller shall cause NRR to transfer to Seller.
Purchaser hereby consents to Seller's retention of the Receivables and waives
any rights or claims it may have thereto. The Receivables, notwithstanding any
other consideration described in this Agreement, shall be deemed full and
adequate consideration for the transfers contemplated herein.
3. Partnership Interests. By conveying to Purchaser the stock of
NRR and RDI, Seller is making a full and complete transfer of all of the
Partnership Interests to Purchaser. All rights, duties and obligations of NRR
and RDI, in connection with the Partnership Interests, are therefore also
transferred to Purchaser and Purchaser agrees to assume said rights, duties and
obligations. As the owner of NRR and RDI, the holders of the various
Partnership Interests, Purchaser shall be entitled to its prorata share of
income, profits, loss, or incentive management fees, if any, generated by the
various partnerships as set forth in the applicable partnership agreement.
4. Cash Flow. The projected cash flow to NRR and to RDI from the
Partnership Interests is $134,000 per annum.
5. Management Agreements. Simultaneously with the execution of
this Agreement, Seller shall have received copies of all of the Management
Agreements. Seller covenants and agrees (which agreement shall survive the
Closing) not to substantially deviate (nor to permit such deviation) from the
terms of the Management Agreements, as they now exist, so as to have a material
adverse effect on Seller or Purchaser.
6. Representations and Warranties of Seller. The Seller hereby
represents and warrants to Purchaser that:
<PAGE> 3
(a) Seller is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware;
(b) Seller has full power, authority and legal right to
execute and deliver this Agreement, has and will have full power, authority and
legal right to perform and observe its provisions and this Agreement is valid,
binding and enforceable against Seller in accordance with its terms; and
(c) Seller has the right and all requisite authority to
transfer the Stock and such transfer is not in violation of any agreements.
7. Representations and Warranties of Purchaser. Purchaser
represents and warrants to Seller that:
(a) Purchaser is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the Delaware;
(b) Purchaser has full power, authority and legal right
to execute and deliver this Agreement and to receive the Stock and to perform
and observe its provisions and has obtained all approvals and completed all
proceedings necessary to carry out the transaction contemplated herein; and
(c) This Agreement when executed and delivered by Seller
and Purchaser will be valid, binding and enforceable against Purchaser in
accordance with its terms.
8. Subsequent Transfers by Purchaser. In the event Purchaser
elects to sell any of the Partnership Interests or to dispose of any of the
Properties, Purchaser shall notify Seller of the its intent in writing. Seller
shall then have the option to acquire the Partnership Interests or the
Properties identified in said notice, at no cost. In the event Seller does not
exercise the heretofore described option, Purchaser may sell any or all of the
Partnership Interests or dispose of any or all of the Properties, except as
otherwise set forth below, subject to the following: Purchaser covenants and
agrees (which agreement shall survive the Closing) to pay to Seller (i) for
each of the Partnership Interests or Properties sold, where such sale results
in Seller, through no fault of its own, losing the right to manage the subject
property, a termination fee equal to the lesser of (x) the management fee which
would have been payable to Seller had Seller managed the subject property for
two years; or (y) the general partner's share of the sales proceeds; (and ii)
the sum of $8000 per annum for each of the Properties or Partnership Interests
so disposed.
<PAGE> 4
Notwithstanding any provision in this Agreement to the
contrary, in connection with any or all of the Properties known as Westwood I,
Marcy-Newberry and Central Woodlawn I, Purchaser hereby grants Seller (which
grant shall survive the Closing) the exclusive right and authority to
negotiate, on behalf of itself and Purchaser, long term management contracts or
sales of the general partnership interests.
9. Remedies. If either party defaults hereunder, the
non-defaulting party may sue the defaulting party for damages.
10. Notices. Unless otherwise specifically provided herein, any
notice or communication required or permitted to be delivered hereunder shall
be in writing and shall be deemed to have been given upon the earlier to occur
of (i) actual receipt or refusal by the addressee thereof whether by hand,
courier or telecopies, or (ii) three (3) business days after deposit in the
mails, postage prepaid, registered or certified mail, return receipt requested,
addressed as provided below. In addition, each party shall give a copy of any
such notice promptly to any attorney or other person designated in writing from
time to time by the other party for the receipt of copies.
If to Seller: NHP HDV-THREE, Inc.
1225 Eye Street
Suite 601
Washington, D.C. 20005
Attention: General Counsel
If to Purchaser: NHP HDV-TWO, INC.
1225 Eye Street
Suite 601
Washington, D.C. 20005
Attention: General Counsel
11. Time for Performance. If the final day of any period herein
falls on a Saturday, Sunday, or District of Columbia or United States legal
holiday, then the time of such period shall be extended to the next day which
is not a Saturday, Sunday or legal holiday.
12. Integration. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the specific matters
agreed to herein and the parties hereto acknowledge that no oral or other
agreements, understandings, representations or warranties exist with respect to
this Agreement or with respect to the
<PAGE> 5
obligations of the parties hereto under this Agreement, except those
specifically set forth in this Agreement.
13. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the District of Columbia, and each of
the parties hereto hereby consents to the jurisdiction of and venue in any
federal or state court of competent jurisdiction located in the District of
Columbia.
14. Construction. Unless the context otherwise requires, singular
nouns and pronouns, when used herein, shall be deemed to include the plurals of
such nouns or pronouns and pronouns of one gender shall be deemed to include
the equivalent pronouns of the other gender.
15. Captions. The captions and headings used herein are for
convenience only and do not in any way limit or modify the provisions of this
Agreement.
16. Multiple Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall constitute an original hereof and
all of which taken together shall constitute one and the same agreement.
17. Enforceability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, the legality, validity and enforceability of
the remaining provisions shall not be affected thereby.
<PAGE> 6
EXECUTED effective as of the date first written above.
SELLER:
NHP HDV-THREE, Inc.,
a Delaware corporation
By:
------------------------------
Name:
-------------------------
Title:
------------------------
PURCHASER:
NHP HDV-TWO, Inc.,
a Delaware corporation
By:
------------------------------
Name:
-------------------------
Title:
------------------------
JCB/jb
123003.5
<PAGE> 7
EXHIBIT "A"
PARTNERSHIP INTERESTS
<PAGE> 8
EXHIBIT "B"
MANAGEMENT RIGHTS
<PAGE> 9
EXHIBIT "C"
RECEIVABLES
<PAGE> 10
EXHIBIT B
NRR Property Interests
1. Palmer Square Apartments Associates
2. Rogers Park Partnership (Northpoint)
3. The Parkside Partnership (Parkways)
4. MRR Limited Partnership (Newberry Park)
5. Central Woodlawn Joint Venture
6. New Vistas Apartments Associates
7. New Vistas Apartments Associates Phase II
RDI Property Interests
1. Church Street Limited Partnership (Evanston)
2. 62nd Street Joint Venture (Westwood)
3. North Washington Park Partnership (Plaza on Park)
4. Oak Park Partnership
<PAGE> 1
EXHIBIT 10.30
RIGHT OF FIRST REFUSAL
This RIGHT OF FIRST REFUSAL (the "Agreement") dated as of December 1,
1995, is made and entered into by and between NHP-HDV Four, Inc., NHP-HDV Five,
Inc., NHP-HDV Six, Inc., NHP-HDV Seven, Inc. and NHP-HDV Eight, Inc., all
Delaware corporations (hereinafter collectively referred to as "Holders") and
NHP INCORPORATED, a Delaware corporation (hereinafter referred to as "NHPI").
RECITALS:
A. Holders are the holders of the general partner interests
("Partnership Interests") and stock ("Stock") of the general partners of the
limited partnerships set forth on Exhibit A beside the name of the applicable
Holder, each of which limited partnership is the owner of a real estate project
(the "Properties"), set forth on Exhibit B attached hereto and incorporated
herein by reference.
B. NHP Management Company ("NHPMC"), a wholly-owned subsidiary of
NHPI, is the property manager of each of the Properties (hereinafter referred
to as the "Management Rights").
C. NHPMC is in the business of property management and wishes to
retain the Management Rights in the event that any or all of the Holders sell
or otherwise convey the Stock, Partnership Interests or the Properties.
D. Subject to, and upon the terms and conditions set forth in
this Agreement, NHPI has requested and Holders have agreed to grant to NHPI a
right of first refusal with respect to the Stock, the Partnership Interests and
the Properties.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the above-recited premises,
the mutual covenants and agreements hereinafter set forth and other good and
valuable consideration, the receipt, adequacy, and sufficiency of which are
hereby acknowledged and confessed, the parties hereto do hereby covenant and
agree as follows:
1. Subsequent Transfers by Holders. In the event any Holder
elects to sell any of the Stock or Partnership Interests or to dispose of any
of the Properties (a "Disposition"), such Holder shall provide NHPI with
written notice of such election. NHPI shall then have the option during the
thirty (30)-day period following receipt of such notice, to acquire the Stock,
Partnership Interests or the Properties identified in said notice, at no cost.
In the event NHPI does not exercise the heretofore described option, such
Holder may sell any or all of the Stock, Partnership Interests or dispose of
any or all of the Properties, subject to the following: Each Holder covenants
and agrees (which agreement shall survive the Closing) to pay to NHPI (i) for
each of the Stock, Partnership Interests or Properties sold, where such sale
results in NHPI or any of its subsidiaries losing the right to manage the
subject Property, a one-time termination fee equal to the lesser of (x) two
hundred percent (200%) of the total amount of fee income earned by NHPI and any
of its susidiaries during the twelve-month period ending on the last day of the
month prior to the month in which a Disposition occurs; or (y) the Holder's
share of
-1-
<PAGE> 2
the sales proceeds; and (ii) the sum of $8,000 per annum for each of the
Properties, the Stock or Partnership Interests so disposed; provided, however,
no payment shall be due under this Paragraph 1 in the event NHPI or any of its
subsidiaries is terminated as management agent for such Property for cause.
2. Representations and Warranties of NHPI. The NHPI hereby
represents and warrants to Holders that:
(a) NHPI is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the state of
Delaware;
(b) NHPI has full power, authority and legal right to
execute and deliver this Agreement, has and will have full power,
authority and legal right to perform and observe its provisions and
this Agreement is valid, binding and enforceable against NHPI in
accordance with its terms.
3. Representations and Warranties of Holders. Each Holder
represents and warrants to NHPI that:
(a) Each Holder is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the Delaware;
(b) Each Holder has full power, authority and legal right
to execute and deliver this Agreement and to perform and observe its
provisions and this Agreement when executed and delivered by NHPI and
Holders will be valid, binding and enforceable against Holders in
accordance with its terms.
4. Remedies. If either party defaults hereunder, the
non-defaulting party may sue the defaulting party for damages.
5. Notices. Unless otherwise specifically provided herein, any
notice or communication required or permitted to be delivered hereunder shall
be in writing and shall be deemed to have been given upon the earlier to occur
of (i) actual receipt or refusal by the addressee thereof whether by hand,
courier or telecopier, or (ii) three (3) business days after deposit in the
mails, postage prepaid, registered or certified mail, return receipt requested,
addressed as provided below. In addition, each party shall give a copy of any
such notice promptly to any attorney or other person designated in writing from
time to time by the other party for the receipt of copies.
<TABLE>
<S> <C>
If to NHPI: NHP Incorporated
- ---------- 1225 Eye Street
Suite 601
Washington, D.C. 20005
Attention: General Counsel
</TABLE>
-2-
<PAGE> 3
<TABLE>
<S> <C>
If to any Holder: 1225 Eye Street
- ---------------- Suite 601
Washington, D.C. 20005
Attention: General Counsel
</TABLE>
6. Time for Performance. If the final day of any period herein
falls on a Saturday, Sunday, or District of Columbia or United States legal
holiday, then the time of such period shall be extended to the next day which
is not a Saturday, Sunday or legal holiday.
7. Integration. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the specific matters
agreed to herein and the parties hereto acknowledge that no oral or other
agreements, understandings, representations or warranties exist with respect to
this Agreement or with respect to the obligations of the parties hereto under
this Agreement, except those specifically set forth in this Agreement.
8. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the District of Columbia, and each of
the parties hereto hereby consents to the jurisdiction of and venue in any
federal or state court of competent jurisdiction located in the District of
Columbia.
9. Construction. Unless the context otherwise requires, singular
nouns and pronouns, when used herein, shall be deemed to include the plurals of
such nouns or pronouns and pronouns of one gender shall be deemed to include
the equivalent pronouns of the other gender.
10. Captions. The captions and headings used herein are for
convenience only and do not in any way limit or modify the provisions of this
Agreement.
11. Multiple Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall constitute an original hereof and
all of which taken together shall constitute one and the same agreement.
12. Enforceability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, the legality, validity and enforceability of
the remaining provisions shall not be affected thereby.
-3-
<PAGE> 4
EXECUTED effective as of the date first written above.
NHP INCORPORATED,
a Delaware corporation
By:
------------------------------
Joel F. Bonder
Senior Vice President
HOLDERS:
-------
NHP-HDV Four, Inc.
NHP-HDV Five, Inc.
NHP-HDV Six, Inc.
NHP-HDV Seven, Inc.
NHP-HDV Eight, Inc.
(all Delaware corporations)
By:
------------------------------
Joel F. Bonder
Senior Vice President
-4-
<PAGE> 5
EXHIBIT A
PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
ENTITY PARTNERSHIP
- ------ -----------
<S> <C>
NHP-HDV Four, Inc. Barrington Oaks Apartment Associates
Chateau Gardens
Club Apartment Associates
Countrybrook Associates
Country Villa Associates
Kemar Townhouse Associates
NHP-HDV Five, Inc. Hunter's Run Partners, Ltd.
NHP-HDV Six, Inc. Grandland Realty Associates
Heritage Village Limited Partnership
Orlando-Lake Conway Limited Partnership
Lakeland East Limited Partnership
Plantation Partners, Ltd.
NHP-HDV Seven, Inc. Martin Manor Realty Associates
NHP-HDV Eight, Inc. Cross Creek Limited Partnership
</TABLE>
-5-
<PAGE> 6
EXHIBIT B
<TABLE>
<CAPTION>
PARTNERSHIP PROPERTY
- ----------- --------
<S> <C>
Barrington Oaks Apartment Associates Barrington Oaks Apartments
Chateau Gardens Chateau Gardens Apartments
Club Apartment Associates Club Apartments
Countrybrook Associates Countrybrook Apartments
Country Villa Associates Country Villa Apartments
Kemar Townhouse Associates Kemar Townhouses
Hunter's Run Partners, Ltd. Hunter's Run Apartments
Grandland Realty Associates Tall Tree Apartments
Heritage Village Limited Partnership Heritage Village Apartments
Orlando-Lake Conway Limited Partnership Lake Conway Woods Apartments
Lakeland East Limited Partnership Lakeland East Apartments
Plantation Partners, Ltd. The Plantation
Martin Manor Realty Associates Martin Manor East Apartments
Cross Creek Limited Partnership Cross Creek Apartments
</TABLE>
-6-
<PAGE> 1
EXHIBIT 11, FORM 10-K
COMMISSION FILE NUMBER 000-26572
NHP INCORPORATED
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET INCOME (LOSS):
Income from continuing operations before
extraordinary items $ 31,613 $ 9,005 $ 8,528
Income (loss) from discontinued operations (1,963) 7,490 (12,965)
Extraordinary items (400) - 3,847
---------- ----------- -----------
Net income (loss) $ 29,250 $ 16,495 $ (590)
========== =========== ===========
ADJUSTMENTS TO COMMON SHARES OUTSTANDING:
Average number of shares of common stock 9,569,645 8,094,733 8,208,684
Primary adjustment:
Assume exercise of options 75,100 - -
---------- ----------- ------------
Total average number of common shares and
equivalents used for primary computation 9,644,745 8,094,733 8,208,684
========== =========== ============
Average number of shares of common stock 9,569,645 8,094,733 8,208,684
Fully diluted adjustment:
Assume exercise of options 197,815 - -
---------- ----------- ------------
Total average number of common shares and
equivalents used for fully diluted computation 9,767,460 8,094,733 8,208,684
========== =========== ============
INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share - primary:
Income from continuing operations before
extraordinary item $ 3.27 $ 1.11 $ 1.04
Income (loss) from discontinued operations (.20) .93 (1.58)
Extraordinary items (.04) - .47
---------- ----------- ------------
Net income per common share - primary $ 3.03 $ 2.04 $ (.07)
========== =========== ============
Net income (loss) per common share - fully diluted:
Income from continuing operations before
extraordinary item $ 3.24 $ 1.11 $ 1.04
Income (loss) from discontinued operations (.21) .93 (1.58)
Extraordinary items (.04) - .47
---------- ----------- ------------
Net income per common share - fully diluted $ 2.99 $ 2.04 $ (.07)
========== =========== ============
</TABLE>
<PAGE> 1
EXHIBIT 21 ANNUAL REPORT
FORM 10-K, COMMISSION FILE
NUMBER 000-26572
NHP INCORPORATED
SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiaries of NHP Place of Percent of
Incorporated (Parent and Registrant) Incorporation Voting Power
- ------------------------------------ ------------- ------------
<S> <C> <C>
NHP Management Company . . . . . . . . . . . . . . . . . . . . . . . . . . Washington, DC . . . . . 100
NHP Texas Management Company . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . 100
NHP Puerto Rico Management Company . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . 100
NHP-HG Six, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Virginia . . . . . . . . 100
Congress Management Company Limited Partnership . . . . . . . . . . Massachusetts . . . . . 100
Property Services Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . Washington, DC . . . . . 100
The Risk Specialist Group, Inc. . . . . . . . . . . . . . . . . . . . . . . Washington, DC . . . . . 100
NHP-HG II, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Virginia . . . . . . . . 100
NHP-HDV Three, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware . . . . . . . . 100
Rescorp Realty, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . Illinois . . . . . . . . 100
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995, AND THE RELATED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,996
<SECURITIES> 0
<RECEIVABLES> 17,169
<ALLOWANCES> 1,613
<INVENTORY> 0
<CURRENT-ASSETS> 27,745
<PP&E> 5,303
<DEPRECIATION> 1,780
<TOTAL-ASSETS> 84,770
<CURRENT-LIABILITIES> 19,455
<BONDS> 23,278
0
0
<COMMON> 123
<OTHER-SE> 39,031
<TOTAL-LIABILITY-AND-EQUITY> 84,770
<SALES> 0
<TOTAL-REVENUES> 174,674
<CGS> 0
<TOTAL-COSTS> 155,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,496
<INCOME-PRETAX> 13,811
<INCOME-TAX> (17,802)
<INCOME-CONTINUING> 31,613
<DISCONTINUED> (1,963)
<EXTRAORDINARY> (400)
<CHANGES> 0
<NET-INCOME> 29,250
<EPS-PRIMARY> 3.03
<EPS-DILUTED> 2.99
</TABLE>
